Ease of doing business in India: Narendra Modi government’s bid to improve rank by 2020 needs more co-ordination

India’s current ranking on starting a business is 155th.

In India, local business regulations and their enforcement differ across locations. (Illustration: Rohnit Phore)

Did you ever comprehend how difficult a place India is to do business? World Bank’s 2017 Edition of Doing Business report offers a glimpse; it ranks India 130 among 190 economies in Ease of Doing Business (EoDB), only one spot better than the previous year. The 2017 DB report, covering business regulations up to end-May 2016, ranks India in the top-50 in three of the ten parameters, ie, protecting minority investors (rank:13th), getting electricity (26th), and getting credit (44th). It continues to be a poor performer with regard to construction permits, paying taxes, enforcing contracts, starting a business, registering property, and resolving insolvency.

India’s current ranking on starting a business is 155th. It takes 26 days to deal with 13 procedures, New Zealand, ranked one takes just half a day for only one. Issuance of construction permits in New Zealand takes 93 days for 10 procedures; India on the other hand takes 190 for 35 procedures, and ranks 185th. For obtaining an electric connection, South Korea at No 1 takes 18 days dealing with three procedures; notwithstanding its ranking for this index having improved to 26th, India consumes over 46 days.

New Zealand, again at the top in registering property, takes one day for two procedures; India, ranks 138th, taking 47 days for seven procedures. For paying taxes, Qatar, commanding the top position, takes 41 hours for four payments annually; India at 172nd takes 241 hours for 25 payments. Average duration of bankruptcy proceedings in India is around 4.3 years; in Singapore just 9.5 months. India takes on average 1,420 days for judicial process to be over versus 290 days in Korea.

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Following a clamour from India Inc for freeing the country from complex regulatory regime, PM announced, during the ‘Make in India’ launch on September 25, 2014, that the government would push for India’s ease of DB rank to be within the top 50.

Russian president Vladimir Putin’s in May 2012 had decreed bureaucrats to improve its ranking from 120th to 20th by 2018. And, Russia has steadily moved ahead—from 120th in 2012 to 112nd in 2013, 92nd in 2014, 62nd in 2015, 51st in 2016, 40th in 2017. India, on the other hand, having remained stuck at around 130, trails behind some of the SAARC countries: Bhutan (73), Nepal (107), Sri Lanka (110). Indian government is targeting the 90th spot in 2017-18 and 30th by 2020.

But to secure a better rank, government functionaries must first acknowledge that slogans and shibboleths, intents and promises are of no avail; it is delivery on the ground alone that matters. That is where Indian administration has floundered.

The Economist explained how despite India’s regulations for foreign investors being more attractive than in most of East Asia, its overzealous bureaucrats weave webs of red tape. For example, the e-government initiative MCA-21 in 2006 enabled registration time to be reduced, time to obtain certificate of incorporation, now available online, also dropped, but bureaucratic stranglehold came through the backdoor—the applicant was still required to wait to receive a physical copy of the certificate before starting activities!

In India, local business regulations and their enforcement differ across locations. A World Bank Group-coordinated Assessment of State Implementation of Business Reforms in India, analysed up to June 2015, revealed that states were at very different levels of implementation of the 98-point action plan on EoDB. While Gujarat, Andhra Pradesh, Jharkhand, Chhattisgarh and Madhya Pradesh scored over 60%, Odisha, Maharashtra, Karnataka, Uttar Pradesh, West Bengal, Tamil Nadu, Telangana and Haryana performed above 40% but below 60%; Delhi, Punjab, Kerala and Goa figured in the 20-40% range, and all others below 20%. On an average, only 32% of the proposed reforms were implemented across the country; implementation regarding inspection and enforcement of contracts remaining less than 20%.

Some sporadic initiatives now hold out hope of a meaningful way ahead: nodal departments have been designated for each DB indicator to accomplish well coordinated progress in key areas such as an eBiz portal providing one-stop shop for registration for PAN/TAN, EPFO, and ESIC; MCA, CBDT and ministry of labour jointly mandating to cut the number of procedures for starting a business as well as the number of days to start a business to four; Central Registry of Securitisation Asset Reconstruction and Security Interest database being integrated with RoC to create a single registry of assets; e-courts to be expedited for electronic filing of complaints, summons and payments—especially in commercial courts—enabling country’s “enforcing contracts” indicator to improve; and the number of permits to be reduced to no more than eight towards an improvement in the “construction permits” indicator.

The Rajya Sabha sub-committee on EoDB recommended that a simple online single window approval mechanism coupled with self-assessment/declaration of having complied with the applicable regulations be ensured, for which a Common Application Form (CAF) needed to be notified by the state governments to make it acceptable to all agencies.

Other measures need to be pushed relentlessly—including, inter alia, simplification of taxation laws and cleaning up the Finance Act—as envisaged by the P Shome and Justice Easwar panels.

A large state is not necessarily a strong state. The very gigantism of public entities makes them slow and clumsy.

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