Podcast | Digging Deeper – India’s surge on World Bank’s Ease of Doing Business Index

That was a pretty impressive rise, with India improving in indicators like construction permits, credit, protection of minority investors, taxes, contracts and resolving insolvency. There were also some reservations about the World Bank’s methodology.

Now comes news that India has moved up from 100 to 77 in the Doing Business rankings. India was one of the 10 most improved economies, alongside countries like China, Djibouti and Azerbaijan.

While 77 is a big improvement for India, considering we were languishing around 130 not too long ago, it’s still only a middle of the field rank. Rwanda is ranked 29. Let that sink in. To compare, the United States is eighth on the list, Singapore is second, Japan is 39th, China is 46th, Uzbekistan is 76th and Oman is at number 78. Number one? New Zealand. The list gauges a total of 190 countries.

In July, we covered in another deep dive what this ‘ease of doing business’ ranking means in terms that’s relatable for common folks like you and I. Today, we’re looking at what this new rise in ranking means relative to that earlier progress.

India’s rise

The World Bank report recognises India as one of the top 10 improvers in this year’s assessment, for the second successive time. India is the only large country this year to have achieved such a significant shift upwards. India has improved this rank by 53 positions in the last two years, and by 65 since 2014.

The Doing Business 2019 report bases rankings on field surveys and interviews with corporate lawyers as well as company executives in Delhi and Mumbai. India is seeking to reach the 30th position by 2020, according to the government.

Naysayers do point out that there are caveats to the ranking. For instance, the questionnaire does not measure all aspects of the business environment that might be considered by a firm or investors, like “macroeconomic conditions, or the level of employment, corruption, stability or poverty, in every country.”

The World Bank noted that India had improved on six of the 10 parameters relating to starting and doing business in a country – Grant of Construction Permits; Trading Across Borders; Protecting Minority Investors; Getting Electricity; Getting Credit; and Enforcing Contracts.

Commerce minister Suresh Prabhu tweeted, “We have made notable improvements in 6 important #EoDB indicators and are steadily moving towards implementation of international best practices. India is now ranked 1st among South Asian countries compared to 6th rank in 2014.”

 Anybody else get the feeling we’ve been aiming a bit low? It must be mentioned that when it comes to Enforcing Contracts, India’s ranking improved only marginally – from 164 to 163. In ‘Starting A Business,’ India moved from 156 to 137. So we’re still in the bottom half of the pile.

But India showed marked improvement in the other four parameters. The most dramatic changes were related to ‘Construction Permits and Trading Across Borders’. In the ‘Grant of Construction Permits’ indicator, India’s ranking improved from 181 last year to 52 in this year’s report—a jump of 129 ranks in a single year!

By streamlining processes, India made it faster and less expensive to obtain a construction permit. It also improved building quality control by introducing decennial liability and insurance. The cost for completing all procedures to build a warehouse has been slashed to 5.4 percent of the warehouse value, from the earlier 23. percent. The total time needed for obtaining a permit has been reduced to 95 days, from 144 days.

Housing and urban affairs minister Hardeep Singh Puri said, “What is particularly satisfying is that as business reforms agenda in area of construction permits percolates down from state to district level, we have moved a whopping 129 places to rank at 52 from 181 last year in the same World Bank Report.”

Anshul Jain, MD of Cushman & Wakefield India, said real estate sector reforms – like the single window clearance in Delhi; online building permit system in Mumbai etc.- augur well for domestic developers. He said commercial markets are doing exceedingly well even as the residential sector is experiencing slow growth.

Improvement in credit indicates that startups and SMEs have been able to access structured finance better through financial inclusion and an improved credit cycle. Jain also gave some credit to the Insolvency and Bankruptcy Code.

He said, “With the new Insolvency and Bankruptcy Code in 2018, we expect India’s rankings to improve even further in the next edition. We also expect more improvements in contract enforcements and property registrations as these are critical for business investments and protection of ownership rights.” As noted earlier, India still lies at 163 when it comes to enforcing contracts.

How did India improve?

Shanta Devarajan, the World Bank’s Senior Director for Development Economics and Acting Chief Economist, told PTI, said, “India is one of our top reformers, one of our top 10 performers. It was also on the top 10 list last year.. two years in a row, which is sometimes very difficult to do.”  Devarajan praised Prime Minister Narendra Modi for taking personal interest in undertaking reforms and initiating measures aimed at improving the ease of doing business in India.

Speaking about how India went about making it easier to do business in India (i.e, after getting past the difficulties of starting a business, in which we still rank 130 something) the World Bank noted, “The reforms in India included streamlining the process of obtaining a building permit and improved building quality controls Starting a business was made easier through consolidation of multiple application forms and introduction of…GST… while getting electricity was made faster and cheaper. Other reforms in India included strengthening access to credit as well as making it easier and faster to pay taxes and trade across borders.”

Ramesh Abhishek, secretary with the Department of Industrial Policy and Promotion, said, “This… is based on feedback from the ground. When there is such a dramatic improvement…the cost of doing business reduces drastically. That makes our businesses more competitive.

That is even more important for micro, small and medium enterprises.” He also claimed that when cost and time in construction permits drop, and when there is technology driven governance, it helps anyone who is trying to build property or industry. Livemint noted that letting exporters seal their containers electronically at their own facilities, limiting physical inspections to 5 percent of shipments helped in trade facilitation.

In the ‘Trading Among Borders’ indicator, India’s rank jumped 66 places, from 146 to 80.

India is in the top 10 when it comes to Protecting Minority Investors. It is currently ranked seventh for this indicator.  The report said, “India continued its reform agenda, implementing six reforms in the past year. India is now the region’s top-ranked economy.”

Moneycontrol reported that on the ‘Distance to Frontier’ metric, which gauges how far an economy’s policies are from global best practices, India’s score improved from 60.76 to 67.23.

What thats means is, India has, in the last year, improved business regulations in absolute terms – indicating that it is continuing its steady shift towards global standards.

The World Bank estimated the average import into India now spends less than 100 hours being checked for compliance at the border. That wait time used to be over 250 hours per year. Junaid Ahmad, World Bank Country Director in India, said “India’s strong reform agenda to improve the business climate for small and medium enterprises is bearing fruit. It is also reflected in the government’s strong commitment to broaden the business reforms agenda at the state and now even at the district level.”

Finance Minister Arun Jaitley said India can even enter the top 50 if it improves on time taken for registering real estate, starting business, insolvency and taxation and enforcement of contracts. Radhika Rao, an economist with DBS Bank, told CNBC, “This improvement is commendable and timely, even if the benefits of these long-term focused and social plumbing reforms might not buoy growth in the immediate term.”

Rita Ramalho, Senior Manager of the World Bank’s Global Indicators Group, praised the work done by India, She said, “I was actually somewhat surprised…how big the improvement this year has been for India. So, you never know, India may be able to get it and get big enough improvement to reach the 50 ranking.”

Livemint claimed the World Bank could not sufficiently account for GST implementation in its ranking for this year as its deadline for tax-related reforms was 31 December 2017. GST had been in place just six months at the time. Hitches in GST filing may have led to a rise in the number of hours taken in a year to file taxes to 275.4 this year from 214 last year.

India’s ‘paying taxes’ ranking dropped to 121 from last year’s 119. IBC falls under the “resolving insolvency.” Ono this count, India dropped from 103 to 108, though its score was almost unchanged. That perhaps indicates that other nations may have undertaken more reforms in that regard.

Room for improvement

Now that we’re at 77, how do we break into the top 50? More than one bureaucrat and government official has spoken about the “Top 50.”

Officials did make it clear that according the report, there are some areas where serious improvement is imperative. India is lagging far behind the global rankings , placing 137th when it comes to starting a business. India takes 1,445 days, on average, to resolve a commercial dispute.

That’s nearly four years! In high income economies, the same dispute is usually resolved in 582 days, or 1.5 years. Ramalho said, “This is something that has not changed. Probably one of the more challenging reforms in India is to get the judiciary on board to improve that part.”

By amending the Commercial Courts Act, the government facilitated the establishment of commercial courts in 250 districts. If these courts dispose of cases faster, India may rank higher on this parameter next year. To improve on the other parameters, ownership and titles need to be online. This comes under the local government.

India is also strikingly inefficient when it comes to registration of properties. It is ranked 166 out of 190 countries in this parameter. Business World reported that the average time to transfer properties in Mumbai, one of the cities under consideration, is 80 days while in advanced countries the average time period is 20 days.

Ramesh Abhishek says, “reforms like GST will be recognised next year…filing of GST returns, which stabilises over a period of time, will get reflected next year. We hope more and more companies turn to resolution and reorganisation, and not liquidation. Our commercial courts are operational in Delhi and Mumbai because of a recent amendment. Once fast-tracking of cases takes place, it will help us. We may achieve it (Top 50) sooner than people thought.”

Ramalho said about the GST factor, “Part of the GST is counted in the report, but we would expect that they’ll still be an improvement in their paying taxes indicator due to that. The full impact of the GST would only be felt next year.”

Firstpost was not entirely impressed by what others claim is good news. Prasanna Mohanty, broadly hinted that the World Bank’s numbers are susceptible to political manipulation.

He wrote, “Has higher FDI inflows led to higher GDP growth, higher capital formation (investment) or higher industrial output and capacity utilisation (relevant to ‘Make in India’ programme)? The answers are a clear ‘No’. And thereby hangs a tale.”

However, others are more optimistic. CII president Rakesh Bharti Mittal said, “The revised position will greatly add to the investment attractiveness and competitiveness of the Indian economy.”  Former economic affairs secretary Shaktikanta Das said, “This will enhance competitiveness of Indian economy and generate higher investments, domestic and foreign.”

This is certainly good news, and this is certainly not the last time we will hear of it. Get ready for WhatsApp forwards, and every single BJP campaigner take a shot at saying ‘Ease of Doing Business Index’ at every rally there will be in the run up to the 2019 general elections.