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Successive governments and economists have often debunked the World Bank's Doing Business Index, with India's median ranking between 130 and 140. However, on a cautious note, the current government has been working very hard to remedy the shortcomings and the results are here to be seen. The rank of India has risen from 100 in 2018 to 77 in 2018, which is remarkable. How can we see this rank?
Image of representation. Reuters.
The ranking is based on an industry survey conducted in two cities – Mumbai and Delhi, where participants commented. This is corroborated with the processes involved and then tabulated. Therefore, two things are pretty clear.
The first is that we know what the World Bank is studying and second, knowing our relative position, it is possible to solve the problems, especially if they fall under the policy. Therefore, it must be remembered that what is valid in these two cities is not good elsewhere, things could be better or worse. Is there anything wrong with the deliberate pursuit of a rank by remedying these shortcomings? Not really, because these indicators are objective for all countries and, in doing so, we are creating a cleaner environment for businesses.
If we look at the last two ranking calendars, we can see that India is a pioneer in improving its ranking two years in a row. Of the ten indicators included by the Bank, substantial improvements have been made in the start-up of a company, particularly with respect to building permits and cross-border trade. The table below gives a kind of comparative table of this improvement in real terms, namely the number of days or hours in the last two years, which made all the difference.
As shown in the table below, it is very easy to reduce the time required for authorization. And the fact that the government has reduced this number in a year shows how the processes that followed have been abandoned over the centuries and have never been reviewed. Very often, the paperwork required to transfer documents into the bureaucracy is really tedious and adds to the cost.
At another level, one can give an example of a renewal of a license in Mumbai via a national online channel. The application is online and indicating the license number, the details of the individual appear. Just get the Aadhar copy and a medical certificate, and then download them. However, once that is done, it becomes mandatory, even today, to go to the Regional Transportation Office (RTO) and deliver the same documents that are not verified but only attested by the responsible. This shows how redundant but necessary this visit is. One can think of several redundant measures that must be undertaken to do business in India.
How was our performance? To start a business, the rank went from 156 to 137, which is very good. As for building permits, it went from 181 to 52, while the cost was reduced from 23% to 5.4% of the value of the warehouse. This is a big gain for the industry. The cost of an electrical connection went from 97% to 30%, which again represents a considerable gain. Finally, for the registration of goods, rank and score have deteriorated. The number of days has gone from 53 to 69. The government will surely be working on it for the next cycle.
For the next two market parameters, India has again been successful. To get credit, the rank went from 29 to 22 with 100% credit bureau coverage, which was only 43.5% earlier. There was practically a status quo in the protection of minority shareholders, although the score was raised to 80 and it may be difficult to significantly improve it.
With respect to the payment of taxes, it is surprising to note that the Goods and Services Tax (GST) was intended to relieve the burden on the system. While the ranking is down two notches and payments need to be reduced slightly, the turnaround time has gone from 214 to 275 hours. It is clear that the GST processes need to be reviewed if we want to improve this variable over time.
On the foreign trade side, significant gains were made, from 146 to 80, which bodes well for exporters in particular. The task is to ensure that the same changes are made in all major cities and states so that these benefits are made available to all traders.
The legal proceedings relating to the execution of the contracts and the insolvency remained virtually unchanged or slightly decreased. It can be hoped that with regard to the insolvency parameter, things will improve next year, as the Insolvency and Bankruptcy Code (IBC) has begun to give signs positive (the data from this study date back to May 2018).
Although the show is really impressive, the next question is what does it mean? Will investment increase? It should be emphasized here that there is a need to distinguish between increased investment and reduced transaction costs.
Investments in the economy have stagnated over the past three years and will depend on other factors such as capacity utilization, cost of funds, willingness of the bank to lend, viable infrastructure projects, etc. .
But this improvement in rank means that the cost of doing business is now lower. For example, a person wishing to set up a 500 crore rupee project spends less time getting permits and is able to start operations, say a hundred days ago. The interest savings on the loan will be considerable. Policies are facilitators and can not generate investments on their own.
The goal will certainly be to improve registration and insolvency issues, which hopefully will bring the region 50 closer next year. The government should be commended for making these improvements and given the competition among states in this regard, we can expect acceleration in other cities and towns.
(The author is the chief economist, CARE Ratings; and author of Economics of India: How to deceive everyone forever)
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