Unclear why India’s tax and insolvency scores didn’t rise
Given how few took prime minister Narendra Modi seriously when, in 2014, he said India would break into the top 50 in the DoingBusiness rankings—India was ranked 142nd then—the fact that India is ranked 77th is a great achievement; India could well look at 50 next year. The 2018 ranking is a 23-point jump over 2017 which, in turn, was a 30-point jump over 2016. The standout achievements are the jump from 146 to 80 for ‘trading across borders’ and from 181 to 52 for ‘dealing with construction permits’, traditionally seen as very corruption-prone and murky. All of which shows Modi’s meticulous planning is working, something that is also evident from the Swachh Bharat campaign, the distribution of LPG cylinders in rural India, the sharp uptick in digital payments and the usage of Aadhaar-linked direct benefit transfers.
What is inexplicable is the poor 121st rank in ‘paying taxes’ despite all India has done to streamline both filing and processing as well as the introduction of GST; in all probability, the small decline in the already poor score is related to the glitches in GST and the score should improve in a year or two. Resolving insolvency, where India’s rank has fallen from 103rd to 108th, is another mystery given how well the IBC/NCLT process is working. In which case, it is possible that the cases that don’t go to NCLT, but are being resolved through the normal court system, continue to be a problem. While the NCLT progress will improve over time, one option is to fast-track the rollout of insolvency courts. Enforcing contracts, where the score has deteriorated from an already poor 163 to 164, is another area that needs urgent attention. The clogged court system is obviously a factor here, which is why the government is trying to push arbitration as an alternative solution. The problem with this, however, is that the government itself is challenging various global arbitrations. RBI challenged the Tata-DoCoMo one and ONGC challenged the RIL gas-theft one. It will be interesting to see what the government does later this year, or early next year, when the one by Cairn Energy is out. If it goes against the government and it is still not challenged, that will go a long way in assuring the investor community—especially that overseas—that India plans to honour contracts more seriously.