Long way to go in ease of doing business

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PK Vasudeva
Prime Minister Narendra Modi had in 2015 set an ambitious target of improving India’s ranking on the World Bank’s ‘ease of doing business’ rankings to the 50th place by next year. Given that it has moved up only one spot this year, from 131 to 130, among 190 countries studied, it is a foregone conclusion now that India has failed to meet that target. This must have disheartened the Prime Minister.
On October 26, Modi had asked top Secretaries to analyse areas that needed more reforms and report within a month after the latest World Bank report maintained a near status quo on India’s ease of doing business.
Having accepted the target of being among the top 50 nations, it is too late to nitpick now, as the Union Ministry of Commerce has been reduced to doing, about the World Bank’s methodology in arriving at the rankings. Prime Minister Modi made the right move in setting up the target, but his Government has not done enough to achieve it. Some regulatory changes, such as the new insolvency code, will eventually improve India’s ranking by eliminating corruption.
But the key is to getting them to work on the ground as a country’s score is based on a survey of local professionals such as lawyers and accountants. For instance, in resolving insolvency, the recovery rate in India is just 26 cents on the dollar. India’s banks prove to be lethargic as the Pakistani counterpart’s recovery rate is 43 cents on the dollar, while Norway recovers 92.9 cents, proving to be virtually corruption-free.
India scores well in the protection of minority investors: The World Bank has measured 10 parameters to arrive at the ranking. Here is how India ranks in each of these: (a) starting a business (India at 155); (b) dealing with construction permits (183); (c) getting electricity (70); (d) registering property (138); (e) getting credit (42); (f) protecting minority investors (8); (g) paying taxes (157); (h) trading across borders (133); (i) enforcing contracts (178); and (j) resolving insolvency (136). As is evident, India’s ranking is the best in protecting minority investors.
Ease of doing business requires, apart from legislative changes, efficiency improvements across the bureaucracy and the judicial system.
The Government has said that reforms undertaken in the last year have not been factored into the report, but it is noteworthy that India is the only country for which the report has a box dedicated to ongoing economic reforms.
Clearly, Modi is not impressed with the results so far – among other things, the lack of labour law reforms has been flagged. Reforms should not just be about a dialogue between Government and big business; the interests of medium and small enterprises must also be factored in.
Large areas of the economy, such as agriculture, retail and education, remain untouched by significant reform. The last NDA Government made large strides in privatising loss-making public sector enterprises, but this regime has not been keen to emulate its predecessor. The Modi Government, therefore, must persevere and double up on its efforts in disinvestment.
It may have now become easier for Indian businesses to start a business, but their access to credit and ease of paying taxes has worsened, according to the World Bank’s Doing Business Report 2016.
The rankings for both the years are part of a revised methodology adopted by the bank. India improved its position on three counts: Starting a business, getting construction permits and accessing electricity, in the latest edition of the Ease of Doing Business Index, but saw its performance worsen with regard to two parameters, accessing credit and paying taxes.
In the areas that India’s performance has improved, the biggest improvement was under the head of ease of ‘access to electricity’, where it moved up 29 spots, to 70.
Another cause of concern was that the ‘getting credit’ ranking has slipped from 36 to 42. It implies that it has become more difficult to get credit in India despite the Government’s efforts at financial inclusion and pushing ease of credit delivery. It also slipped one spot in the criterion of ease of paying taxes.
India moved up nine spots in starting a business, to 155 in 2016 from 164 last year, and its ranking for dealing with construction permits also moved up one spot, to 183. In other segments such as protecting minority investors, registering property, trading across borders, enforcing contracts and resolving insolvency, India’s rankings remained the same as last year. However, in the area of protecting minority interests of shareholders, India is ranked at eight, its best ranking across all parameters.
The Modi Government has announced its plans to resolve bankruptcy issues and enforce contracts through legislations such as the bankruptcy law and the public contracts dispute resolution Bill – areas where it is languishing in the overall rankings. India is ranked 178th in the parameter of enforcing contracts and 136th on the parameter of resolving insolvency.
“In the past year, India eliminated the paid-in minimum capital requirement and streamlined the process for starting a business. More reforms are ongoing – in starting a business and other areas measured by Doing Business -though the full effects are yet to be felt”, the World Bank has said.
Expressing disappointment, New Delhi regretted that the report did not take into consideration 12 key reforms undertaken by the Government.When it comes to ‘distance to frontier’ – a measurement of the gap between an economy’s performance and the best practice score of 100 – India’s score has improved to 55.27 this year, from 53.93 last year.
The list of countries in the Doing Business 2017 is topped by New Zealand while Singapore is ranked second. It is followed by Denmark, Hong Kong, South Korea, Norway, the UK, the US, Sweden and Macedonia. Neighbouring Pakistan is ranked 144th in the list. On the basis of reforms undertaken, the top 10 improvers are Brunei, Kazakhstan, Kenya, Belarus, Indonesia, Serbia, Georgia, Pakistan, United Arab Emirates and Bahrain.
“What we have seen is a remarkable effort on the part of the Government to implement business reforms. It looks like we are going to have to wait for another year or so. But the direction of change is fundamentally a very significant one”, Global Indicators Group Director Augusto Lopez-Claros said.
(The writer is a retired senior professor in international trade)

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