7 PM | What makes doing business easier | 6th November, 2019

Context:Ease of doing Business Report and improvements India made.

More in news:

• India’s rank jumps 14 places in World Bank’s ease of doing business ranking.
• India’s ranking improved 79 places from 142nd in 2014 to 63rd for 2020, a record for a major economy

Ease of doing Business Report:

• Ease of doing business is an index published by the World Bank. It is an aggregate figure that includes different parameters which define the ease of doing business in a country.
• It is computed by aggregating the distance to frontier scores of different economies. The distance to frontier score uses the ‘regulatory best practices’ for doing business as the parameter and benchmark economies according to that parameter.
• For each of the indicators that form a part of the statistic ‘Ease of doing business,’ a distance to frontier score is computed and all the scores are aggregated. The aggregated score becomes the Ease of doing business index.
• Doing Business covers 12 areas of business regulation.
  • Ten of these areas—starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency—are included in the ease of doing business score and ease of doing business ranking.
  • Doing Business also measures regulation on employing workers and contracting with the government, which are not included in the ease of doing business score and ranking.

Reforms that improved the rank of India:

• Starting a business: India made starting a business easier by abolishing filing fees for the SPICe company incorporation form, electronic memorandum of association, and articles of association. This reform applies to both Delhi and Mumbai.
• Dealing with construction permits: India (Delhi) streamlined the process, reduced the time and cost of obtaining construction permits, and improved building quality control by strengthening professional certification requirements. India (Mumbai) streamlined the process of obtaining a building permit and made it faster and less expensive to get a construction permit.
• Trading across borders: India made trading across borders easier by enabling post clearance audits, integrating trade stakeholders in a single electronic platform, upgrading port infrastructures, and enhancing the electronic submission of documents. This reform applies to both Delhi and Mumbai.
• Resolving insolvency: India made resolving insolvency easier by promoting reorganization proceedings in practice. Resolving insolvency has shown a jump of 56 spots, endorsing the successful implementation of the Insolvency and Bankruptcy Code, 2016.India also made resolving insolvency more difficult by not allowing dissenting creditors to receive as much under reorganization as they would receive in liquidation. This reform applies to both Delhi and Mumbai.

In 2015, the government’s goal was to join the 50 top economies on the ease of doing business ranking by 2020. While the competition to move up the ladder would increase and become much tougher, India is on track to be within top 50 of the Ease of Doing business in the next year or two, the World Bank said.

India: Areas of Weakness

• Enforcing Contracts: Across key parameters, India’s weakest spot remains enforcing contracts. Here India ranks at 163. It’s rank remained unchanged. The report did not comment specifically on India’s track record in this area but said that it takes into account the “time and cost to resolve a commercial dispute and the quality of judicial processes” while judging ranking.
• Protection Of Minority Investors: While India ranks relatively high in ‘protection of minority investors’, it saw its rank slip in the latest survey. The country’s rank slipped from 7 to 13 even though its score remained unchanged.

What else can be done to improve the rank?

• Enable the self-employed: Largest numbers of working Indian are self employed. However, the World Bank report only covers two cities- Delhi and Mumbai. It gives a narrow coverage to the diverse India. Any business cannot flourish on its own as its fortunes are tied to the health of the economy. There is need to focus on improving the overall economic structure of Indian economy.
• Creating demand: There is need to focus equally on generating aggregate demand while focusing on improving ease of doing business. At the present scenario it is unwise to judge the state of economy on basis on the ease of doing business Index. India is facing an aggregate demand slowdown, thereby require fiscal stimulus.
• Focusing on Public Capital Formation: During the global economic crisis of 2008-09, the fiscal deficit was hiked from 2.5% to 6% of GDP. The composition of the public spending matters for growth. Increase in the fiscal deficit took the form of rise in public consumption rather than public capital formation, which had temporary effects. The focus needs to shift to the capital formation for increasing aggregate demand and raising the potential supply of the economy.

Conclusion:

• India is among top 10 improvers in 2020 report. The 10 top improvers are Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, India, and Nigeria.
• However, India still lags in areas such as enforcing contracts (163rd) and registering property (154th). It takes 58 days and costs on average 7.8% of a property’s value to register it, longer and at greater cost than among OECD high-income economies.
• It takes 1,445 days for a company to resolve a commercial dispute through a local first-instance court, almost three times the average time in OECD high-income economies.
• World Bank pointed out that, to make it to top 50 in Ease of Doing Business, India should focus on enforcing contracts, land administration system.

Source:https://www.thehindu.com/opinion/lead/what-makes-doing-business-easier/article29891844.ece