What India needs to do to better ease of doing business score
India needs to move faster on the reform front, to better attract global savings and investments.
A perceptible improvement to India’s ranking in the World Bank’s ‘ease of doing business’ (EDB) index is welcome news. It provides scores for a set of 10 distinct areas of business regulation, and it’s significant that India’s position has now moved 14 places to 63rd among 190 economies. We could do much better.
It is notable that while India’s ranking has improved impressively in the last few years, there is much scope to enhance the EDB with proactive policy action, such as in the domain of enforcing contracts, registering property and starting a business. It should then be eminently possible to move into the top 50 of the global index, and, in the foreseeable future, to the top 30.
The rankings in the EDB index point to transparent rules on the ground to promote efficient markets, rev up enterprise and boost the development delivery mechanism, and, therefore, help change perceptions and investor sentiments. But it cannot be enough said that the rankings are merely indicative and very much work-in-progress.
For instance, on the ‘getting credit’ parameter, while India has a relative high rank of 25, the fact is that the banking and financial sector faces rising contagion risks and requires sustained reform measures to better allocate resources economy-wide. Consider another parameter, ‘getting electricity’, for which India’s current rank is an impressive 22. Recent schemes to universalise access to power certainly seem to have helped matters.
But the fact is that state power utilities remain financially moribund, underperforming and underinvested, in the backdrop of reckless giveaways and rampant populism in tariff design in power distribution across the board. Moreover, the index pertains essentially to two jurisdictions, Delhi and Mumbai, to gauge the overall national business environment. The survey results can well be indicative. But they do call for elaborate caution, and to desist from interpreting too much. We clearly need much improved EDB nationwide, and not merely in the two main business and policymaking centres.
It is glaring that under at least four heads enforcing contracts, registering property, starting a business, and paying taxes — the scenario has hardly improved, as per the latest scores. For example, for enforcing contracts, India’s rank was 163rd among 190 economies last year. Ditto this year. It implies much time and cost overruns in resolving commercial disputes, which is certainly not conducive for a thriving business environment. The way forward is to carry out longpending reforms of judicial processes to do away with routine legal delays.
Similarly, India still scores very low when it comes to registering property. The figure has barely improved to 154th, which is nothing to write home about. High stamp duty rates seem a perverse incentive to undervalue and underreport real estate transactions. There remains a host of rigidities in housing and real estate that need to be reformed to promptly do away with extensive opacity.
India also scores lowly for starting a business, a poor 136th. Its global rank has only moved just one notch in the past year, and primarily due to the decision to abolish filing fees for the simplified online format for incorporating a company and its memorandum and articles of association. Other countries seem to have done more.
India needs to move faster on the reform front, to better attract global savings and investments. The available data suggest that the resources required for starting a business can be considerably higher in the lower income economies.
It would stultify entrepreneurship and risk-taking, and, thereby, discourage profit earning. We need to policy-induce much greater EDB to boost entrepreneurship nationally. It would lead to better employment opportunities, higher tax revenue for governments, and also give rise to improved personal income as well.
As for paying taxes, India’s score has risen somewhat to 115th. But we can, and need to, further simply the indirect goods and services tax (GST) regime, and make taxes, both on income and consumption, easy and taxpayer-friendly. The average time for filing taxes can be significantly higher in lower-middle income economies like India.
It is also a fact that India’s high global rank in dealing with construction permits, 27th in the ranking, is more a reflection of recent reform measures in the two mega urban centres, and may not quite hold nationwide. The way ahead is to have reforms in place to better coagulate funds for built spaces. Further, while our rank for resolving insolvency is a credible 52nd, the fact remains that bankruptcy resolution