|Demand of the question
Introduction. Contextual Introduction.
Body. Discuss recent improvements in Ease of doing business and reason for it. Discuss whether India’s jump in ease of doing business rankings will foster economic growth?
Conclusion. Way forward.
Recent rise in India’s ranking by 14 places to 63 in the World Bank’s Ease of Doing Business 2020 survey is a positive development. India also figures in the top ten most improved countries in the world for the third consecutive year. From being ranked 142 in 2014 to 63 in 2020, it has been a significant upward journey for the country in a rank list that is an important input in the plans of global investors.
Recent improvements in Ease of doing business survey, 2020:
- The latest improvement has come on the back of the implementation of the Insolvency and Bankruptcy Code (IBC). India’s rank has improved from 108 to 52 in the “resolving insolvency” category with the overall recovery rate for lenders.
- The reforms in trade procedures and paperwork as a result of India signing the Trade Facilitation Agreement at the World Trade Organisation are beginning to show. The country’s ranking in the “Trading across borders” category jumped 12 places from 80 to 68 signifying the abatement of paperwork in favour of electronic filing of documents and single-window customs procedures.
- There has been improvement in a parameter of “Dealing with construction permits”. The country’s ranking has improved by 25 places from 52 to 27.
Reasons for improvements in ease of doing business:
- Starting a Business: India made starting a business easier by fully integrating multiple application forms into a general incorporation form. India also replaced the value added tax with the GST (Goods and Services Tax) for which the registration process is faster. At the same time, Mumbai abolished the practice of site inspections for registering companies under the Shops and Establishments Act.
- Dealing with Construction Permits: India streamlined the process of obtaining a building permit and made it faster and less expensive to obtain a construction permit. It also improved building quality control by introducing decennial liability and insurance.
- Getting Electricity: The Delhi Electricity Regulatory Commission reduced charges for low voltage connections. Getting electricity was also made easier in Delhi through a reduction in the time for the utility to carry out the external connection works.
- Getting Credit: India strengthened access to credit by amending its insolvency law. Secured creditors are now given absolute priority over other claims within insolvency proceedings.
- Paying Taxes: India made paying taxes easier by replacing many indirect taxes with a single indirect tax, the GST, for the entire country. India also made paying taxes less costly by reducing the corporate income tax rate and the employees’ provident funds scheme rate paid by the employer.
- Trading across Borders: India reduced the time and cost to export and import through various initiatives, including the implementation of electronic sealing of containers, the upgrading of port infrastructure and allowing electronic submission of supporting documents with digital signatures.
- Other reasons: Separately, the government had also announced implementation of eBiz portal which will offer Government-to- business (G2B) services for investors and business activities, through a single window to cut time and cost and improve business environment.Under its National Trade Facilitation Action Plan 2017-2020, India implemented several initiatives that improved the efficiency of cross-border trade, reducing border and documentary compliance time for both exports and imports.
Will India’s jump in ease of doing business rankings foster economic growth?
While the rise in India’s ease of doing rank is welcome, there are three key reasons why it may not necessarily mean a turnaround in investment and economic growth.
- Firstly, the improvement in the ranking often is not sustained over the long term. For example, consider the period between 2007 and 2009. Out of the 10 countries that improved their ranking the most in those three years, seven now rank worse than what they did in the 2009 report.
- Secondly, even if the improvement sustains, it does not necessarily lead to higher economic growth or greater foreign direct investment (FDI) inflows, an analysis of 10 major economies which saw large improvements in their ease of doing business rankings shows. Many of the above economies, despite climbing several places in their ease of doing business rankings, have not seen much improvement in growth or FDI inflows.
- Further, external factors, beyond the control of policymakers, also play a role in dampening the outlook on many economies. Ease of doing business rankings seldom determine a country’s economic fortunes.Even in the absence of such external misfortunes, it remains debatable whether a pro-business reform stance necessarily leads to higher growth.
- The World Bank’s Doing Business report assessment might be at variance with what enterprises actually experience on ground. To illustrate, the time taken to start a business in India—in both Mumbai and Delhi—is around 30 days, according to World Bank’s ease of doing business reports for the last three years. But, the enterprise-level survey conducted by NITI Aayog and IDFC Institute in 2016 showed that the average time taken to start a business in India was more than 100 days.
Thus, the evidence suggests that the recent improvement in ease of doing business rankings may not mean much for India.While the improvements are impressive and the rise in overall rankings in the last few years is noteworthy, the fact is that India is still below its competitors for global capital, particularly China, which at rank 31 is one level above France.The country lags in many key metrics.The Centre must convince the States to reform their systems.