What India’s jump in ease of biz rank­ings means for realty?

HT Estates - - FRONT PAGE - Shubhran­shu Pani ht­es­tates@hin­dus­tan­times.com The au­thor is Man­ag­ing Di­rec­tor ­ Strate­gic Con­sult­ing, In­fra­struc­ture & Smart Cities, JLL India

For all the right rea­sons, the World Bank’s Do­ing Busi­ness 2018 re­port was the toast of the coun­try, and the mar­kets re­acted with pos­i­tiv­ity. Now that the ini­tial eu­pho­ria has died down, it is ap­pro­pri­ate to delve deeper and look for po­ten­tial learn­ings in the re­port.

As a coun­try, we should an­a­lyze the WB re­port not only from the rank­ing per­spec­tive but also the DTF scor­ing point of view. DTF stands for ‘dis­tance from the fron­tier’ with scores rang­ing from 0- 100 ( where 100 is the strong­est or front-run­ner econ­omy). Also, to gauge the rul­ing Govern­ment’s per­for­mance since elec­tion, it is ap­pro­pri­ate to com­parether­ank­ing­sof2018and 2014. These three in­di­ca­tors re­veal a lot more than what has been dis­cussed so far.

This anal­y­sis does not at­tempt to down­play the progress made by the coun­try and the fact that India has com­menced in the di­rec­tion of the Govern­ment’s goal to at­tain a rank­ing un­der 50. How­ever, from point of view of se­ri­ous in­vestors and an­a­lysts, it is im­por­tant to try and fig­ure out how soon India will reach the top 50, and how other coun­tries are far­ing.

India has made good progress vis-à-vis ar­eas that still need im­prove­ments on the jour­ney of go­ing from the 100th to the 50th rank­ing na­tion. From the per­spec­tive of real es­tate, the five in­di­ca­tors that have a high im­pact on the sec­tor are reg­is­ter­ing a prop­erty, deal­ing with con­struc­tion per­mits, en­forc­ing con­tracts, and re­solv­ing in­sol­vency.

Deal­ing with con­struc­tion per­mits

erty for ex­pand­ing its busi­ness, use the prop­erty as col­lat­eral in tak­ing new loans - or, if nec­es­sary, sell the prop­erty to an­other busi­ness.

Prior to RERA be­com­ing a mar­ket force in 2017, in­for­ma­tion on projects, land ti­tle clear­ance deeds and developer li­a­bil­ity ex­isted some­where on pa­per (if ex­isted at all) and buy­ers had noac­cess to it. Nev­er­the­less, ver­i­fy­ing land ti­tle clear­ances and other as­pects of due dili­gence were the re­spon­si­bil­ity of the buyer, whowould­have­to­en­gage a con­sul­tant for such ver­i­fi­ca­tion. The full im­pact of RERA is still not vis­i­ble in the rank­ing for prop­erty reg­is­tra­tions This will only hap­pen­whenall­states have adopted RERA with­out tam­per­ing with the Cen­tral guide­lines by next year. Also, ini­tia­tives such as sin­gle-win­dow clear­ances and on­line reg­is­tra­tion fa­cil­i­ties should be strength­ened in or­der to make these pro­ce­dures less time-con­sumin­gand­cost-in­ten­sive.

On­line records of ti­tles, ti­tle in­sur­ance and ti­tle search and cer­ti­fi­ca­tion will be the real game-chang­ers which­could take India into the World Bank’s Top 50 al­most im­me­di­ately. Work has com­menced on dig­i­tal reg­is­tra­tion, dig­i­tal records and on­line search and cer­ti­fi­ca­tion, but ad­e­quate con­trols also need to be added at ev­ery stage.

En­forc­ing con­tracts

speeded up – a clear ac­tion point for the com­ing year.

Re­solv­ing in­sol­vency

The time, cost and out­come of in­sol­vency pro­ceed­ings in­volv­ing do­mes­tic en­ti­ties, as well as the strength of the le­gal frame­work ap­pli­ca­ble to ju­di­cial liq­ui­da­tion and re­or­ga­ni­za­tion pro­ceed­ings.

As the chart be­low in­di­cates, India’s track record with re­gards to in­sol­vency has been very poor, re­sult­ing in in­vestors’ re­luc­tance to in­volve them­selves fi­nan­cially. There is a large con­cen­tra­tion of stress in the lan­drich tex­tiles and metal man­u­fac­tur­ing in­dus­tries, and it re­mains to be seen whetherthe newIn­sol­vency and Bank­ruptcy Code will help un­lock land parcels in In­dian cities.

This does not mean that In­dian Govern­men­thas­not­done any­thing – these ranks are merely rel­a­tive per­for­mances as seen from a strong cor­re­la­tion be­tween ranks and DTF scores. It does mean­tha­tother coun­tries in Asia and Africa are pos­si­bly do­ing far bet­ter in terms of re­form­ing their real es­tate and man­u­fac­tur­ing com­pet­i­tive­ness when com­pared to India.

The re­port has ac­knowl­edged India’s ef­forts in terms of:

1. Sin­gle win­dow ap­proval sys­tem for build­ing plans

2. Stream­lin­ing busi­ness in­cor­po­ra­tion pro­cesses

3. Eas­ing tax com­pli­ance pro­ce­dures (via on­line fil­ing, con­sol­i­da­tion through GST, etc.) 4. Bank­ruptcy and in­sol­vency 5. Eas­ing ex­port-im­port border com­pli­ance pro­ce­dures

It also con­firms that af­ter es­tab­lish­ing debt re­cov­ery tri­bunals in India, non-per­form­ing loans have re­duced by 28%, lead­ing to a re­duc­tion in over­all in­ter­est rates.

The Do­ing Busi­ness in­di­ca­tors are now the ba­sis for un­der­tak­ing re­forms across many economies, in­clud­ing India, pro­vid­ing ready bench­marks or guid­ance val­ues.

There are still fac­tors which the World Bank could not ac­knowl­edge this year, pri­mar­ily be­cause of tim­ing of the re­port. Th­e­searefac­tors that can be seen as ‘low hang­ing fruit’, and a lot can be done this year to im­prove on them. .

GETTY IM­AGES

It is im­por­tant to an­a­lyse how India will reach the top 50

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