Ease of Doing Business and challenges for it in india

What is Ease of doing business Index?

Ease of doing business Index has been developed by the World Bank and a nation’s ranking is determined based on 10 sub-indices, given as follows:

• Time taken to start a business
• Dealing with construction permits
• Getting a power connection
• Registering a property
• Getting credit sanctioned
• Protecting investors
• Paying taxes
• Trading across borders
• Enforcing contracts
• Filing for insolvency or forcing bankruptcy

In India, World Bank calculates the Index based on the data from Delhi and Mumbai. This is one of the criticisms faced as the index doesn’t take into account the whole country.

Ease of doing business is key to achieve objectives of initiatives such as Make in India which will boost the manufacturing sector. In the recently released World Bank report, India has climbed 30 spots to reach the 100th position in Ease of doing business Index 2018 from 130th position in 2017. India has seen improvement of rankings in – protecting rights of minority investors, getting credit and resolving insolvency, enforcing contracts and dealing with construction permits.

Though the Central and State Governments have tried to improve the ease of doing business by several initiatives like Goods and Services Tax, Insolvency and Bankruptcy Code and striving towards cutting red tape, challenges still remain. In this article, we try to understand the challenges faced for ease of doing business in India and also the prospects.

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Challenges for Ease of doing business in India

• It takes approximately a month to start a business in India while the OECD average is 12 days. Though some states like Telangana have eased up the procedures for starting a business, this is yet to be achieved on a pan India basis.
• The procedures to secure permits are rather cumbersome and involve permissions to be sought from various departments.
• The implementation efficiency of Insolvency and Bankruptcy code is yet to be proven.
• Though India has been a modest improvement in enforcing contracts, it now takes longer time than it did 15 years ago. The absence of effective means for enforcing contracts impedes growth and development and is a disincentive for the private sector.
• When the domestic market is sluggish, it is important that foreign trade is boosted. But India in the current year rankings slipped three positions in foreign trade or trading across borders from 143 to 146.
• India’s largest urban agglomerations, Mumbai and Delhi cannot host the kind of large factories to generate adequate employment. The procedural reforms have not yet reached the hinterland.
• There’s been a significant improvement in paying taxes, but India ranks 119 on this index. For the Ease of doing business index 2018, GST has not been taken into consideration.
• Legislative roadblocks still exist for Land Acquisition.
• On his visit, the Prime Minister of Singapore has cited land acquisition, over-regulation, and legal hassles as bottlenecks for ease of doing business in India.  This signals the hurdles faced by investors in working with India.
• A plan for the industrial park in Gujarat with Singapore has been abandoned due to issues of land acquisition.
• Difficulty in cutting the red tape erodes the trust of investors and impedes the prospects of small businesses.
• Lack of coordination among different government ministries and departments, Central and State governments.

Prospects and Way forward

• India has significant room for improvisation in almost all the sub-indices.
• India fares among the best in access to credit in the South Asian region. Access to credit should be assured for small businesses and rural entrepreneurs through penetration of formal banking channels into rural areas.
• Effective implementation of reforms like GST, Insolvency and Bankruptcy code is needed. The limit of 180 days prescribed in Insolvency and Bankruptcy code should be pertained to.
• Governments should be proactive in obtaining regular feedback about the implementation and initiating the changes accordingly.
• States can work towards providing a robust online system for registering property.
• Digitising land records, improving titling and streamlining procedures for transfer of property should be taken up.
• Foreign trade needs to be boosted by cutting red tape and reducing transaction costs.
• A fair judicial and executive system need to be in place to achieve the confidence of domestic and foreign investors.
• Fast track commercial courts, paper-less courts need to be set up to speed up the judicial processes.
• Reforms should not be restricted to Mumbai and Delhi but should be implemented in the hinterland as well.
• Create awareness about the reforms and procedures of institutional arbitration.
• Labour compliances need to be eased.
• Bureaucracy needs to be well trained and should try to come out of its popular mindset of being lax and indifferent.
• In the spirit of cooperative and competitive federalism, all the states should initiate the best and proven practices for ease of doing business.
• The government’s assessment of states for implementation of “Business Reforms Action Plan” is a step in the right direction and helps to reinforce the idea of competitive federalism.

Conclusion

A high ranking in one year is not the end in itself. To reach the target of “top 50” in the rankings, India needs to be more vigilant in its approach. It needs to demonstrate not only the regulatory, governance and economic reforms to investors but also political and macroeconomic stability, law and order maintenance and quality physical infrastructure. At the same time, reforms should not be restricted to Mumbai and Delhi as this would improve the ranking on Ease of Doing Business Index but doesn’t account for the actual ground picture of the whole country. To address this issue, State wise ranking of implementation of “Business Reforms Action Plan” needs to be continued. Not restricting to cooperative federalism, cooperative sub federalism also needs to be explored by bringing local bodies on board and encouraging their cooperation with Central and State governments.

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