India?s rank has slipped one spot to 133 in World Bank?s latest Doing Business report. This is particularly dismal because this has happened when the regulatory reforms touched a global high: 131 countries pushing through 287 reforms between June 2008 and May 2009, the highest improvement since 2004. This only confirms how reforms in India have failed to keep pace with global trends.
India?s low global ranking indicates the growing gap that the country has to cover in most of the 10 major areas that are crucial in the life cycle of a business: the time and cost of starting a business and constructing facilities, difficulties of hiring workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.
India?s best performance was in the credit sphere where the country had the highest ranking of 30. This was followed by the other areas like protecting investors (41), registering property (94), ease of trading across borders (94) and employing workers (104).
Areas where the regulatory ranking went lower than the overall ranking included those related to closing a business (138), paying taxes (169), starting a business (169), dealing with construction permits (175) and enforcing contracts where India was ranked 182nd among 183 countries.
Enforcing a contract took as many days as 1,420 days in India. There were 46 procedures and costs were also high as the recovery rate was just 15.1 cents on the dollar. In contrast in Luxembourg, which was ranked 1st in this category, it took only 26 procedures and 321 days and the recovery rate was a much higher 41.7 cents on the dollar.
The scenario on dealing with construction permits, the other most important hassle for Indian business, was equally dismal. It took 37 procedures and 195 days to secure the permits in India. This is a too large a gap when compared to Hong Kong, which was ranked first in the category, where it took just 7 procedures and 67 days to secure the permits. And the problems are not limited to those of running business. Overcoming the regulatory hurdles for starting a business in India is also formidable considering that it took 13 procedures and 30 days for doing this as compared to just one procedure and a single day in New Zealand, which was ranked first in this category.
And apart from these indirect costs, there were also more direct costs. For instance, the difficulty in paying taxes was also extensive: it took as many as 59 payments which consumed 271 hours and cost as much as 64.7% of the profit. This is in sharp contrast to the gains in reducing difficulties made in other countries at the top end. The best example here is that of Maldives, where it took just 1 payment and cost just 9.1% of the profit.
Similarly, regulatory hurdles in closing down businesses in India ensured that closure took 7 years and the recovery rate was just 15.1% on the dollar. Closure took around half a year and the business was able to recover 92.5 cents on the dollar in Japan.
The other area where India?s record was comparatively bad was in the area of employment. On the one hand, the country has the least difficulties in hiring where the index was at zero on a scale up to 100 and the laws fixing working hours were not too rigid either with the index at 20. On the other hand, the difficulty of handling redundancy was very high going up to 70 on a maximum scale of 100, higher than even that of China, where it was only 50. Other Bric countries also had much lower barriers to handling redundancy, with the index down to zero in Brazil and 40 in Russia.
