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INDIA ACHIEVES IN EASE OF DOINT BUSINESS

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INDIA ACHIEVES IN EASE OF DOINT BUSINESS
By: Mr. M. GOVINDARAJAN
November 5, 2019
All Articles by: Mr. M. GOVINDARAJAN       View Profile
  • Contents

Introduction

World Bank every year evaluates the ‘Doing business’ of various countries in the world and put ranks to them according to the merits of the countries.  It measures regulations across 190 economies in 12 business regulatory areas to assess the business environment in each economy. Ten of these indicators were used to estimate an ease of doing business score this year, over the 12 months ending April 30, 2019. This is the 17th edition of a study that has motivated governments worldwide to undertake business reforms with the goal of bolstering sustainable economic growth. 

Measures

The study looks at rules affecting a business from inception through operation to wind-down.   The following measures are considered in evaluating the ‘Doing of business’ by a country-

  • The process for incorporation;
  • Employing workers;
  • Getting a building permit;
  • Obtaining an electricity connection;
  • Transferring property;
  • Getting access to credit;
  • Protecting minority investors;
  • Paying taxes;
  • Engaging in international trade;
  • Enforcing contracts; and
  • Resolving insolvency.

Most improved economies

The economies with the most improvement in ease of doing business 2020 are Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, India and Nigeria.

India’s status

India was ranked 142nd among 190 nations when Prime Minister Narendra Modi took office in 2014. Four years of reform pushed up India's rank to 100th in World Bank's ‘Doing Business 2018’ report. It was 130th in 2017 when it was ranked lower than Iran and Uganda. Last year, the country jumped 23 places to the 77th position on the back of reforms related to insolvency, taxation and other areas. In its 'Doing Business' 2020 report, the World Bank commended the reform efforts undertaken by the country ‘given the size of India's economy’.

It is impressive that India secured 63rd position in the World Bank's Ease of Doing Business 2020 index. The country jumped 14 places to 63rd among 190 economies, and according to the annual report, India is among the top 10 improvers.  India acquires 63rd position getting 71.0 DB score which is as on 01.05.2019.  For this purpose Delhi and Mumbai are considered.  In future Kolkata and Bangalore will be taken for this purpose. 

Last year, India jumped 23 places to reach 77th position. In five years of the Modi government, India’s ranking has improved 79 places - to 63 in 2019 from 142 in 2014 - a record for a major economy.

This is the third year in a row that India makes to top 10 in Doing Business, which is a success which very few countries have done over the 20 years of the project,’ says Simeon Djankov, Director of Development Economics at the World bank told PTI in an interview. ‘India is the first country of its type to achieve that. It has jumped this year by 14 position,’  he said.

‘Sustained business reforms over the past several years have helped India jump 14 places to move to 63rd position in this year’s global ease of Doing Business rankings. India put in place four new business reforms during the past year and earned a place in among the world’s top ten improvers for the third consecutive year,’ the World Bank Group’s Doing Business 2020 study said.

The country performed better in six of the ten parameters used for ranking including starting a business, dealing with construction permits, trading across borders, resolving insolvency, paying taxes and getting electricity.

Starting a business

India made starting a business easier by abolishing filing fees for the SPICe company incorporation form, electronic memorandum of association and articles of association.

Dealing with construction permits

India streamlined the process, reduced the time and cost of obtaining construction permits and improved building quality control by strengthening professional certification requirements.  It also streamlined the process of obtaining building permit and made it faster and less expensive.

Trading across borders

India made trading across borders easier by enabling post clearance audits, integrating trade stakeholders in a single electronic platform, upgrading port infrastructures and enhancing the electronic submission of documents.

Resolving insolvency

The leaders of India adopted the ‘Doing Business’ indicators as a core component of its reform strategies.  The Prime Minister’s ‘Make in India’ campaign focused on attracting foreign direct investment, boosting the private sector, manufacturing in particular, and enhancing the country’s overall competitiveness.  The administration’s reform efforts targeted all of the areas measured by Doing Business with a focus on paying taxes, trading across borders and resolving insolvency.

India provides an example of successful implementation of reorganization procedures.  India established an insolvency regime in 2016.  Before the implementation of this reform  it was very burdensome for secured creditors to seize companies in default of their loans.  The recovery process was very lengthy that lasted almost more than 5 years, making efficient recovery almost impossible.  The new law introduced the option of reorganization (Corporate Insolvency Resolution Process)  for commercial entities as an alternative liquidation or other mechanisms of debt enforcement, reshaping the way insolvent firms could restore their financial well being or close down.    With the reorganization procedure available, companies have effective tool to restore the financial viability and creditors have access to better tools to successfully negotiate and have greater chances to revert the money loaned at the end of the insolvency proceedings.

Comparative Statement

The comparative statement is furnished below which will show in which are India attains greatness and in which area India are yet to be improved-

Area

Rank in 2016

Rank in 2020

Starting a business

155

136

Dealing with construction permits

183

27

Getting electricity

70

22

Registering property

138

154

Getting Credit

42

25

Protecting Minority Investors

8

13

Paying Taxes

157

116

Trading across Borders

133

68

Enforcing Contracts

178

163

Resolving Insolvency

136

52

Total

130

63

Source: Doing Business 2020 – World Bank Group.

While there has been substantial progress, India still lags in areas such as enforcing contracts (163rd  and registering property (154th). It takes 58 days and costs on average 7.8% of a property’s value to register it, longer and at greater cost than among OECD high-income economies. And it takes 1,445 days for a company to resolve a commercial dispute through a local first-instance court, almost three times the average time in OECD high-income economies.

Compared with last year, India’s ranking deteriorated on two parameters – ‘protecting minority investors’ (from 8th to 13th position) and   and remained unchanged in ‘enforcing contracts’ at 163rd. In all these parameters, India’s score remained unchanged indicating no reforms were recorded by the World Bank.

Conclusion

‘India’s impressive progression in the Doing Business rankings over the past few years is a tremendous achievement, especially for an economy that is as large and complex as India’s. Special focus given by the top leadership of the country, and the persistent efforts made to drive the business reforms agenda, not only at the central level but also at the state level, helped India make significant improvements,’ said Junaid Ahmad, World Bank Country Director in India. ‘The focus now needs to be on continuing this trend to maintain and improve its ranking.’

Our Hon’ble Prime Minister Narendra Modi had set the target for India to break into the top 50 ranking this year, but it seems the country will have to wait for at least another year.

 

By: Mr. M. GOVINDARAJAN - November 5, 2019

 

 

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