A Gi­ant Leap:

In­dia's 23-spot jump in EoDB rank­ing re­flects the gov­ern­ment's com­mit­ment to re­forms. But the coun­try still has miles to go when it comes to do­ing busi­ness on the ground.

India Business Journal - - CONTENTS - IBJ BU­REAU

In­dia's 23-spot jump in EoDB rank­ing re­flects the gov­ern­ment's com­mit­ment to re­forms. But the coun­try still has miles to go when it comes to do­ing busi­ness on the ground.

In­dia's ease of do­ing busi­ness (EoDB) rank­ing just got a big boost. Last month, In­dia leapt 23 places to the 77th po­si­tion in the World Bank's EoDB rank­ing, pro­vid­ing a shot in the arm for the gov­ern­ment's re­form process. Big-ticket re­forms, such as the Goods and Ser­vices Tax (GST) and in­sol­vency frame­work, among oth­ers, helped the coun­try scale up its in­vestor-friendly im­age.

In­dia was ranked 142nd among 190 na­tions when Prime Min­is­ter Naren­dra Modi had taken charge in 2014. The coun­try was then bat­tling per­cep­tions of ex­cess red tape and pol­icy paral­y­sis. The sit­u­a­tion has changed a lot since then, with the re­form process gain­ing mo­men­tum.

The World Bank ranks 190 coun­tries in terms of EoDB, based on 10 pa­ram­e­ters, in­clud­ing start­ing a busi­ness, con­struc­tion per­mits, get­ting elec­tric­ity, get­ting credit, pay­ing taxes, trade across bor­ders, en­forc­ing con­tracts, re­solv­ing in­sol­vency, pro­tect­ing mi­nor­ity in­ter­ests and reg­is­ter­ing prop­erty. In the 2018 EoDB rank­ing, New Zealand topped the list, fol­lowed by Sin­ga­pore, Den­mark and Hong Kong. The US was placed in the 8th rank and China was ranked 46th, while neigh­bour­ing Pak­istan was in the 136th po­si­tion.

"In­dia's strong re­form agenda to im­prove the busi­ness cli­mate for small and medium en­ter­prises is bear­ing fruit. It is also re­flected in the gov­ern­ment's strong com­mit­ment to broaden the busi­ness re­forms agenda at the State and now even at the dis­trict level. Go­ing for­ward, a con­tin­u­a­tion of this ef­fort will help In­dia main­tain its goal of strong and sus­tained eco­nomic growth, and we look for­ward to record­ing these suc­cesses in the years ahead," notes World Bank Coun­try Di­rec­tor in In­dia Ju­naid Ah­mad.

Six out of 10

In the re­cent World Bank re­port ti­tled, Do­ing Busi­ness 2019, In­dia has done well in six of the 10 pa­ram­e­ters - start­ing a busi­ness, deal­ing with con­struc­tion per­mits, get­ting elec­tric­ity, get­ting credit, low­er­ing taxes and trad­ing across bor­ders - re­lat­ing to start­ing and do­ing busi­ness in a coun­try. The coun­try has made start­ing a busi­ness eas­ier by in­te­grat­ing mul­ti­ple ap­pli­ca­tion forms into a gen­eral in­cor­po­ra­tion form. As a re­sult, num­ber of days taken to start a busi­ness has dropped from 29.8 to 16.5 be­tween mid-2017 and mid-2018.

Like­wise, num­ber of days taken to ob­tain con­struc­tion per­mits has dropped from 143.8 to 94.8. This im­prove­ment has been pos­si­ble af­ter the coun­try stream­lined the process of ob­tain­ing a build­ing per­mit and made it faster and less ex­pen­sive to ob­tain a con­struc­tion per­mit.

In­dia has also re­duced time and cost of ex­port and im­port through var­i­ous ini­tia­tives, in­clud­ing im­ple­men­ta­tion of elec­tronic seal­ing of con­tain­ers, up­grad­ing of port in­fra­struc­ture and al­low­ing elec­tronic sub­mis­sion of sup­port­ing doc­u­ments with dig­i­tal sig­na­tures. With these mea­sures, bor­der com­pli­ance for ex­ports and im­ports has come down sub­stan­tially from 106.1 hours to 66.2 hours and from 264.5 hours to 96.7 hours re­spec­tively.

How­ever, there has been a set­back as far as pa­ram­e­ters of reg­is­ter­ing prop­erty and pay­ing taxes are con­cerned. In­ci­den­tally, this is the first EoDB rank­ing to cap­ture the GST im­pact. The GST has been hailed as a path-break­ing in­di­rect tax re­form that has ush­ered in a pro­gres­sive and uni­fied tax sys­tem in the coun­try. But it

is the glitches in the new tax regime that have pulled down the coun­try's per­for­mance in terms of pay­ing taxes.

Buoyed by the im­prove­ment in over­all EoDB rank­ing, Fi­nance Min­is­ter Arun Jait­ley has said that the coun­try can break into the top-50 slot soon by bring­ing about fur­ther re­forms. "A fo­cused ap­proach would en­sure that get­ting within the 50th rank tar­get is not out of reach. The ob­vi­ous ar­eas for im­prove­ment are reg­is­ter­ing prop­erty, start­ing a busi­ness, in­sol­vency, tax­a­tion and en­force­ment of con­tract," points out Mr Jait­ley.

Re­al­ity check

It is in­deed no mean feat that In­dia has moved up by 23 places in a year and 53 slots in two years in the EoDB rank­ing. More re­mark­ably, In­dia stands out among the top-five re­form­ers among 190 coun­tries, with its score up by 6.63 points to 67.23. Four other coun­tries whose score has jumped more are Afghanistan, Dji­bouti, China and Azer­bai­jan. This im­plies that an im­prove­ment in rank is based on In­dia's ab­so­lute per­for­mance and not on the un­der­per­for­mance of other coun­tries.

But it would rather be pre­ma­ture for In­dia to cel­e­brate the jump in the EoDB rank­ing for sev­eral rea­sons. First of all, the re­port is based on data surveys of busi­ness con­di­tions in only two cities of Delhi and Mum­bai. The busi­ness cli­mate in the two met­ro­pol­i­tan cities hardly re­flects the sit­u­a­tion in nu­mer­ous small cities and towns spread across the length and breadth of the coun­try.

More­over, the EoDB in­dex does not take qual­i­ta­tive fac­tors into con­sid­er­a­tion. The no­tion of sup­port­ive busi­ness en­vi­ron­ment can­not be seen in iso­la­tion of a coun­try's health and ed­u­ca­tion in­dices, its po­lit­i­cal cli­mate and ro­bust­ness of key in­sti­tu­tions. Oddly enough, In­dia's im­proved, do­ing-busi­ness rank­ing co­in­cides with an ex­tra­or­di­nary out­break of dis­cord within the coun­try's pre­mier in­ves­tiga­tive agency Cen­tral Bu­reau of In­ves­ti­ga­tion and be­tween the Cen­tre and the Re­serve Bank of In­dia. Be­sides, a gov­ern­ment that promised min­i­mum gov­ern­ment and max­i­mum gov­er­nance seems to evoke fear among sec­tions of in­dus­try.

There also seems to be a wide gap be­tween the gov­ern­ment's in­tent of eas­ing busi­ness cli­mate and bu­reau­cratic hur­dles on the ground. In fact, bu­reau­cratic red tape and is­sues in li­cens­ing pro­ce­dures are ram­pant across the spec­trum. The key prob­lem in deal­ing with the gov­ern­ment ma­chin­ery seems to be no ac­count­abil­ity nor a time­line fixed to ex­pe­dite the in­dus­try's de­mands. The mind­set of of­fi­cials has been to find tech­ni­cal or other rea­sons to block the in­dus­try's de­mands. Un­less this mind­set changes, there will be lit­tle change in do­ing busi­ness on the ground.

The gov­ern­ment has made all the right moves when it comes to re­forms. How­ever, the same mea­sures are not re­flected in im­ple­men­ta­tion of the re­forms. Rank­ings on pa­per can make head­lines for a day or two. But it is the busi­ness cli­mate on the ground that will ac­tu­ally mat­ter for in­dus­try and en­ter­prise to re­ally thrive. A changed mind­set in gov­ern­ment ma­chin­ery down to the last rung and ef­fi­cient ex­e­cu­tion of gov­ern­ment's probusi­ness mea­sures can re­ally make a dif­fer­ence rather than big jumps in EoDB rank­ing.

"In­dia's strong re­form agenda re­flects the gov­ern­ment's strong com­mit­ment to broaden the busi­ness re­forms agenda at the State and now even at the dis­trict level."

JU­NAID AH­MAD Coun­try Di­rec­tor in In­dia, World Bank

"A fo­cused ap­proach would en­sure that get­ting within the 50th rank tar­get is not out of reach. The ob­vi­ous ar­eas for im­prove­ment are reg­is­ter­ing prop­erty, in­sol­vency, tax­a­tion and en­force­ment of con­tract."ARUN JAIT­LEYUnion Fi­nance Min­is­ter

How In­dia's EoDB Com­po­nents Fare

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