India Jumps 23 Places On World Bank’s Ease Of Doing Business Index
India jumped 23 places on the World Bank’s Doing Business Index as the country made it easier to start a business, deal with construction permits and facilitated quicker cross-border trade.
It’s now ranked at 77, the highest in South Asia, up from 100 last year, according to the World Bank’s Doing Business 2019 report. “India, with six reforms, is among the top-ten improvers for the second consecutive year,” the report said.
The improved ranking will boost the sentiment of Prime Minister Narendra Modi’s government ahead of the general election, at a time it’s facing flak for rising fuel prices and falling rupee. Last year, Finance Minister Arun Jaitley had said Modi wanted various ministries to target the top 50, which he thought was “doable”.
Modi had vowed to improve the ease of doing business when he came to power in 2014. Since then his 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.
And that seemed to have paid off. India’s ranking in dealing with construction permits—one of the 10 parameters the World Bank looks at—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 report said. “It also improved building quality control by introducing decennial liability and insurance.”
The other significant improvement in ranking was in trading across borders. India’s ranking for cross-border trade improved by 66 places to 80. That’s because of various initiatives taken to reduce the time and cost to export goods.
India now allows exporters to electronically seal containers at their own facilities, the report said. This means as little as 5 percent of the shipments now undergo physical inspection, it said. That, coupled with upgrading of port infrastructure and electronic submission of documents using digital signatures, led to an improvement in ranking.
India has supported its ambitious reform agenda by providing regular training to both customs officials and private sector agents, as well as by establishing Customs Clearance Facilitation Committees that bring together actors involved in international trade at regular meetings.World Bank’s Doing Business 2019
The other improvements come through the GST, which wasn’t included 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 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.
The amendements to the IBC also strengthened access to credit, the report said. “Secured creditors are now given absolute priority over other claims within insolvency proceedings.”
Job Half Done
Yet, 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 8 percent of the property value.
India’s efforts in protecting minority investors also stagnated. Its rank fell from fourth in the world to seventh, with no 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. The World Bank report shows that it takes more than three years to enforce a contract 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, told BloombergQuint. He said that reforms are being put in place and it is just a matter of time before they show up in the ranking. “It is one of the more difficult reform to implement but we are definitely on track.”
Abhishek also explained that the World Bank factored in data only from July to December which meant it does not include the further tax rate cuts and alleviation of the teething issues with GST. That too, he said, will show up in next year’s numbers.
Beyond that there are many things need to be done. We are in the process of drafting an industrial policy which will become a roadmap for sustainable growth of all business enterprises in India.Ramesh Abhishek, Secretary, DIPP
Earlier this year, World bank’s former chief economist had raised questions about the methodology to rank countries on the Doing Business Index.
Justin Sandefur, a senior fellow at the Center for Global Development, analysed the historical rankings and said India’s big leap in rankings were only visible due to a change in methodology. The World Bank has since defended its stance.
This year, World Bank said there have been no changes the way it calculates the score. It continues to calculate rankings based on the data covered from two cities for each country. For India, these are Delhi and Mumbai.
It, however, renamed the “distance-to-frontier score” to “ease of doing business score” to reflect its “main purpose of measuring the absolute progress”. It said this happened without any change in the actual calculation.