India?s ranked just 122nd in the World Bank?s latest Doing Business Report. The ranking may appear galling for an economy that aims to grow at 8% even in the midst of a global slowdown. What makes India?s position look worse is the fact that five South Asian countries are ranked above India, including the Maldives, which ranked 69th. The dichotomy between India?s low ranking and superior economic performance is not inexplicable?not everything that is critical for doing business is included in the indicators?the state of the macroeconomy, institutional strengths, law and order, and physical infrastructure are not measured. There may also be problems relating to the data and sampling bias. That said, the evidence on the large gaps between India and the global benchmarks should be a matter of concern for policymakers. For instance, it takes 13 procedures to start a business in India while in Sri Lanka it takes 4, and in New Zealand just 1. The next major dampener is credit availability. While the 100% coverage by credit registries help developed country entrepreneurs secure funds with relative ease, the 10.5% coverage in India limits the credit flows. Also, one has to wait for 45 days to register a property in India while New Zealand makes do with just 2. The scenario is worse for the construction sector, a sector with large potential in India. India demands 20 procedures and a processing time of 223 days for approvals. Denmark, which provides the global benchmark for this, requires just 6 permits and South Korea processes all the required permits in just 34 days.
There is, of course, much more evidence of this kind in the report. The real question is why the country has failed to target global benchmarks and ease constraints on doing business. Many of the corrections required are not in the category of big-ticket reforms that eat up political capital of governments in power, at the Centre and the states. It simply is a matter of overruling narrow vested interest?parts of the bureaucracy, which would see its rent-seeking capabilities diminish substantially may resist; trade unions, which are not too enthusiastic about accountability or reform, may join the resistance. The tackling of these problems should get top priority if India is to close in on the best global competition. Only radical changes on the ground will supplement other macro-economic reform initiatives. Great GDP numbers can?t console a harrassed businessman.
