Paying taxes, resolving insolvency lead the charts; starting business still a concern
Narendra Modi government has cracked the code to put India to the top 100 nations club in terms of business friendliness, as perceived by the World Bank. For the first time ever, India has jumped 30 positions to become the top 100th country in terms of ease of doing business ranking this year. This was announced by the World Bank Group’s latest Doing Business 2018: Reforming to Create Jobs report in Delhi on 31, October 2017. The World Bank has attributed the change in India ranking to the sustained business reforms it has undertaken ever since Modi government took charge a little over three years ago.
Last year, India had moved just one point, from 131st position among 190 countries to 130th position, prompting Modi government to question the credibility of World Bank’s ranking process. The government had discredited the World Bank’s methodology by stating that it failed to consider the federal nature of India and varying levels of development in each state by attempting to rank India on the basis of the feedback it gets from two metros – Delhi and Mumbai. Considering the fact that the World Bank has not made any overt attempt to change its ranking parameters or methodology, the only possible reason for the change in fortunes for India is the proactive action of the government to take sufficient measures to influence the results, where it matters most.
Thus, India’s ability to handle insolvency cases, has improved from 136th position last year, to 103 this year. The 33 point jump, which contributed most to help change India’s fortunes when it comes to World Bank’s Ease of doing business rankings this year was the long pending law the country enacted to fasten the process of winding up loss making companies. Since the law itself has contributed so much to the overall ranking, the practice of the law, which will start reflecting in the rankings in the coming years, should help the country aspire for a higher position.
Among the key parameters, barring insolvency, most of the other parameters showed marginal improvement, or decline. However, the World Bank recognized India’s efforts by stating that the country is one of the top 10 improvers in this year’s assessment, having implemented reforms in 8 out of 10 Doing Business indicators. India is also the only large country this year to have achieved such a significant shift. On the “distance to frontier metric,” one of the key indicators in the survey, India’s score went from 56.05 in Doing Business 2017 to 60.76 in Doing Business 2018. This means last year India improved its business regulations in absolute terms – indicating that the country is continuing its steady shift towards best practice in business regulation”, a World Bank statement said.
“Having embarked on a strong reform agenda to improve the business environment, the significant jump this year is a result of the Indian government’s consistent efforts over the past few years. It indicates India’s endeavor to further strengthen its position as a preferred place to do business globally,” said Annette Dixon, Vice President, South Asia region.
Marking its 15th anniversary, the report notes that India has adopted 37 reforms since 2003. Nearly half of these reforms have been implemented in the last four years. The report captures reforms implemented in 190 countries in the period June 2, 2016 to June 1, 2017.
This year, the eight indicators on which reforms were implemented in Delhi and Mumbai, the two cities covered by the report are: starting a business, dealing with construction permits, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Last year the Doing Business report recognized India for reforms in the areas of getting electricity, paying taxes, trading across borders and enforcing contracts.
The World Bank release stated that India continues to perform well in the areas of Protecting Minority Investors, Getting Credit, and Getting Electricity.
“The country’s corporate law and securities regulations have been recognized as highly advanced, placing India in 4th place in the global ranking on Protecting Minority Investors. And the time to obtain an electricity connection in Delhi has dropped from 138 days four years ago to 45 days now, almost 20 days less than the 78 days average in OECD high-income economies”. It said. India places in 29th place in the global ranking on the Getting Electricity indicator.
While there has been substantial progress, India still lags in areas such as Starting a Business, Enforcing Contracts, and Dealing with Construction Permits. In fact, the time taken to enforce a contract is longer today, at 1,445 days, than it was 15 years ago (1,420 days), placing the country in 164th place in the global ranking on the Enforcing Contracts indicator, it adds.
In Starting a Business, India has reduced the time needed to register a new business to 30 days now, from 127 days 15 years ago. However, the number of procedures is still cumbersome for local entrepreneurs who still need to go through 12 procedures to start a business in Mumbai, which is considerably more than in OECD high-income economies, where it takes five procedures on average.
“Tackling these challenging reforms will be key to India sustaining the momentum towards a higher ranking. To secure changes in the remaining areas will require not just new laws and online systems but deepening the ongoing investment in the capacity of states and their institutions to implement change and transform the framework of incentives and regulation facing the private sector. India’s focus on ‘doing business’ at the state level may well be the platform that sustains the country’s reform trajectory for the future” said Junaid Ahmad, Country Director India.