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Rediff.com  » Business » Ease of Doing Business: How REAL is India's ranking?

Ease of Doing Business: How REAL is India's ranking?

November 09, 2018 15:49 IST

For the second year in a row, India has been recognised as the fifth-best performing nation in reforming the business environment.
However, in the two categories that the government was banking on most -  “Paying Taxes” and “Resolving Insolvency” - landmark reforms that were expected to yield better results have had the opposite effect.
Under the circumstances should the country celebrate already or are there any reasons for worry, wonders Subhayan Chakraborty.

Illustration: Uttam Ghosh/Rediff.com

India has improved its ranking significantly in the latest Ease of Doing Business ranking by the World Bank.

Here is all you wanted to know about Ease of Doing Business.

What is the Ease of Doing Business Index?

Brought out by the Washington DC based World Bank, the Ease of Doing Business Index measures the levels of business regulation in 190 economies, covering almost the entire globe.

 

It does this exercise by assessing the business climate in 10 broad categories that are integral to starting, sustaining and winding down a business.

Nations are then ranked based on how well they implemented 314 specific business reforms.

Why are policy makers so concerned with India’s rank?

The Index is considered a barometer of how easy it is to conduct private business in a country, thereby also proving to be a reliable indicator of how much red tapism, cost burden and overall entrepreneurial mobility is present in an economy.

For India, a good rank translates into better chance for securing foreign investments as global investors have turned to the Index to decide their plans.

The government claims that northbound foreign direct investment figures are directly proportional to India’s rank improving in the Index.

Where does India stand in the Index?

India was adjudged as an economy with the 77th easiest business environment in the latest rankings released recently.

The country managed to jump 23 positions from the 100th positions it held in the previous year’s report.

Over the past two years, India has managed to jump a significant 53 positions in total.

For the second year in a row, it has also been recognised as the fifth-best performing nation in reforming the business environment.

The country improved its rankings in six of the 10 categories assessed.

How did India manage to improve its rank?

Among the various categories assessed, the country had the best performance in “Dealing with Construction Permits”, in which it jumped 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.

In “Trading Across Borders”, India surged 66 places to come in at the 80th spot.

Officials at the Department of Industrial Policy and Promotion (DIPP) attributed this to the adoption of a slew of digital initiatives such as the implementation of a risk management system at ports that waives inspection requirement for 80 per cent of the products, among other things.

Was the jump in ranking totally unexpected?

The government was confident of securing a better score in most categories but had been exclusively betting on two crucial areas.

However, in the two categories of “Paying Taxes” and “Resolving Insolvency”, landmark government reforms that was expected to yield better results have had the opposite effect.

In “Paying Taxes”, India actually saw its rank slip two notches to 121, despite the implementation of the Goods and Services Tax (GST).

The World Bank praised India for merging taxes and significantly revising the tax code, but it didn’t lead to a better ranking.

On the other hand, the adoption of the Insolvency and Bankruptcy Code could not save India from shedding five positions in “Resolving Insolvency”, to settle at 108.

The government said the full scope of the reforms’ benefits would be realised next year.

Is the Index a true reflection of the state of the entire economy?

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

The report covers all policy reforms undertaken by the government till May 1 of this year that has taken taken place in these two cities.

However, the government pointed out that at least 15 states have had more than 90 per cent score in the government’s own ranking of states’ ease of doing business.

Finance Minister Arun Jaitley also said that Delhi and Mumbai are large cities with complicated procedures and challenges.

Once progress has been made there, other regions should be easy.

Subhayan Chakraborty
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