Ease of Doing Business: India is among the top 10 performers for the third time in a row!

While the dust settles on some of the important state elections in India today, it is time again to take a look at how our long term business environment is being transformed.

Today the World Bank published its ease of Doing Business Report 2020 based on the data collected until April 2019.

This report compares business regulation in 190 countries in order to analyze what enhances business activity and what restrains it. The report considers data in major business locations in a country – Mumbai and New Delhi in case of India. This, however, is done consistently year after year. Scores are measured for 10 criteria under five stages of business from Opening a business to Getting a location to Accessing finance to Dealing with day-to-day operations to Operating in a secure business environment.

Interestingly, Pacific Rim countries – New Zealand, Singapore and Hong Kong take top three positions.

What makes India amongst the top 10 performers for 3rd year in a row?

The headline of the report is that – India, yet again, improved her position by 14 ranks to move up to 63rd!

It is extremely important to see where India comes from, and humongous challenges she faces with a huge and diverse population, and income disparities in order to be able to appreciate the efforts. India ranked as low as 142nd on the list in 2014. When Prime Minister Narendra Modi came to power and announced that India targets to reach in top 50 on this list by 2020 – it resonated with hope than with realism. Not anymore! 50th rank in the next year is challenging but achievable.

The good, bad and ugly of India’s ranking

Here is a quick look at where India fared well, and not so well – and the reasons therefor. A comparison with China is always insightful!

India improved her overall rank from 130th in 2016 to 63rd in 2019. China is at 31st.

Positive improvements were in:

Dealing with Construction Permits:  from 183 (in 2016) to 27 (in 2019). China 33.

Streamlining of process for obtaining a building permit - resulting in reduction in time and cost of obtaining the permit, and improved building quality control by strengthening professional certification requirements in Mumbai and Delhi has resulted in improvement under this criterion.

Trading across Borders: from 133 to 68. China 56.

Introduction of Post-clearance audits, integrating trade stakeholders in a single electronic platform, and upgrading port infrastructure has helped here.

Resolving Insolvency: from 136 to 52. China 51.

Insolvency and Bankruptcy Code 2016 has facilitated reorganization instead of burdensome foreclosure, and has increased the overall recovery rate from 27% to 72% of the debt amount.

Remarkably, where India has taken substantial steps, it ranks comparable with China.

Though in line with 2018, India has done well on the following criteria as well:

Getting Electricity: from 70 (in 2016) to 22 (in 2019). China 12.

Getting Credit: from 42 to 25. China 80.

Paying Taxes: from 157 to 115. China 105.

India’s performance has always remained at top for Protection of Minority Investors. Rank 8 in 2016, and 13 in 2019. China 28.

India’s performance has remained extremely dismal on following criteria, and they differentiate us from China.

Starting a Business: 155 in 2016. 136 in 2019. China 27.

Registering Property: 138 in 2016. 154 in 2019. China 28.

Enforcing Contracts: 178 in 2016. 163 in 2019. China 5.

What can we infer from the report?

Department for Promotion of Industry and Internal Trade’s (DPIIT) annual report for fiscal year 2018-19 mentions that the country has registered highest ever Foreign Direct Investments (FDI) inflow of US$ 64 billion during the financial year 2018-19. FDI worth US$ 286 billion has been received in last five years. However, linking the ease of doing business just to FDI will be a lop-sided effort.

Last year’s Doing Business Report by the World Bank had highlighted this issue when it mentioned: “When local businesses flourish, they create jobs and generate income that can be spent and invested domestically. Any rational government that cares about the economic well-being and advancement of its constituency pays special attention to laws and regulations affecting local small and medium-size enterprises (SMEs). Effective business regulation affords micro and small firms the opportunity to grow, innovate and, when applicable, move from the informal to the formal sector of an economy.”

In the current report, Martin Raiser, World Bank Country Director for China underlines the importance of the role of SMEs when he says: “China has undertaken substantial efforts to improve the domestic business climate for small and medium-size enterprises, maintaining an active pace of reforms.”

Global economy is slowing down, foreign direct investments are dropping the world over, India’s growth forecast has been scaled down by the World Bank, IMF and our own Reserve Bank to 6.0%. It is during such times that we must push with structural reforms as well as domestic capacity building. This will enable us grow strongly, when global economies recover.

Inclusive and sustainable growth is imperative for India to pull hundreds of millions out of poverty – as China did over last four decades. For this, the focus has to be on agricultural productivity and agro-based businesses, improving share of manufacturing in GDP and empowering of Small & Medium-sized Enterprises.

(Thanks to World Bank, DPIIT, smartfeed, thetruepicture, India Today)