Ease of Doing Business in India – What does the Economic Survey say?
Sai Krishna Muthyanolla
February 7, 2020
The Economic Survey of 2019-20 dedicated a chapter to Ease of Doing Business in India. How has India improved on the doing business rankings of the World Bank? What does the Economic Survey say about the issues in the country?
In the past fewyears, India made substantial progress in the World Bank’s annual Doing Business rankings. The Doing Business Rankings (DBR) rate countries on the basis of easeof doing business. It takes into consideration the business environment andregulations, and policies that shape it in the country. As per DBR
2020, India has improved its ranking by14 places to be ranked 63 out of 190 countries. However, detailed analysis ofIndia’s performance in each of the parameters studied reveals that India stillhas a long way to go to do away with red-tapism.
This year’s Economic
Survey has a separate chapter dedicated to the analysis of parameters which India needs to improve on. Theanalysis made an attempt to identify the bottlenecks in India’s businessenvironment.
What is the Doing Business Report?
Doing
Business report is an annual flagshippublication of the World Bank Group which studies the regulations on businessactivities by presenting quantitative measures of regulation and protection ofproperty rights across countries. In simpler terms, the study comparesdifferent economies on the basis of how simple it is to operate a privatebusiness in the country.
For this, thereport captures 12 areas of business regulation of which 10 areas are takeninto consideration for scoring and ranking the countries. These 10 areasinclude starting a business, dealing with construction permits, gettingelectricity, registering property, getting credit, protecting minorityinvestors, paying taxes, trading across borders, enforcing contracts, andresolving insolvency. The remaining two areas which are not used for rankingare regulation on employing workers and contracting with the government.
How is DBR calculated?
Questionnaires designed to make them comparable across differenteconomies and periods of time are administered to more than 15,000 localexperts across the world such as lawyers, accountants, business consultants andmany others who deal with these regulations in their work. The data thuscollected is subject to scrutiny and verification multiple times.
The data collected for 41 indicators (e.g. number of procedures, timetaken, and cost) under the 10 areas covered for scoring and ranking arenormalised and rescaled for comparison. Based on the best and worst performingeconomies for each indicator, scores are calculated for each indicator for eacheconomy. The scores obtained are given equal weightage and the simple averageis taken for each topic. Average across the ten topics gives the economy’sDoing Business Score on a scale of 1 – 100 where 0 is for the worst regulatoryperformance and 100 for the best.
The score indicates how far the economy is from the best performance anddifference in score shows the extent of change in the business environment inthe country. DBR is obtained by sorting the score and indicates the country’sperformance relative to other countries. The Economic Survey has stressed onDBR.
What is India’s current position?
India has been ranked 63 out of 190 countries in terms of ease in doing business.India is one among the top ten countries that have shown most notableimprovement in 2019 according to the report. Moreover, India has also beenrecognised as one among top ten countries that has taken maximum reforms in thelast three years. Since 2011, India’s improvement in ranking is the highest byany large country.
In the South Asianregion comprising of eight countries- Bhutan, Nepal, Maldives, Afghanistan,Bangladesh, Pakistan and Sri Lanka- India has been ranked first. New Zealandretained its first position in the world for ease of doing business.
India’s overallposition stood at 133 (out of 183 countries) in 2009 and had further declined to 142 (out of 189 countries) in 2014.Since then, India has improved over 78 positions to secure 63rank(out of 190 countries).
What are the areas in which India has improved?
India’s ranking insix areas- dealing with construction permits, getting electricity, gettingcredit, protecting minority investors, trading across borders, and resolvinginsolvency- are ranked below 70. However, in terms of ease of startingbusiness, property registration, paying tax and enforcing contracts, India’sperformance is still lagging and needs attention.  The Economic
Survey has acknowledged this.
India’s rankingwith respect to registering property has been declining over the years.However, with respect to the remaining nine parameters, India’s performance hasimproved in the past decade. The following five parameters have shown a marked improvementin their rankings in just two years.
What caused this sudden change?
According to theresponse by the Ministry
of Commerce and Industry in the Lok Sabha, the following were mentioned as reasonsfor the improvement.
An online singlewindow system was introduced in Delhi and Mumbai (by Municipal Corporations),which has helped in saving time considerably for getting construction permits.Furthermore, approval and inspection have also been made faster in Delhi. Also,in Delhi, service line charges were capped to Rs. 25,000 in electrified areasfor low tensions up to 150 KW in addition to making the work faster.
Similarly, in the case of cross-border trade, the government has introduced online initiatives which allow online submission of documents. Other initiatives to save time and cost in this area include electronic sealing of containers, 24/7 clearance and improved port infrastructure. Only 5% of the goods will be inspected.
Paying tax has been simplified with GST for the entire country. Slashing corporate income tax rate for companies with a turnover more than Rs. 250 crores and reduction in administrative charges of EPFS are other reasons cited.
India’sperformance in resolving insolvency has been attributed to the Insolvency andBankruptcy Code (IBC) which promoted reorganization proceedings in practice.The Lok Sabha answer further adds that time taken to resolve insolvency inIndia is now comparable to OECD countries.
What is the difference between India and New Zealand, which
is ranked ONE ?
The table belowcompares India and New Zealand on the four parameters in which India lags, asper Economic Survey.
What are the problems in India?
The main problemsin India have been explained in the Economic Survey with useful case studies.
For instance,despite bars and restaurants being crucial sources of employment, to
open a restaurant, according to theNational Restaurants Association of India, a total of 36 approvals are requiredin Bengaluru, 26 in Delhi and 22 in Mumbai. In Delhi and Kolkata, a ‘PoliceEating House License’ is also required for which around 45 documents need to befurnished. This is in contrast to the number of documents required forprocuring arms and fireworks which require only 19 and 12 documentsrespectively.
Similarly, it canalso be seen that it takes only over two months to obtain a construction permitin Hong Kong whereas in Delhi it takes about four months. It takes 35 days toget water and sewage connection in Delhi.
On an average, India takes around 64 hours on the border for documentary compliance for exports with a cost of $270. In the case of imports, the time taken for the same is 86 hours and the cost is around $366. This is in contrast to Italy where the time taken is only one hour for each. A lot of time is wasted in India for border handling processes.
For the manufacturingindustry, there are 6,796 compliance requirements that need to be complied with,based on the manufacturer. This has been highlighted in the survey to show thecomplexity and range of rules in the sector.
What needs to improve?
India has to mainly focus on improving the four parameters- Starting Business, Registering Property, Paying Taxes, and Enforcing Contracts. There are many complex rules and laws that have to be complied with in these areas. There are many regulatory hurdles and cumbersome procedures that need to be simplified in order to encourage more people to start a business here.
How reliable is DBR?
While the government has highlighted India’s improvement in the ranking, the reliability of the data needs to be discussed. The DBR mentions ﬁve broad limitations as described below.
Any reading of the DBR rankings & related analysis is to be done with the above limitations in mind.
Featured Image: Ease of Doing Business in India