What India’s jump in ease of biz rankings means for realty?
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.
speeded up – a clear action point for the coming year.
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. .
It is important to analyse how India will reach the top 50