Considering last year’s government initiatives towards rolling out structural reforms and reducing and simplifying regulations, one can reasonably expect India to register a jump of 25-30 positions this year, and breaking into the top-80 club
The World Bank is expected to release the findings of its Doing Business study today. Started in 2003, the Doing Business study is widely considered as an important benchmark to understand how easy or difficult it is to do business in a particular country. It assesses the broader regulatory environment within which businesses operate in a country, ranking them based on the comparative ease for businesses to operate.
Last year, India was ranked 100th out of a total of 190 countries in the Doing Business ranking. That was the best rank India had achieved in recent years.
In terms of absolute change, the country reported a jump of 30 positions just within a year, from Doing Business 2017 to
Doing Business 2018. That increase was the highest across all economies last year. Clearly, such strong performance of the country was not a surprise.
In fact, it was a clear testimony to the fact that efforts to reform and re-engineer business processes and regulations since 2014 had started showing their impact on the ground.
As we await the release of this year’s edition of Doing Business ranking today, we expect a solid positive news for India. In fact, given the kind of structural and far-reaching reforms that got rolled out (some even within the last year), we hope that the country should breach the top-80 position this year. There are reasons for this optimism.
The World Bank ranks countries in Doing Business on the basis of something known as the “Distance to Frontier (DTF)” score. The study collates responses from various stakeholders on an economy’s performance in 41 indicators across 10 Doing Business topics that include:
(1) Starting a business;
(2) Dealing with construction permits;
(3) Getting electricity;
(4) Registering property;
(5) Getting credit;
(6) Protecting minority investors;
(7) Paying taxes;
(8) Trading across borders; (9) Enforcing contracts; and
(10) Resolving insolvency.
Based on stakeholder responses, the DTF score quantifies the gap between an economy’s performances vis-a-vis the best performer. Simply put, this score measures the distance of an economy’s performance on a particular indicator vis-a-vis the best performing economy on the same indicator. Countries are ranked based on this relative assessment.
Last year, India had shown substantial progress in its performance on topics such as “resolving insolvency” (due to efforts to implement the insolvency and bankruptcy framework), “getting electricity” (due to various efforts undertaken by the governments to streamline this sector), etc. In fact, solid performance in these areas helped push the overall rank of India.
However, on the other hand, performance in some other areas created headwinds, limiting the extent of rank improvement. These included areas such as paying taxes, starting a business and trading across borders. Several measures that have been taken since then are now expected to help India better its rank this year.
Let us consider “paying taxes” first. On July 1, 2017, the Goods and Services Tax (GST) was implemented. Possibly the biggest and the boldest tax reform since Independence, the GST sought to overhaul the indirect taxation regime in the country and make it a seamless integrated national market. The implementation of GST has considerably reduced the complexity of indirect tax structure in the country, thereby reducing the overall cost and time to comply with indirect tax regulations.
The impact of GST could not be factored in the Doing Business study 2018 as it was rolled out post the World Bank’s Doing Business study cut-off date—which is usually May 31 or June 1—for factoring in new reforms and policies. Anticipating that the roll-out of such disruptive reforms is likely to see considerable teething issues, the GST Council has met regularly since then, and has been taking prompt measures to iron out challenges along the way. We expect the impact of such extraordinary efforts to be reflected in India’s performance in this area.
Moving on to “starting a business”, the government, last year, introduced a new mechanism for setting up new businesses. Titled the “Simplified Proforma for Incorporating Company Electronically (SPICe)”, it attempted simplifying the process of setting up businesses and reduce the number of procedures one needed to comply with. In addition, the government has streamlined the processes associated with interaction of businesses with entities such as the Employees’ State Insurance Corporation (ESIC) and the Employees’ Provident Fund Organisation (EPFO).
Similarly, in the area of “trading across borders”, several initiatives such as reduction in documentation requirements, proliferation of automated risk management system for customs, increasing digitization across trade gateways, and the creation of a new Department of Logistics for streamlining interdepartmental coordination are expected to show positive results in terms of reduced time and cost to trade. Besides this, several other reforms were also implemented in other topics that are measured in this study.
Considering all these measures in totality, one can reasonably expect India to register a jump of about 25-30 positions this year. That would mean that the country could likely breach the top-80 rank this year. However, that’s not the end. There still remain areas where more work is needed. But in any case, what is clear is that the direction of the government’s policy is towards reducing and simplifying regulations. This is the only way we can realize the ambitious target set by the Prime Minister—that of achieving a top-50 rank in Doing Business in the next 1-2 years.