1. Ease of doing business: World Bank ranking this year will certify if govt’s reform mojo is intact

Ease of doing business: World Bank ranking this year will certify if govt’s reform mojo is intact

DIPP’s new approach has helped states realise that expensive invest-in-us or make-in-us jamboree events are not enough to compete for investments

By: | Published: October 20, 2016 6:17 AM

In 2014, India was ranked 142 in the World Bank Ease of Doing Business Rankings. In 2015, it was 130. The otherwise self-assured joint secretary at the department of industrial policy and promotion (DIPP), who is at the epicentre of the action around the ease of doing business reforms cannot help but betray a sense of nervous apprehension whenever he mentions October 25—the date when the rankings will be declared. Last year’s newspapers celebrated the jump in rank as a vindication of the government’s resolve. This year’s rank will certify if it still has the reform mojo intact.

A couple of years back, the new government had given DIPP an almost impossible task—improve ease of doing business in India and show results. Bureaucratic cobwebs accumulated from decades of over-regulation spread across myriad government departments, state governments, political affiliations and well-oiled middlemen and industries had to be done away with. Where does one start? How does one do it? How do you make the behemoth, chaotic machinery of the Indian government listen to one central government department?

The DIPP website, like most government websites is a bit like a quirky museum—where flashing feel-good internet stock photos blip in the midst of a deluge of information, logos and links rolling in horizontal and vertical directions, all shouting for attention. It is easy to miss an innocuous section on the side titled ‘Business Reforms Action Plan-State ranking portal on EODB initiatives’. Click on it, and the enormity of what the DIPP has managed to pull off in the past two years becomes slowly evident. States have been ranked on their ability to implement some 340 ease of doing business reforms—across an exhaustive list of areas—environment, labour, construction, electricity, land, inspections, tax, etc, to name some.

And here is where DIPP turns on its head the conventional notion of a lethargic sarkari department—it has made the rankings dynamic! So every time, any state sends an email to DIPP with a copy of the regulation that has been reformed; a few days later, post verification, there will be an inch-up in the rankings!

At the end of two years, 16 states have implemented over 70% of the suggested list of reforms. Out of this, 10 of them have implemented over 90% of the reforms. Interestingly, seven of the 16 are actually non-BJP ruled states—who otherwise have no political compulsion to toe the central government line. Out of the non-BJP seven, are Telangana and Andhra Pradesh, who are in fact the top two in India, trouncing heavy weights like Gujarat at 3; MP at 7, and Maharashtra at 11.

Whatever did the DIPP say or do, that galvanised almost half of the country, across party lines, to undertake regulatory reform and cut red tape?

Textbook behavioural economics: DIPP and the World Bank have long had a love-hate relationship. Every year the World Bank would publish a dismal score for India’s ease of doing business rank. And every year, India would criticise the methodology of the ranking. And that would be all that would ever be done around ease of doing business! World Bank would again return the next year and discover that nothing has changed from its previous survey. And the cycle would continue.

However with the new government, DIPP did something different. Instead of criticising World Bank, it instead decided to ask for its assistance. It adopted a two-pronged approach. One—it clinically tried to address the concerns in Mumbai and Delhi (which are the only cities World Bank surveys!), so as to arithmetically climb up the rankings. So, the next time the World Bank inspectors were in town, the whole government machinery clicked its boots to attention, literally chaperoning the whole process. And two, DIPP decided to use their assistance to go beyond the two cities, and try to improve ease of doing business across the country.

And, herein, it did something that should be adopted in textbooks of how to go about reforms in a country. It listed out a questionnaire of 98 reforms—which had only a Yes or No answer. ‘Does the state have a single window?’ ‘Does the state have a centralized helpline’, ‘Does the state have a definite timeline for a business application?’
And then it asked states to implement these reforms and file reports by a particular date.

Some states took this seriously. Some didn’t. However when the interstate rankings got declared, it caused an uproar. Newspaper reports shamed states that ranked poorly. All of a sudden, DIPP found itself in possession of the attention of the chief ministers and chief secretaries, that it so crucially needed for ease of doing business. States that had done well had no qualms in splaying this tacit endorsement by the central government on their investment advertisements. States that did poorly complained bitterly to DIPP on the ranking methodology. Just as the DIPP had done for so long with the World Bank!

Either ways, states started to realise that if they had to compete for investment, it was no longer enough to have an expensive invest-in-us or make-in-us jamboree event with dozens of MoUs signed with abandon by high profile CEO’s eager to justify their invite.

State bureaucrats started holding cross-governmental meetings to figure out how to improve their rankings. Government grapevines would carry news of chief secretaries furiously hauling up different departments, to replace paper pushing with paper trashing. DIPP on its part sent World Bank teams to handhold states in implementing these reforms. It started talking to other countries on best practices—for instance, the UK has offered to send its experts to share with frontline inspectors and regulators how it went about cutting red tape and improving ease of doing business.

Madhu’s problem: Madhu is a local fishmonger. Recently he opened a shop. He had to pay R1 lakh—partly to grease the palms of the government inspectors and partly to pay off the goons of the local party in the area. He didn’t seem particularly perturbed—he seemed to resign it to be an acceptable cost of doing business.

DIPP’s ultimate challenge is to get all its ambitious reforms to reach the likes of Madhu—the small business owners who will always struggle to reach the hallowed corridors of secretariats, to push their files. DIPP’s next port of call needs to be not just the quantity of reforms undertaken, but their quality. To check if indeed businesses are benefitting with 90% of 340 reforms that states have implemented.

Ease of doing business, after all, has to be about businesses. Not bureaucrats. India is unfortunately learning this lesson quite late in the day. Luckily, it is taking its next exams more seriously.

The author is a senior economic adviser to a foreign mission,based in New Delhi. Views are personal

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