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Ease of doing business in India: Myth or Reality

Ease of doing business in India: Myth or Reality

What does it mean?

Ease of Doing Business Index, is a benchmarking exercise conducted by World Bank every year, to access the regulatory and business process related scenario in a country

This exercise aims at quantitatively measuring the hurdles that small- and medium-sized firms encounter. Started in 2002, this annual exercise, conducted for 190 countries all over the world has become one of the important indicators to look for a country’s investment scenario.

In its latest report released in Oct 2017, India witnessed a jump in its ranking, moving up 30 ranks to 100th position, up from 130th last year. New Zealand has topped theEase of Doing Business rankings, followed by Singapore for two consecutive years in 2017 and 2018.

Methodology

A questionnaire based survey is conducted in 190 countries, based on below mentioned indicators:

  • Starting a business – Procedures, time, cost and minimum capital to open a new business
  • Dealing with construction permits – Procedures, time and cost to build a warehouse
  • Getting electricity – procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
  • Registering property – Procedures, time and cost to register commercial real estate
  • Getting credit – Strength of legal rights index, depth of credit information index
  • Protecting investors – Indices on the extent of disclosure, extent of director liability and ease of shareholder suits
  • Paying taxes – Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit
  • Trading across borders – Number of documents, cost and time necessary to export and import
  • Enforcing contracts– Procedures, time and cost to enforce a debt contract
  • Resolving insolvency – The time, cost and recovery rate (%) under bankruptcy proceeding


Why it is important for India

The improvement in rating is a booster for stock markets. It improvises the country’s image on international forum and presents us as an economy trending on a progressive curve, thus projecting India as a preferred investment hub. Internally also, it restores faith in government policies, which is a pre-requisite for a stable economic and social environment more important at a time when initiatives like demonetization and GST are having transient disruptive impact on economy.

For India, growth is visible in important areas such as paying taxes (to 118 from 172 last year), getting credit (to 29 from 44) and bankruptcy proceedings (to 103 from 136). Of the 10 indicators considered, India has improved on eight, including the ones mentioned above, which has helped the overall rankings to go up by 30 notches.

The other side of it

Rankings are indicative in nature and present a partial picture of the real scenario. This exercise is meant to check the red tape scenario and doesn’t take into macroeconomic conditions or growth prospects of the economy. In this case also the impact of demonetization and GST related disruption in economy is not factored in ratings which had a major hit on the country’s micro, small and medium enterprises.

India has underperformed on indicators like starting business (the ranking has slipped to 156 from 155 last year), trading across borders (down to 146 from 143 in the last year), which needs to be paid immediate attention for success of government initiatives like start-up India, Make-in-India and improvising the ground situation.

The stagnant development for land and labour laws, prevalent corruption, trade policies and political nexus is holding the economy back from realizing its potential. With difficulty and delay in area of property registration, labour acquisition, contract enforcement etc, doing business is difficult for small enterprises rather which are the backbone of any developing economy.

Summing Up

Indeed, the booster jump in India’s position in the World Bank Ranking is an assuring support for economy which is facing impacts of changing regulations and policies. However, to make India a global manufacturing hub a lot remains to be done in terms of ground reality check and penetration of policies/ initiatives deep into the economy.

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