EDEN IAS CURRENT AFFAIRS – A SUBSTANTIAL JUMP IN EASE OF DOING BUSINESS

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EDEN IAS CURRENT AFFAIRS – A SUBSTANTIAL JUMP IN EASE OF DOING BUSINESS

Introduction

India’s rank in the World Bank’s Ease of Doing Business 2019 survey climbed 23 places to 77 among 190 countries surveyed, making it the only country to rank among the top 10 improvers for the second consecutive year. The sharp rise in the ranking will burnish the reformist credentials of the National Democratic Alliance (NDA) Government.

Last year, India saw a record jump of 30 places to reach the 100th position in the rankings. In more than four years of the NDA, India’s ranking improved 65 places from 142nd in 2014 to 77th in 2018, a record for a major economy.

 

Rankings & Ease of Doing Business Score

Economies are ranked on their ease of doing business, from 1–190. A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm. The rankings are determined by sorting the aggregate scores on 10 topics, each consisting of several indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to May 2018.

India has been adjudged the fifth-best performing nation in reforming the business environment. The country improved its rankings in six of the 10 sub-categories used by the World Bank to judge business climate. It had delivered a similar performance last year.

Interestingly, India’s ranking actually took a beating in two categories where landmark government reforms were expected to lead to better results. In ‘Paying Taxes’, India actually saw its rank slip two notches to 121, despite the implementation of the Goods and Services Tax. The World Bank praised India for merging taxes and significantly revising the tax code, but it didn’t lead to a better ranking.

The implementation of the Insolvency and Bankruptcy Code (IBC) could not save India from shedding five positions in ‘Resolving insolvency’, to 108. Estimates by the Department of Industrial Policy and Promotion (DIPP) suggest that creditors working through the IBC have realised almost 59 per cent of claims.

However, a recent report by Debtwire Asia has pointed out that on average, it took 275 days to approve a resolution plan from the time the corporate debtor was admitted under the Corporate Insolvency Resolution Process of the IBC. The government’s estimate is 233 days.

 

Major jump in ease of foreign trade, construction permits

However, in ‘Trading across borders’, India surged 66 places to come in at the 80th spot. DIPP Officials attributed this to the implementation of a risk management system at ports that waives inspection requirement for 80 per cent of products. “Also, the E-Sanchit mobile app makes e-payment of customs documents possible as well, as a number of major seaports that have been made operational 24×7 have been considered by the World Bank” he added.

 

Among categories, the country had the best performance in ‘Dealing with Construction Permits’ where it jumped by a massive 129 places to become the 52nd easiest place to construct a business unit. Improved transparency and streamlined procedures were behind India cleaning up its notoriously corrupt land sector and the financial transactions that come with it.

The report, covering all policy reforms undertaken by the government till May 1 of this year, ranked India top among the South Asian nations. There was an improvement in the country’s ‘ease of doing business score’, which indicates the extent to which a country’s regulatory practices are in sync with global best practices.

India also remained among the top-30 nations in the same three categories as last year — getting electricity, securing credit and protecting minority investors. However, the World Bank noted that the country needed to do more in areas such as enforcing contracts, registering property and the most fundamental of them all — ease of starting a business.

The latest report by the Washington DC-based multilateral agency encompasses 128 economies, implementing 314 specific business reforms over the past year. This surpassed the previous all-time high of 290 reforms two years ago.

India is among 11 major economies for which the World Bank took into account two specific metropolitan areas, in this case, Delhi and Mumbai.

 

 

What will be the outcome of this Ease of Doing Business Index report?

  • It is significant for countries like India, where foreign investorsand Governments look at the investor friendly measures and this index is considered to be the one which reflects the ground reality.
  • In today’s capitalistic society (market economy with safeguards for vulnerable sections), this assumes significance as FDI flowsare considered necessary for growth of emerging economies.
  • Multilateral lending institutionslike World Bank, IMF look at these parameters and suggest measures for improvement before giving financial help to the emerging economies/under developed countries.
  • Simplifying FDI processby abolishing FIPB (Foreign Investment Promotion Board) as a result, more than 90% of FDI inflows are now through automatic route.

 

However, the report does not truly represent the status of economic reforms taken by India. For instance:

  • One particular change in the ranking methodologyseems to have done considerable damage to India’s improvement prospects.
  • India ranks fourth from the bottom under the header “paying taxes”. Inclusion of new criterion ‘post-filing index’has much to contribute to this.

 

  • The rankings cover only the two cities of Delhi and Mumbai. However, the reforms are being carried on all across India. In fact, states like Andhra Pradesh, Telangana have done remarkable efforts in economic reforms.

 

There is increasing competition from other countries who are trying to improve their rankings as well.

India has recommended the World Bank that reforms undertaken in the entire country and not just in Delhi and Mumbai be considered for the “Ease of Doing Business” Index.

 

Conclusion

The Doing Business 2019 report bases the rankings on field surveys and interviews with corporate lawyers and company executives in Delhi and Mumbai. India is seeking to reach the 30th position by 2020, according to an output-outcome framework document prepared by the government.

India saw a massive jump in the parameter “dealing with construction permits” to 52th position from 181st a year ago by reducing time for processing permit applications, streamlining procedures, and improving transparency among other measures.

“By implementing the single-window clearance system in Delhi and the online building permit approval system in Mumbai during the second half of 2017, India also continued to streamline and centralize its construction permitting process,” the report said.

India saw a similar improvement in the “trading across borders” section to 80th position from 146th a year ago. This improvement was made possible by reducing the time and cost to export and import through various initiatives, including the implementation of electronic sealing of containers, upgrading of port infrastructure and allowing electronic submission of supporting documents with digital signatures under its National Trade Facilitation Action Plan 2017-2020.

While vigilance is the call of the hour, we should also recognize that a improved in ranking is not an end in and of itself. For attracting new investment, both foreign and domestic, several macroeconomic issues have to be addressed. These include political and economic stability, law and order maintenance, quality physical infrastructure, and buoyancy in financial markets. Major institutional and governance reforms not covered in the World Bank study remain prerequisites for new businesses to start and grow.

 

India may have the advantage of a large domestic market, and our efforts to improve our ease of doing business rankings may be finally yielding results, but there is still a lot of work ahead.

 

 

 

 

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