The ‘Ease of Doing Business Index’ has been developed by the World Bank. It is an aggregate figure that includes ten different parameters which define the ease of doing business in a country. It is computed by aggregating the ‘distance to frontier’ scores of economies of 190 countries. The ‘distance to frontier’ score uses regulatory best practices for doing business as the parameter and benchmarks economies according to that parameter. It acts as a useful guideline for foreign investors and businessmen who want to start a business venture in our country. In India, the World Bank calculates the Index based on the data from Delhi and Mumbai as being representative of India as a whole.
Ease of doing business is the key to achieve the objectives of initiatives such as ’Make in India’, which will boost the manufacturing sector. In the World Bank report for 2019 released on 31st October, 2018, India has climbed 23 spots to reach the 77th position in Ease of Doing Business Index from 100th position last year. The 10 sub-indices, along with how India has improved its ranking on some sub-indices from last year are given below.
- Starting a Business: India’s rank is now 137th out of 190 nations considered for this index, as compared to 156th last year. India has made starting a business easier by fully integrating multiple application forms into a general incorporation form. Our nation has also replaced the Value Added Tax with the GST (Goods and Services Tax) for which the registration process is faster, although this was not considered by the World Bank, as the implementation was incomplete when the rankings were computed. Further, Mumbai (applicable to the whole state of Maharashtra) abolished the practice of site inspections for registering companies under the Shops and Establishments Act.
- Dealing with Construction Permits: India’s rank is now 52nd on this parameter, compared to 181st last year. The country last year has streamlined the process of obtaining a building permit and made it faster and less expensive to obtain a construction permit. It has also improved building quality control by introducing decennial liability insurance, which provides insurance coverage to the owner of a construction project for repair or replacement costs of any defects in the building for 10 years after the construction is completed.
- Getting an Electricity Connection: India’s rank is now 24th on this parameter as compared to 29th last year. Two reforms contributed to this. Firstly, the Delhi Electricity Regularly Commission reduced charges for the low voltage connections. Secondly, getting electricity was also made easier in Delhi through a reduction in the time for the utility to carry out the external connection works.
- Registering Property: India’s rank is a poor 166th on this parameter, in comparison to 154th rank earlier. To improve the ranking, digitising of land records all over the country, improving titling and streamlining procedures for transfer of property should be taken up.
- Getting Credit: India’s rank is now 22nd on this parameter, improved from 29th last year. It has improved the ranking by amending its insolvency law. Secured creditors are now given absolute priority over other claims in insolvency proceedings.
- Protecting Minority Investors: India’s rank is now 4th on this parameter, improved from 7th last year. It has improved the ranking by increasing the remedies available in case of prejudicial transactions between interested parties.
- Enforcing Contracts: India’s rank is poor 163rd on this parameter, in comparison to 164th rank earlier. The minor improvement on this parameter is due to the introduction of the National Judicial Data Grid, which makes it possible to generate case measurement reports on local courts. It will work as a monitoring tool to identify, manage and reduce pendency of cases.
- Resolving Insolvency: India’s rank is 103rd on this parameter, in comparison to 108th rank earlier. The minor improvement on this parameter is due to adoption of a new Insolvency and Bankruptcy Code (IBC) that introduced a reorganization procedure for corporate debtors and facilitated continuation of the debtor’s business during insolvency proceedings. However, its implementation has just started. It remains to be seen how effective this measure is.
- Trading across Borders: This parameter relates to imports and exports. India’s rank is 80th on this parameter, in comparison to 146th rank earlier. The significant improvement has been due to initiatives such as implementation of electronic sealing of containers, the upgrading of port infrastructure and allowing electronic submission of supporting documents with digital signatures.
- Paying Taxes: India’s rank is 121st on this parameter, in comparison to 119th rank earlier. India made paying taxes easier by introducing a set of administrative measures, thus easing compliance with corporate income tax. Although India has replaced many indirect taxes with a single indirect tax, the GST (for entire country), the effect of this has not been factored in by the World Bank determining this ranking because the GST implementation was continuously being modified during this period.
Thus India has been significant improvement on certain parameters only. A number of challenges still remain for further improvement in ranking. These include problems such as bureaucratic procedures (also known as ‘red tape’), the licence raj (i.e. getting permits and licences) and other policy and regulatory hurdles. Difficulty in ‘cutting’ the ‘red tape’ erodes the trust of investors and impedes the prospects of small businesses. In addition, the procedures to secure permits are rather cumbersome and involve permissions to be sought form many departments, which do not have coordination among themselves. Further, slow progress in land and labour reforms affects ‘starting of a business’ and ‘registering property’ parameters of the World Bank index. Another improvement fact is that the rankings consider only Mumbai and Delhi, which means the Centre and the states of Delhi and Maharashtra. Consideration of smaller cities (i.e. other states) will worsen the ranking.
The solutions to achieve a ranking within the first fifty nations, as desired by the Prime Minister, will be found by understanding the reasons for poor performance in some areas and taking action to improve the performance. For instance, India must reform the procedure for registering property. It should also sort out problems remaining in GST implementation, because it will be considered from next year onwards. In addition, enforcement of government policies must improve.
In conclusion, India needs to demonstrate not only the regulatory, governance and economic reforms to investors but also show economic stability, better law and order as well as quality physical infrastructure. Investors and entrepreneurs must understand what the rankings do not tell us. Thus, reforms done should not be restricted only to Mumbai and Delhi to improve the ranking on the World Bank index. The ground picture of the whole country, particularly the individual state laws and procedures, has to improve and enhance India’s image as a favoured destination for starting a business.