India is right to focus on ease of doing business: 

India is right to focus on ease of doing business: 

Context

• The World Bank Group’s Doing Business 2018 report ranks India at 100 out of 190 countries.
• India’s jump in ease of doing business rankings will hopefully be a spur for further reforms, for a better business environment and greater prosperity for all

What is 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.

What is Ease of Doing Business Index?

• The Ease of doing business index is an index released by the World Bank Group in its Doing business report.
• Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
• New Zealand has topped the Ease of Doing Business rankings in 2017.

Where does India stand in the Ease of doing business index?

• India ranked 130 among 190 countries however, has not made any improvement from the last year as its rank has been downgraded to 131.
• This lack of improvement in the rankings though Indian Government was hoping to jump substantially this year has triggered a strong reaction and disappointment.
• Though several reform measures have been taken by the Government, it feels they are not reflected in these rankings.
• The only bright side in these rankings is that India has improved substantially in getting electricity for businesses and enforcing contracts.
• Out of the 10 parameters, India has slipped down in 5 parameters and on other 3, there is a status quo.

Why India should not base its result on basis of this index?

• World Bank index is based on limited data.
• There is a disjunction between how things get done in India and Bank’s methodological approach. Many achievements have not been covered by the report due to methodological issues.
• According to DIPP, Online filing and payment of returns at the Employee Provident Fund Organization has been implemented, but it was not considered by the World Bank, even after it shared “logs and voluminous evidence” of the same.
• Bank’s report is based on data collected from very few cities.
• Centre has only partial control over several of these sub-indices as it needs states support to bring the required legislations.
• It does not directly measure more general conditions such as a nation’s proximity to large markets, quality of infrastructure, inflation, or crime.
• Rankings are incompletely reflective of the significant transformation in the overall business environment in key areas such as openness to FDI, online procedures, MSME facilitation

What are the loopholes in the ease of doing business index?

• In India’s case, the business environment in only Delhi and Mumbai are used to compile the national ranking.
• These rankings also focus a lot more on the laws and rules that are on the books and do not necessarily capture the daily experiences of businesses.
• 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).

Larger challenges

• The enforcement of contracts now takes longer than it did 15 years ago.
• The procedures to start a business or secure a construction permit remain cumbersome.
• Mumbai and Delhi cannot host the kind of large factories that India needs to generate adequate employment.
• It is critical to have procedural reforms reach the surroundings and a road map be drafted for the larger legislative changes needed in matters such as land acquisition.
• While foreign investors are important, the importance of domestic businesses cannot be ignored.