‘Doing Business’ rank: India jumps 30 places:

‘Doing Business’ rank: India jumps 30 places:

Context:

India climbed 30 positions in the latest ease of doing business ranking by the World Bank, in its Doing Business 2018 report released recently.

Introduction:

• This year’s report from the World Bank has been titled Reforming to Create Jobs.
• The report ranks India at 100 among 190 countries. Last year, India was ranked 130.
• India’s upward jump in ranking is based on the underlying improvement in the distance to frontier (DTF) score- an absolute measure of progress towards the best practice-in the report.
• India recorded the fifth highest change in DTF score and found a place for the first time in the top ten economies improving the most in a given year, in the report which is into its 15th edition.
• The ease of doing business ranking compares economies with one another; the DTF score benchmark economies with respect to regulatory best practice.
• According to an output-outcome framework document prepared by the government, India is seeking to reach the 90th rank in 2017-18 and 30th by 2020.

“Distance to Frontier”

The distance to frontier score helps assess the absolute level of regulatory performance overtime. It measures the distance of each economy to the “frontier”, which represents the best performance observed on each of the indicators across the economies in the Doing Business sample since 2005.  An economy’s distance t frontier is reflected on a scale from 0 to 100 , where o represents the lowest performance and 100 represents the frontier.

Doing Business report:

• Doing Business report measures aspects of regulation affecting 11 areas of the life of a business, and India made eight reforms across these areas last year, the highest number for the country in a single year.
• India is one of the three countries last year that undertook reforms in as many as eight areas.

Reforms noted by the report:

• Faster permits for construction, combining the application for the Permanent Account Number (PAN) and the Tax Account Number (TAN) into a single submission, reduction in the time needed to complete the applications for Employee’s Provident Fund Organisation (EPFO) and the Employee’s State Insurance Corporation (ESIC), reduction in export and imports border compliance costs and improved access to credit are among the reforms noted by the report.
• The establishment of debt recovery tribunals reduced non-performing loans by 28%  and lowered interest rates on larger loans, suggesting that faster processing of debt recovery cases cut the credit.
• India is now in the middle of the list, moving up from the last quarter but still it is at the place where there is scope for improvement.
• There are still significant changes possible; thought the change this year is significant, both in relative and absolute terms.
• The reforms have been broad-based encompassing wide range of areas including taxation, finance, legal and administrative procedures.
• With GST, the government has laid the foundation for a more efficient indirect tax system and with the enactment of Insolvency and Bankruptcy Code, India now has an efficient institutional mechanism for easing of business exit.

Significance:

• The huge improvement in ranking and score will immediately boost investor sentiments.
• The latest report validates the commitment of the government to fast-tracking economic reforms, addressing red tape and facilitating business, which it has undertaken in mission mode over the last three years.
• It will help India in moving the right direction and in creating the kind of channels that will attract foreign direct investment.

Where India is lagging behind?

• The World Bank said while there has been substantial progress, India still lags in areas such as starting a business (156), enforcing contracts (164) and dealing with construction permits (181).

Global comparison:

• India used to be the last among the BRICS (Brazil, Russia, India, China, South Africa) countries in the ranking, but now it has overtaken Brazil in the list.
• China maintained the same ranking it had last year, at 78.
• New Zealand, Singapore and Denmark retained their first, second and third spots.
• Russia, at 35 is the best among BRICS countries; while Brazil is now the last.
• Enforcement of contract:
• Enforcement of contract is one of the area of concern in India, according to bank officials.
• The time to enforce a contract has  become longer today, at 1445 days compared to 1420 days 15 years ago, placing India at 164th place in the ranking on Enforcing Contracts indicator.
• Property registration and property transition, land registry and administration is complicated in India compared to many other countries.
• India has reduced the time to register a new business to 30 days now, from 127 days 15 years ago.

About Ease of doing business in India:

• The Ease of doing business index in India is an index created by World Bank groups.
• Higher ranking in this list  means  the country’s  regulatory environment is more conducive and favourable  for the starting and operation of  firm.
• The report examines India’s recent regulatory process in order to evaluate the efficacy of the reforms.