India’s Doing Business rank takes another big leap

Huge improvement in resolving insolvencies, easier construction permits help India; rank better by 37 in 2 years

NEWDELHI:India ranked 63rd in the World Bank Doing Business (DB) 2020 rankings, a measure of how easy it is do business in the country. This is a 14-rank improvement over 77 in DB 2019. India ranked 100 in DB 2018.

India’s score has also improved, from 67.5 in DB 2019 to 71 in DB 2020.

“India’s impressive progression in the Doing Business rankings over the past few years is a tremendous achievement, especially for an economy that is as large and complex as India’s,” Junaid Ahmad, World Bank country director in India, said.

“Special focus given by the top leadership of the country, and the persistent efforts made to drive the business reforms agenda, not only at the central level but also at the state level, helped India make significant improvements,” he said.

Ministers, including finance minister Nirmala Sitharaman and law minister Ravi Shankar Prasad gave credit for the improvement to Prime Minister Narendra Modi’s bold reforms. Minister of commerce and industry and railways Piyush Goyal said in a tweet: “India has jumped from 77th to 63rd rank in the Ease of Doing Business Rankings released just now by the World Bank. Congratulations to PM@NarendraModi ji for the path breaking improvements in India’s business environment for nation’s prosperity and job creation.”

Petroleum minister Dharmendra Pradhan tweeted, “India’s further jump on World Bank Ease of Doing Business rankings is reflective of bold reforms undertaken by the government under the leadership of Hon. PM Shri @narendramodi. We have truly moved from red tape to red carpet!” Sitharaman said efforts will be made to further simplify Goods and Services Tax, and expressed hope that it will help in further improving India’s ranking in the World Bank’s ease of doing business index. “In GST, it is an ongoing process to understand where the difficulties are... We are also looking at what were the glitches in using online filing of returns. So, GST is an ongoing process in improving. Even now for the next meeting, as and when it happens, we want to make sure that several steps are taken to simplify compliance,” she said.

So, what’s worked for India and what hasn’t?

Since there are 10 parameters in the rankings, and all parameters (and sub-parameters within the parameters) have equal weightage, it is easy to pick the ones where India fares well, and the ones where it does not.

India’s move up the rankings was aided by significant improvements in “Dealing With Construction Permits”, “Trading Across Borders”, and a huge improvement in “Resolving Insolvencies”. On the last parameter, India’s score increased by 21.2 points. The recovery rate of 71.6 cents to the dollar compares with the Organisation for Economic Co-operation and Development’s (OECD) 70.2, as does the time of 1.6 years compared to the OECD’s 1.7. And it costs 9% (of the estate) as compared to 9.3% in OECD countries. But there are lots of parameters where India can improve — PM Modi has talked of improving India’s position in the ranking to within the top 50. India still ranks at 136 in “Starting a Business”; 154 in “Registering Property”; 115 in ‘Paying Taxes” and 163 in “Enforcing Contracts”. Apart from these, the only others on which it ranks lower than its overall rank is “Trading across Borders” (68).

It still takes 10 procedures to start a business in India (according to the report) as compared to 7.1 in South Asia and 4.9 in OECD countries (the numbers in other regions is an average because, obviously, there cannot be fractional procedures). And it takes

18 days to do so, compared to 14.5 and 9.2. India has made only a marginal improvement in scores on this parameter — from 81 in DB 2019 to 81.6 in DB 2020. Registering properties also appears to be difficult. It takes nine procedures and 68 days to do this in India as compared to 4.7 and 23.6 in OECD countries. To be sure, it takes 6.9 procedures and 107.8 days to do so across South Asia.

These numbers (in this and all other parameters) refer to Mumbai. Delhi (the only other cities for which sub-parameters are available) doesn’t fare particularly

better — nine procedures and 49 days. India’s score has fallen marginally on this parameter — from 47.9 in DB 2019 to 47.6 in DB 2020. On the tax front, India will definitely register a huge improvement next year (DB 2021) because of the cut in corporate taxes.

According to DB 2020, though, a business taxpayer makes 12 tax payments a year and spends 254 hours a year doing so. South Asia is actually worse (26.7 payments and 273.5 hours). The total tax contribution rate (direct and indirect) is 49.7% of profit in India compared to 43.9 in South Asia.