The author has worked with Deccan Herald for two decades, and also with various TV channels such as al-Jazeera and CNN. He currently heads the Eastern Bureau of Parliamentarian
The latest World Bank report on Ease of Doing Business 2019, released last week, must have warmed the cockles of the Indian government. The report put India at a rank of 77, the highest in South Asia and up from 100 last year. “India, with six reforms, is among the top-ten improvers for the second consecutive year,” the report said.
What has made India jump 23 places up in the World Bank’s Doing Business Index? No, it’s not poverty alleviation measures or bringing a significant percentage of people above the poverty line or making a robust growth on the industrial index. On the contrary, India, according to World Bank, has made it easier to undertake a business, deal with construction permits and could now facilitate quick cross-border trade.
The ranking evaluates countries on ten parameters (like ease of paying taxes, resolving insolvency, getting credit, enforcing contracts), and a higher score on each one adds to improvement in overall rankings. India has shown an improvement in six of the ten parameters with the most being on ‘construction permits’. India’s ranking in dealing with construction permits – one of the ten benchmarks the World Bank evaluates – jumped to 52 from 181 last year. “India streamlined the process of obtaining a building permit and made it faster and less expensive to obtain a construction permit,” the World Bank report said. “It also improved building quality control by introducing decennial liability and insurance.” According to the Bank, the Modi government has overhauled the country’s indirect tax structure by introducing the goods and services tax, brought in a new real estate law and consolidated the numerous bankruptcy laws into one. The other factor which contributed significantly towards improvement in ranking was in trading across border which improved by 66 places to 80 owing to various initiatives taken to reduce the time and cost to export goods.
Finally, the most notable (controversial though in view of what former RBI governor Raghuram Rajan had described) improvement has come through the Goods & Services Tax (GST), which did not figure in last year’s ranking, and the Insolvency and Bankruptcy Code. The GST made it easier to start businesses as it integrates multiple application forms into a single general incorporation form, World Bank said adding that this speeds up the registration process. India, the report said, has not only made paying taxes easier, but also made it less costly by reducing the corporate income tax rate and the employees’ provident funds scheme rate paid by the employer. “Secured creditors are now given absolute priority over other claims within insolvency proceedings,” the report maintained.
Many would feel or might claim as well that the improved ranking is likely to boost the sentiment of Prime Minister Narendra Modi’s government ahead of the general elections slated sometime next year; more so, because the BJP government has been facing flak for rising fuel prices and falling rupee. But a closer look will reveal that World Bank’s perception of doing business might not always provide the real picture.
First, the assessment is based on the feedback from enterprises of only two cities, Delhi and Mumbai. Among the Indian metros, Delhi is just an average performer and Mumbai is little higher on the scale as far as the ease of doing business is concerned. According to an annual ranking done by World Bank itself for the government of India, the top five states in terms of ease of doing business are: Andhra Pradesh, Telangana, Haryana, Jharkhand and Gujarat. And there has been no mention of either Delhi or Maharashtra!
Secondly, questions have been raised over the methodology adopted by the Bank for arriving at the rank. In fact, its former chief economist Justin Sandefur had expressed his reservations over the methodology to rank nations on the Doing Business Index. According to Sandefur, a senior fellow at the Center for Global Development, who made an in-depth analysis of the historical rankings, India’s extraordinary jump in rankings was only visible due to a change in methodology. Thirdly, going by the World Bank report, in some areas, India’s rank has worsened. In registering property, the country’s ranking fell to 166 from 92 when Modi took over. It takes over two months in India to register for property and the procedures end up costing almost eight per cent of the property value. India’s rank with regard to protecting minority investors fell from fourth in the world to seventh, with very little improvement in reforms. Similarly, in paying taxes, the ranking slipped by two places to 121 this year.
Enforcing contracts still remains a huge problem, with the country’s rank at 163. As per the World Bank report, enforcing contracts takes more than three years to mature and it ends up costing a third of the claim value itself.
“Registering property and enforcing contracts have been two major challenges in the last four years,” Ramesh Abhishek, secretary of the Department of Industrial Policy and Promotion, said. Conceding that it is one of the more difficult reforms which is being put in place, he claimed that the government “is on track and it is just a matter of time before they show up in the ranking”. According to him, the government is in the process of drafting an industrial policy which will become a roadmap for sustainable growth of all business enterprises in India.
However, the World Bank which has since defended its stand, maintained that it hardly affected any change whatsoever in the way it calculates the score. The practice of calculating the rankings based on the data culled from two cities of each country, stands without a change and for India, these are Delhi and Mumbai. The only change that has taken place is rechristening of the “distance-to-frontier score” into “ease of doing business score” to reflect its “main purpose of measuring the absolute progress”. This, the bank claimed, happened without any change in the actual calculation.
India, on its part, has also been pressing for inclusion of more Indian cities for assessment for the ranking in order to make it more representative of business conditions across the country. If cities like Bengaluru, Chennai and Ahmedabad were included, it would have improved this year’s rankings by a much higher margin. But the measure, if taken, could spell another trouble for India; the formula of inclusion of more cities will apply to all the other countries ranked and may benefit them too. And at the end, India might run the risk of slipping to lower ranking in the ease of doing business index.