It has never been easier to do business in India!

Not only am I saying this! Not only Indian Prime Minister is saying this! The World Bank is saying this - based on solid data, analyzed painstakingly by leading economists.

Sustainable Development

This evening, while Indian news channels were busy discussing national anthem, love jihad, Article 370 etc., history was being made. I won’t like to trivialize the other matters. But most of the issues facing our country will be resolved with economic development. With economic progress, we can take hundreds of millions out of poverty, we can feed the hungry, treat the sick and teach the illiterate, we can provide jobs to the youth so that our demographic dividend does not turn into demographic disaster, we can take care of the environment...we can provide hope for a better future.

I will be wrong to say that history was being made during the last couple of hours while the outcome of the World Bank – Ease of Doing Business (EODB) Ranking was announced. Reforms are certainly inevitable in the long run. But they are inevitably painful in the short term and are always having a delayed impact. Precisely the reasons why a politician in a democratic country would not touch them – if he/she wants to get re-elected!

 But the present administration has shown the vision, courage, and resolve to take the bull by the horns.

Ease of Doing Business Ranking

This is an exercise undertaken by the World Bank every year since 2003. It is an enormous effort undertaken by 43 000 professionals – including some Nobel laureates – spread across 190 counties.   It is an objective report emphasizing the importance of regulatory aspects of business climate. It is assumed that ease of doing business will attract investments, improve productivity, reduce transaction cost, reduce corruption and in general improve the standard of living for everyone. It provides solid historical data which is comparable. It also provides what solutions have been applied by different countries – from which others can learn. The data is collected for 10 different categories which represent the life-cycle of a business – from Starting a Business until Resolving the Insolvency. What is called as 2018 Ranking, covers comparable 12 months data until 1st June 2017.

India’s 2018 Ranking

Over last six years, India’s ranking had stagnated between 142 and 130 amongst 190 peer countries. But the reforms of the last 2-3 years have started showing results.

Let’s start with areas of improvement first. Remember this is a relative ranking. India did reforms in eight out of 10 categories. But in two, the others reformed more than India. Thus India’s rank lowered in four for:

1.      Getting Electricity for business: India's rank deteriorated from 26 to 29.

This category, for example, goes into the micro-details of Time and Cost of obtaining electricity, procedure, the reliability of supply, and transparency of tariffs.

2.      Trading across Borders deteriorated by 3 from 143 to 146.

This covers time and cost of exports and time and costs of imports. India has been weak traditionally due to lack of infrastructure, bad systems and processes, and corruption.

Improvement in ports, roads, freight corridors are work-in-progress and take time to show the results. The number of import-export procedures and documentation have been reduced lately, but is yet to reflect in the ranking.

3.      Starting a Business: This ranking, disappointingly, slipped from 155 to 156.

In spite of a lot of simplifications introduced by the State Governments, the ground reality is not as rosy. Still, there are a number of agencies involved in approvals whose efforts need to converge, and processes need to be digitized.

4.      Registering a Property ranking slipped shockingly from 138 to 154.

Land acquisition and property registration have always been a challenge - not only for the private and industrial users but also for the Government – in infra projects.

A number of positive steps have been taken in these areas – whose results should be visible in the next year.

Indian ranking has improved in the following six areas:

1.      Construction Permit (Quality of Building Regulation): from 185 to 181

2.      Enforcing Contracts (Legal system and processes): from 172 to 164

3.      Protecting Small Investors (minority shareholders): from 13 to 4

4.      Getting Credit (Collateral Rules and Credit Information): from 44 to 29

5.      Resolving Insolvency (Insolvency framework): from 136 to 103

6.      Paying Taxes (Efforts in Compliance): from 172 to 119

Information technology has, once again, come to our rescue. Major jump has been taken due to the digitization of processes, and E-Governance in the areas of Getting Credit and Paying Taxes. Advances in Resolving Insolvency come from the rolling out of Bankruptcy and Insolvency Code.

Some features of Indian ranking this year

• World Bank acknowledged the efforts and mentioned that “India is one of the Top-10 improvers having implemented reforms in eight out of 10 categories.”
• In four of the 10 categories, India’s ranking is even under 30.
• India’s relative performance has been the best amongst BRICS nations. South Africa improved by eight ranks to 74, Brazil by two to 123, China stagnated at 78, while Russia dropped by five to 40.

Precautions about rushing to the conclusions

• Both major reforms – Demonetization and GST (Goods and Services Tax) are NOT covered in the ranking. Demonetization has been India-specific – so there is no comparison. If demonetization leads to a considerable digitization of currency and improves transparency, it can have a positive impact the next year. But if the informal economy chokes on lack of cash – the impact could be negative.
• GST was introduced on 1st July – after the ranking data-compilation was closed. It is supposed to have huge positive impact on the improvement of the Ease – provided we overcome the chaotic situation created presently in GST compliance.
• The ranking considers data from Mumbai and Delhi which could lead to wrong conclusions in case of lop-sided development. However, this is the case with every other large and/or populous country. Besides, it has consistently considered these cities for comparisons.

Looking ahead

• The Government feels emboldened in its resolve – especially at a time when a number of economic indicators were heading southwards during the previous quarter. Reforms will continue.
• Faith and patience! Hopefully, Indian population learns that there is always a lag between implementation of structural reforms and seeing the results. Structural reforms in a huge, populous, diverse, democracy like India are always complex. When three years ago the Prime Minister set a target of reaching the rank of 50 from 142– it looked impossible. But now, with courage, coordination, consistency, and perseverance it does look achievable.
• The ranking does indicate India’s resolve to transform herself – which sends positive signals to foreign investors. FDI (Foreign Direct Investments) should increase.
• But even more importantly, the domestic investment – which has not been picking up lately – should also get a boost. Coupled with the recently announced US$ 32 Billion injection to the public sector banks, and a healthy competition between the States for attracting investments, we should see a substantially positive effect on the economy over the next 2-3 years.

 (Source: World Bank)