Business

Reforms worked : India has jumped 30 places to rank 100th in the World Bank’s ‘ease of doing business’ ranking

India has jumped 30 places to rank 100th in the World Bank’s ‘ease of doing business’ ranking, helped by a slew of reforms in taxation, licensing, investor protection and bankruptcy resolution.

The CEO of World Bank Kristalina Georgieva lauded India, saying its jump of 30 places in World Bank’s ease of doing business report is very rare. In reforms what pays off is persistence,  what we are seeing is extraordinary achievement by India, she added.

Choropleth map of the World Bank’s Doing Business index from “Doing Business 2017”

Prime Minister Narendra Modi on Saturday promised to undertake more reforms leveraging the pace built up by India’s higher ranking in World Bank’s latest ease of doing business survey to realise the nation’s economic and social development, which he said was his sole purpose in life.

“I am confident that with continuous efforts, we can improve further. After the ranking improved to 100 from 142 (in the survey published in 2014) I am not able to sleep. I wish to do more…I have one life and one mission,” Modi said. Ease of doing business will lead to ease of life too, he said.

The prime minister assured that while the ease of doing business further improves, the government is also committed to reducing the cost of doing business for micro, small and medium enterprises (MSMEs), a sector that accounts for a large number of jobs. According to data available from the ministry of micro, small and medium enterprises, there are about 56 million MSMEs accounting for about 110 million jobs in the country.

Modi said that India has reached a position in ease of doing business from where further improvement is easier. “In management terms, we have achieved critical mass for a swift take off,” said the prime minister.

In the forthcoming meeting of the goods and services tax (GST) Council on 10 November, the federal indirect tax body will take further steps with the support of state governments to strengthen the economy and the financial system, Modi said. All the concerns raised by small businesses and traders in the new indirect tax regime are being addressed.

About doing Business ranking –

The Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level.

The Doing Business project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle.

Doing Business captures several important dimensions of the regulatory environment as it applies to local firms. It provides quantitative indicators on regulation for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

Doing Business also measures features of labor market regulation. Although Doing Business does not present rankings of economies on the labor market regulation indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business, it does present the data for these indicators. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages economies to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each economy.

In addition, Doing Business offers detailed subnational reports, which exhaustively cover business regulation and reform in di erent cities and regions within a nation. These reports provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas. Selected cities can compare their business regulations with other cities in the economy or region and with the 190 economies that Doing Business has ranked.

A nation’s ranking on the index is based on the average of 10 subindices:

Starting a business – Procedures, time, cost and minimum capital to open a new business
Dealing with construction permits – Procedures, time and cost to build a warehouse
Getting electricity – procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
Registering property – Procedures, time and cost to register commercial real estate
Getting credit – Strength of legal rights index, depth of credit information index
Protecting investors – Indices on the extent of disclosure, extent of director liability and ease of shareholder suits
Paying taxes – Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit
Trading across borders – Number of documents, cost and time necessary to export and import
Enforcing contracts – Procedures, time and cost to enforce a debt contract
Resolving insolvency – The time, cost and recovery rate (%) under bankruptcy proceeding


This improvement in rankings reflects certain important areas such as paying taxes (to 119 from 172 last year), getting credit (to 29 from 44) and bankruptcy proceedings (to 103 from 136). Of the 10 indicators considered, India has improved on eight, including the ones mentioned above. This has helped the overall rankings to go up by 30 notches.

The overall jump in rankings would thrill the stock markets for sure and put India in the spotlight in international economic discussion forums. India will be seen as a nation consistently progressing on structural reforms and the Modi government’s efforts to progress on the reform-path will be lauded.

Since it came to power in May 2014, the Modi government has executed a promising plan of action to bring in structural reforms. These are evident in the areas of subsidy reforms (through JAM trinity), stressed assets resolution in the banking sector (IBC), indirect tax reforms (GST), ease of doing business (online registrations and simpler processes).

The government deserves credit where it is due. Hence, if India has jumped 30 ranks up in the World bank list, a good part of the credit goes to Modi and his team. The World Bank has taken note of the coordinated mission mode of the Modi government. “There have been implementation efforts not only at the Centre level but also at state levels, and strong coordination between the ministries,” it said.

The other side

Rankings are, however, only indicators — sometime misleading. The ground reality is different from what they indicate. It hasn’t factored in demonetisation impact on businesses and GST-related disruptions. Even in the case of the World Bank ranking pattern, there are important areas of concern that need to be discussed and debated. A closer look at the individual segment rankings also show that improvement in certain other critical areas is not up to expectations.

For instance, when it comes to starting business, the ranking has slipped by one notch to 156 from 155 last year and trading across borders to 146 from 143 in the last year. India has also underperformed in the areas of registration of properties and enforcing of contracts. Despite all efforts to make doing business easy, why is it still difficult to start a new business and why is acquiring labour and securing permissions continuing concern for new investors? Also, why is it that private investment remains at record lows despite all this perceived improvement in the environment to do business?

Perhaps, the answer lies in the notably slow progress in areas such as land and labour reforms. Unless these are addressed, ground-level situation for businesses won’t change. These problems are felt more by small entrepreneurs rather than deep-pocketed politically connected big corporations.

Ease of doing business: Ranking improves confidence but risk remains, says DBS report

India’s improvement in the ranking in ease of doing business, may be a confidence booster, but risks from both within and outside the economy continue to add challenge to the growth prospects, warns a report by DBS.

Earlier in the week, India’s ranking in the World Bank’s Ease of doing business rank jumped by 30 notches to 100 in this year’s review. “This jump is an endorsement of the government’s ongoing reform agenda” said Radhika Rao, India economist at Singapore based DBS, in a report.

“ It is a confidence boost for foreign investors who have already invested in India, with foreign direct investment (FDI) reaching a record high in FY17 and strong year to date year to date in FY’18” said the DBS research report. “Since the survey is more focused on reforms introduced rather than its effective execution and/ net improvement on the ground, it might be premature to assume that a high rank will necessarily alter investment or growth prospects”

 

 

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