Insights into Editorial: Good report card: On ease of doing business
Context:
World Bank’s ease of doing business ranking released. 10 top improvers are Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, India, and Nigeria.
India bagged 63rd position this time (2019) out of 190 countries marking an improvement of 14 places from its 77th in 2018.
India for the third consecutive year was present in the list of 10 economies where business climates had improved the most. India’s score improved from 67.23 (2019) to 71.0 (2020).
About Ease of Doing Business Report:
Ease of Doing Business is an annual survey published by World Bank.
The report was introduced in 2003 to provide an assessment of objective measures of business regulations and their enforcement across 190 economies on ten parameters affecting a business through its life cycle.
The report measures the performance of countries across 10 different parameters namely-
Starting a Business, Dealing with Construction permits, Electricity availability, Property registration, Credit availability, Protecting minority Investors,
Paying Taxes, Trading across borders, Contracts enforcement, and Resolving Insolvency.
This time 11th parameter viz. employing workers was measured but was not factored into the score.
It ranks countries on the basis of Distance to Frontier (DTF) score that highlights the gap of an economy with respect to the global best practice.
For example, a score of 75 means an economy was 25 percentage points away from the frontier constructed from the best performances across all economies and across time.
India’s performance in recent years:
The Doing Business assessment provides objective measures of business regulations and their enforcement across 190 economies on ten parameters affecting a business through its life cycle.
- For an economy starved of good news, the news of a rise in India’s ranking by 14 places to 63 in the World Bank’s Ease of Doing Business 2020 survey is a positive development.
- From being ranked 142 in 2014 to 63 in 2020, it has been a significant upward journey for the country in a rank list that is an important input in the plans of global investors.
- The latest improvement has come on the back of the implementation of the Insolvency and Bankruptcy Code (IBC).
- India’s rank has improved from 108 to 52 in the “resolving insolvency” category with the overall recovery rate for lenders moving up from 26.5 cents to 71.6 cents to the dollar according to the World Bank.
- This is despite the IBC process being bogged down in courts as interested parties attempt to delay eventual resolution that may work against their interests.
- The reforms in trade procedures and paperwork as a result of India signing the Trade Facilitation Agreement at the World Trade Organisation are beginning to show.
- The country’s ranking in the “Trading across borders” category jumped 12 places from 80 to 68 signifying the abatement of paperwork in favour of electronic filing of documents and single-window customs procedures.
- Interestingly, there has been improvement in a parameter that most industrialists would consider as a problem even now: “Dealing with construction permits”. The country’s ranking has improved by 25 places from 52 to 27.
Other side of the coin that need to be addressed: Areas that need Improvements:
While the improvements are impressive and the rise in overall rankings in the last few years is noteworthy, the fact is that India is still below its competitors for global capital, particularly China, which at rank 31 is one level above France.
The country lags in key metrics such as “Starting a business’, “Enforcing contracts” and “Registering property”.
It should also be borne in mind that the rankings are based on samples and audits done in Mumbai and Delhi only (the World Bank has said it would be covering Bengaluru and Kolkata too from next year).
Starting, running or shutting down a business may be easier in Delhi and Mumbai compared to Coimbatore or Hyderabad where it is probably more difficult.
Admittedly, it is not easy to streamline processes across the country given India’s federal set up where States have a big say in several parameters that go into the ranking such as securing building permits, land approvals, electricity connections, registering assets etc.
India still lags in areas such as enforcing contracts (163rd) and registering property (154th).
It takes 1,445 days for a company to resolve a commercial dispute through a local first-instance court, almost three times the average time in OECD high-income economies.
Conclusion:
Improvement have taken place due to the commitment of the Government to carry out comprehensive and complex reforms, supported by the bureaucracy which has changed its mindset from a regulator to a facilitator.
However, the rankings do not capture the real cost of doing business in the countries with large unorganized sectors (such as India), and the cost of production are different from larger formal companies.
The index fails at measuring the difficulties businesses face in terms of raising liquidity, controls on internal trade, skilling/employability issues, etc.
To come under 25 or below 50, the government needs to announce and start implementing next set of ambitious reforms now, as these reforms takes a few years to be realized on the ground.
