Expert Speak India Matters
Published on Nov 02, 2017

To hit Top 50, the government needs to step up its reforms process.

#DoingBusiness: The climb to Top 50 will be steep

India’s 30 point jump in the World Bank’s Ease of Doing Business 2018 report is nothing short of spectacular. Not only is it the highest-ever such rise in the history of Doing Business rankings, as World Bank Vice President for South Asia Annette Dixon noted, it comes at a scale unseen — from a $2.3 trillion economy of 1.3 billion people. The 10 economies improving the most in the 2018 report are Brunei Darussalam (rank: 56), Thailand (26), Malawi (110), Kosovo (40), India (100), Uzbekistan (74), Zambia (85), Nigeria (145), Djibouti (154) and El Salvador (73). To put these data in perspective, India’s GDP is 2.5 times the combined GDP of the other nine countries to have improved their Doing Business rankings the most. It is easy for smaller economies to manoeuvre their processes, not so for larger nations.

For India to stand in this list shows an underlying economic nimblefootedness that we have not been used to. While most reforms and processes are a work-in-progress, as one government hands power to the next in an economic continuum, the credit for this jump in rankings clearly goes to Prime Minister Narendra Modi’s government, which in the 2015 rankings (released in October 2014, about five months after Modi took charge) inherited a 2-point drop in rankings to 142, mainly because other nations performed better. From there, the rise to 100 has been slow — a 12-point rise to 130 in the 2016 rankings, staying put there in 2017 rankings — and now this 30-point rise to 100 in 2018 rankings (See Table 1).

Table 1: India’s Doing Business Rankings

< style="color: #ffffff">Doing Business Report < style="color: #ffffff">India's Rank
2015 142
2016 130
2017 130
2018 100
Source: Doing Business reports, World Bank

According to the report, there are eight reforms that have driven India’s rise in rankings. One, a single window system for approval of building plans. Two, streamlining the business incorporation process by introducing the SPICe form (INC-32), which combined the application for the permanent account number (PAN) and the tax account Number (TAN) into a single submission. Three, improving the online system that reduced the time needed to complete the applications for Employee’s Provident Fund Organisation (EPFO) and the Employee’s State Insurance Corporation (ESIC). Four, implementing the joint application for the Mumbai’s value added tax (VAT) and the profession tax (PT) by January 2017. Five, adopting the new insolvency and bankruptcy code that introduced a reorganisation procedure for corporate debtors. Six, reduction in border compliance time by improving infrastructure at the Nhava Sheva Port in Mumbai. Seven, abolishing merchant overtime fees due to which export and import border compliance costs fell in New Delhi and Mumbai. Eight, increased use of electronic and mobile platforms, since July 2016, under the Authorised Economic Operator (AEO) programme due to which exporters have been able to clear cargo faster through simplified customs procedures.

Clearly, these are not easy reforms to deliver, certainly not in three years, and we need to celebrate them. It is possibly for the first time that the Indian government has done the grunt work needed to support its grand ideas. So far, governments have been harping about why India is a good destination for foreign direct investment (FDI) in general terms. But to move from the powerful air-conditioned policy chambers of North Block, swept clean by tenured bureaucrats speaking in false business accents to their global counterparts, to the dust and grime of India’s entrepreneurs’ shopfloors takes some doing. And the Modi government, by focussing on the minute of these rankings, has firmly shown that it is serious about making India a place that attracts global capital.

Going deeper, we note that there are 10 parameters around which 190 countries are evaluated and ranked, to reach a final score and rank (See Table 2). Of them, India under Modi has made the maximum progress under ‘getting electricity’, where it rose 108 points to the 29th rank. The next big jumps came under ‘paying taxes’, which after falling in Doing Business 2017 rose sharply by 53 points to 119 rank. Nobody expected the gains of GST to be captured so soon in doing business reports — the earliest expectations were for 2019 report. The other big gain has come under the ‘resolving insolvency’ head, following the execution of the Insolvency and Bankruptcy Code, 2016. As far as Doing Business rankings go, India has always been on the forefront of ‘Protecting minority investors’; this parameter has further strengthened to rank 4 from 13 in the previous year.

There are three key areas of concern. One, ‘enforcing contracts’: with 1,445 days needed to enforce contracts (China takes 496), the cost of which is 31% of the claim (China: 16.2%), India is ranked 164, against China’s 5th rank in this category. Two, ‘starting a business’: ranked 156, it takes an entrepreneur 29.8 days (China: 22.9 days) to run through 11.5 procedures (China: 8). This is curious, given the focus on reducing it, by the Centre as well as the States, and in the age of digitisation should not take so much time. And three, ‘registering property’: if this simple act, which brings revenues to the municipal bodies, takes 53 days (China: 19.5), this is a systemic malfunction that brings India’s rank to 154. The last two — starting a business and registering a property — can be attributed to acute bureaucratic inefficiency or corruption or both and can be easily resolved to take India’s overall ranking a few notches higher.

Table 2: How India Ranks on Doing Business Parameters

< style="color: #ffffff">Parameter < style="color: #ffffff">2015 < style="color: #ffffff">2016 < style="color: #ffffff">2017 < style="color: #ffffff">2018
Starting a business 158 155 155 156
Dealing with construction permits 184 183 185 181
Getting electricity 137 70 26 29
Registering property 121 138 138 154
Getting credit 36 42 44 29
Protecting minority investors 7 8 13 4
Paying taxes 156 157 172 119
Trading across borders 126 178 143 146
Enforcing contracts 186 133 172 164
Resolving insolvency 137 136 136 103

We also need to evaluate India among its peers. When we do that, the rise in rankings becomes insignificant in the overall scheme of things. Compare the 19 G20 nations (the 20th entity is the European Union), and India ranks 17, just above Argentina and Brazil (See Table 3). At 100, it is 22 points below China (GDP: $11.2 trillion), 66 points below Japan ($4.9 trillion), 69 below France ($2.5 trillion), 83 below Canada ($1.5 trillion) and 96 below South Korea ($1.4 trillion). Among BRICS grouping, India stands 4th, just above Brazil. Finance Minister Arun Jaitley’s aspiration to hit Top 50 would have been laughable had it not been backed with the 30-point jump this year. But repeating this feat will not be easy, the slope among nations of equals will be steeper, given that they have history on their side. But if the government is audacious enough to make the attempt, and makes it through to the 2019 rankings, it would also have made history.

Table 3: Doing Business 2018 Rankings for G20 Nations

< style="color: #ffffff">Country < style="color: #ffffff">Rank
South Korea 4
US 6
UK 7
Australia 14
Canada 18
Germany 20
France 31
Japan 34
Russia 35
Italy 46
Mexico 49
Turkey 60
Indonesia 72
China 78
South Africa 82
Saudi Arabia 92
India 100
Argentina 117
Brazil 125
Source: Doing Business 2018, World Bank

To hit Top 50, the government needs to step up its reforms process. While the streamlining of GST will raise rankings further next year, there are two streams of execution that need to be focussed on. First, transforming the lower bureaucracy into an institution that facilitates rather than places hurdles before entrepreneurs at the central, state and city level. Registering property and starting a business would be fixed here. The GST rollout from 1 July 2017 could have contributed to a better ranking but the procedural problems — again, a bureaucratic mess — have increased the number of annual payments, which will definitely be more than the current 13; whether the time spend in paying taxes rises to more than 214 hours remains to be seen. And second, sensitise state governments to adopt the Mumbai-Delhi benchmarks and expand the footprint of doing business rankings and through it attract capital, domestic as well as foreign, to create jobs.

Next year’s Doing Business rankings will see India rise again. But to reach Top 50 is going to take some serious doing.

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Author

Gautam Chikermane

Gautam Chikermane

Gautam Chikermane is Vice President at Observer Research Foundation, New Delhi. His areas of research are grand strategy, economics, and foreign policy. He speaks to ...

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Editor

Guillermina French

Guillermina French

Guillermina French Fundacin Ambiente y Recursos Naturales (FARN)

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