India rises to 63rd rank in Ease of Doing Business – Ranks vs Realities

Last Updated at: December 03, 2019
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India rises up to 63rd Rank in Ease of Doing Business - Ranks vs Realities

In a remarkable journey of progress, amidst an economic slowdown, India recorded a massive leap of fourteen places to finish sixty-third in the Ease of Doing Business rankings 2019 published by the World Bank last month. A positive record has been witnessed in many areas of core evaluation in the ease of doing business rankings, with sustained business reforms largely contributing to the boost in India’s rank. In this post, we compare India’s position against its past performance as well as against international players, while also highlighting the economic and practical ramifications of the ranking.

What is the World Bank’s criteria for ranking in the Ease of Doing Business Index?

  • The World Bank monitors the performance of each of the 190 countries involved in the index survey through a 12 month period. The key assessment factor is the usage of ‘Distance to Frontier’ parameter which is a score that highlights the gap of an economy to the global best practice.
  • There are ten areas of survey in the index – 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.
  • Each country is scored and also ranked against the distance to frontier score, between 0-100 score. This helps measure any given country’s performance with respect to the best practice across the entire set of countries participating in the index. A score of zero signifies worst regulatory performance and 100, the best.

Areas that recorded the best improvement in India

  • The World Bank notes India as one of the top 10 improvers for the third consecutive year. In the 2017 rankings, India stood a dismal130th. In the very next year, 2018 – we ranked 100th and in the 2019 rankings published last year, India had finished at the 77th spot. While India’s ranking in South Asia was sixth in the year 2014, we currently stand first among all South Asian economies.
  • The improvement is largely on account of better and improved insolvency proceeding (post passing of the Insolvency and Bankruptcy Code, 2016 and the amendments that have followed) which reduced the average time taken for insolvency proceeding culmination to 1.6 years.
  • Mumbai’s streamlining of obtaining building permits has made it faster and less expensive to get a construction permit.
  • Reduction in corporate tax rates after the budget 2019-20
  • Simplified sanctioning of loans
  • Electronic toll payments and the compulsory introduction of FASTags on National Highways
  • Enhanced technology-based governance such as digital mapping of land holdings and National Judicial Data Grid
  • Access to private players in Defence Production Policy 2018 for domestic production
  • Improvements across various sectors in outward and inward foreign investment norms have also contributed to the improved rankings.

Contrasting performance with the world’s best-ranking nations

New Zealand which has consistently stood first in the ranking since 2017 has the highest scores in most parameters. It ranks first in starting a business and obtaining credit, largely due to its simplified policies such as no minimum capital requirement, online applications for permits, GDT etc. China also gained ranks by allowing transparency in electricity tariffs, special preferential corporate tax rates for small companies, upgrading port infrastructure, optimising customs administration, and limiting the number of maximum adjournments.

Are the rankings truly reflective of India’s business scenario?

Ignores non-metro cities – Many critics argue that the rankings do not adequately represent the true picture of doing business in India, largely because of its survey being limited to just two premier cities of Delhi and Mumbai. Hence, manufacturers, service providers and businesses located in other cities and backward regions of many states do not get the same access to electricity, logistics, credit, construction permits or registration of property.

MSMEs not benefited by the rankings – Better ranks in the Ease of Doing Business are not reflected in the growth of MSMEs because – the ranking includes 41 indicators across ten categories but MSMEs meet with more than 58,000 compliances, 3,000 filings and 2,500 updates yearly. MSMEs are largely run by single entrepreneurs, and they bear disproportionate compliance and legal burden, compared to large companies. Handling the existing paperwork and staying updated with frequent legal changes drains their productivity and curbs their capacity to grow. MSMEs also face working capital strains, delayed payment from big buyers and additional compliance in the form of a half-yearly return on outstanding dues to micro and small enterprises.

Highest cost and time amongst OECD countries – India still lags in areas like enforcing contracts and registering property. With the multiplicity of state and central laws governing stamp duty, registration fee and ambiguities in fixation of government rates for properties, it takes 58 days and costs on average 7.8 per cent of a property’s value to register it, longer and at a greater cost than among OECD high-income economies.

Meeting the target of an under 50 rank by 2020

While there have been many policies in the last few months – reduction in corporate tax rates, disinvestment of government stake in key enterprises such as BPCL and CONCOR, privatisation in railways etc, there is a need to focus on the micro-policies of enforcement. Top-down macro reforms can only be effective if they are intertwined with bottom-up micro reforms. Unless the day-to-day experience of doing business improves not just in industrially forward states like Maharashtra and Andhra Pradesh, but businesses in towns and cities in relatively backward states improves, we will continue to underperform relative to our true and fullest potential.

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    Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.