What India did right to rise up in World Bank Ease of Doing Business rankings

READ MORE

India may have lost the fastest growing economy status to China but ‘modinomics’ has helped India wrest the status of a faster improving economy from China, as far as the ease of doing business is concerned. In a 190 country race, India crossed a threshold by jumping 30 spots to reach the 100 rank in the latest Ease of Doing Business World Bank report 2018 compared to last year on Tuesday.

Annette Dixon World Bank Vice President South Asia announced World Bank’s stamp on the reforms initiated by Prime Minister Narendra Modi. She said, “India stands out this year as one of the 10 economies that improved the most in the areas. The lone country in South Asia and even the BRICS to do that.”

At a time when the opposition is chanting “PM Modi pushed the economy to a slowdown”, the World Bank report stating India’s Distance to Frontier score rising by a whopping 4.7 points compared to China’s 0.4 points will provide a defensive shield to the government.

The report gives some serious pats on India’s back. It says, “In South Asia, 20 reforms were implemented by six of the region’s eight economies. India carried out eight reforms, the highest number for the country in a single year. Fifteen years ago, it took over 50 days on average to start a business in the region, compared to 17 days now.”

The government reacted to the World Bank ranking with visible glee. Prime Minister Narendra Modi said the jump in India’s ranking in ‘ease of doing business due to “all-round multi-sectoral reform push was “historic”. Talking on Twitter he said, “The government is determined to further improve the rankings and scale greater economic growth with the mantra of ‘reform, perform and transform’.

Finance Minister Arun Jaitley held a press conference and said,” the report is a clear and big acknowledgement of the structural reforms that Modi government has been undertaking. For the last several years of the 189 countries – India was hovering around 130-140. In 2015, India was 142. Then the next two years the ranks were 131 and 130. In the last 3 years, the government has been making efforts to simplify procedures which led to improvements in many areas.”

When asked about the fact that the World Bank ranking system is based on samples in just two Indian cities – Mumbai and Delhi, Jaitley emphasised the significance of the ranking by saying that this is not a general exercise and that there are tough parameters under which assessment doesn’t move till impact on the ground was visible.

Significantly in the case of India, the biggest jump was recorded in the parameter of paying taxes. The movement in this case is 53 places. Interestingly, since the cut-off date for the study on ease of business was June 1, 2017, the launch of GST and its early progress is not part of the assessment. The government hopes that GST alone would drive India to better ranking next year.

Mr. Jaitley said,” There is significant capacity to improve our rank. Pm had said take India into first fifty. 122 reforms yet to be recognised by the World Bank. There are 19 more reforms in the pipeline which we think will significantly improve the business ecosystem.”

Importantly, the World Bank ranking system did not factor in the impact of demonetisation. Annette Dixon replying to India Today explained, “Important thing about Ease of Doing Business is that we are measuring things comparable across countries. So it’s the same parameters we look at. On time issues like demonetisation particular to India are not measured in this index. It sits out of this index. We see demonetisation in economic reports.”

In its annual ease of doing business rankings, New Zealand, Singapore and Denmark retained their first, second and third spots, respectively, followed by Republic of Korea; Hong Kong SAR, China; United States; United Kingdom; Norway; Georgia; and Sweden.

This year’s top 10 improvers, based on reforms undertaken, are Brunei Darussalam (for a second consecutive year); Thailand; Malawi; Kosovo; India; Uzbekistan; Zambia; Nigeria; Djibouti; and El Salvador. For the first time, the group of top 10 improvers includes economies of all income levels and sizes, with half being top improvers for the first time – El Salvador, India, Malawi, Nigeria, and Thailand.

What India did right?

The report enlists what India did right as far as reform moves are concerned to improve Ease of Doing Business.

Starting a business

The World Bank feels India’s digital drive is having an impact on starting a business. The online application system helped India’s ranking. Region specific solutions like merger of pleas for profession tax and value added tax in Mumbai and the merging of applications for PAN and Tax Account Number or TAN were seen as elements that cut short significantly the time taken to start a business. However, the report says that India made it more difficult by introducing a requirement to file a declaration before the commencement of business operations.

Insolvency reforms

The new insolvency law brought praise for India from the World Bank. The report outlines that the new insolvency and bankruptcy code that introduced a reorganisation procedure for corporate debtors and facilitated continuation of the debtor’s business during insolvency proceedings made insolvency resolution easier.

Simpler business incorporation

Another positive was the streamlining of business incorporation process by introduction of the SPICe Form (INC-32), which combined the application for the Permanent Account Number or PAN.

Access to credit

Improving access to credit was another plus. Clear grounds for relief to the automatic stay for secured creditors during reorganization procedures, changes in rules on priority of secured creditors outside reorganization proceedings and adopting a new insolvency and bankruptcy code are credible changes.

Measures to reduce NPA’s

The government may be on the verge of announcing new accountability rules for the banks in the public sector but its push over the last few years to thin down the non-performing assets was also applauded. “The establishment of debt recovery tribunals reduced non-performing loans by 28% and lowered interest rates on larger loans, suggesting that faster processing of debt recovery cases cut the cost of credit.

Construction permits issues

World Bank report says Small steps make big impact. Reduction in the slew of procedures and time taken to obtain a building permit due to the new online system which has streamlined the process at the Municipality level has also been factored in.

Minority investor’s protection

This is one parameter where India’s improve in ranking is among the best in the world. Following slew of reforms introduced by SEBI Protection mechanism for minority investors was improved through creation of increased remedies available in cases of prejudicial transactions.

Paying taxes

Easy to comply with corporate income tax regulations and other measures like payments to the Employees Provident Fund electronically have also helped India’s ranking.

Trading across borders

World Bank found increased use of mobile and electronic modes and end of merchant overtime fees has reduced time taken to comply with export and import regulations at ports.

Enforcing contracts

Enforcing contracts became easier after the introduction of the National Judicial Data Grid as this has allowed case management reports on local courts to be generated.

Interestingly India’s improving perception in ease of doing business has a huge federal element. Junaid Ahmed, India head of World Bank said,” India’s unique story has a federal spread. Means not just the centre but states too have created reforms. That’s the real reason behind 30 ranks move up.”

Responding to a query regarding India’s attempts to break into the Top 50 nations at a time when job creation remains a worry Annette Dixon said, “For reaching Top 50, a huge improvement is necessary. SME’s are Important for job creation. In India, we would like SME to be growing. 1 million people are joining job market each month and to tackle that India needs to strengthen its SMEs”

How India fared compared to last year: