Russia is on course to jump its Doing Business rank from 120 to 20 in six years, as decreed by President Vladimir Putin. Can India pole-vault to 50 as coveted by Prime Minister Modi? There is a striking example of how a dramatic improvement in DB ranking can be achieved.
Following President Putin’s May 2012 decree ordering Russian bureaucrats to strive towards improving the country’s Doing Business ranking from 120th to 20th by 2018 ~ a “hundred-step” transition ~ Russia rose to the 51st place in 2015. It has been steadily improving ~ from 120 in 2012 to 112 in 2013, 92 in 2014, 62 in 2015, 51 in 2016, and 35 in 2017. Business and industry have for long demanded that India’s DB regime be simplified.
At its meeting with the Prime Minister in September 2015, India Inc. claimed that the complex regulatory system had made the country a tough place to do business in. Entrepreneurs abroad spoke in the same vein. From example, most of the 41 CEOs from top US corporations, who had assembled at New York’s Waldorf Astoria Hotel, pleaded with Narendra Modi for quick action. During the launch of the ‘Make in India’ initiative on 25 September 2014, the Prime Minister announced that the Government would strive for India’s DB rank to be within the top 50.
In terms of Doing Business, India’s leap from 130th in 2016 to 100th in 2017 suggests that the country will achieve the target set by Prime Minister Modi. The 15th annual Doing Business (DB) report crucially signifies an endorsement of Modi sarkar’s thrust on economic reforms. The World Bank’s DB 2018, like its 14 preceding annual editions, analysed the health of 190 economies based on detailed diagnostics, with quantitative indicators on a range of activities.
Ten economies ranked at the top are: New Zealand, Singapore, Denmark, Republic of Korea, Hong Kong, United States, United Kingdom, Norway, Georgia and Sweden. According to DB 2018, India finds a place “among the 10 top improvers”, inter alia, on the strength of greater ease in the payment of taxes online, facility to combine PAN and TAN, reduction in the time required to complete Provident Fund and state insurance applications, possibility of submitting building plans in advance for a construction permit.
India’s current ranking on starting a business is 156th, against 155th in 2016, involving 29.8 days to deal with 11.5 procedures. New Zealand at No.1 takes just half a day to handle only one procedure. The issue of construction permits in Denmark ~ at top of the chart for this activity ~ takes 64 days for seven procedures. India takes 143.9 days for 30.1 procedures, and ranks 181st (183rd: DB 2017). For obtaining an electricity connection, India ranked 70th as per DB 2017, improved to 29th now, covering 45.9 days. New Zealand takes one day for two procedures. India is ranked 154th (138th, DB 2017); it takes 53 days for eight procedures.
As regards payment of taxes, Singapore, commanding the No.1 position, takes 49 hours per year; India ranks 119th (157th in DB 2017). It takes 214 hours per year. Likewise, India’s rank in the insolvency index is 103rd (136th, DB 2017), in contrast to Norway at No.1. The average duration of bankruptcy proceedings in India is around 4.3 years. For getting credit, India ranks 29th (42nd, DB 2017). Going by this parameter, New Zealand is No. 1. India’s rank in respect of enforcing contracts is 164th (178th as per DB 2017); South Korea is No.1. In India it takes 1,445 days on an average for the judicial process to be over, in stark contrast to Korea’s 290 days for enforcing contracts. India needs to compel the departments concerned in the states and at the Centre to address the reason why the country continues to score low.
Enforcement of contracts is a key parameter since it has a multiplier effect on several other parameters for deciding the rank in terms of Doing Business. Specifically three other activities that can substantially improve our position include construction permits, registration of property, and cross-border trade. The quality of the country’s judicial process has led to the low ranking. India’s flattering rank for protecting minority investors is rooted in strong corporate laws. A concerted exercise to weed out unnecessary rules, vague regulations, and obsolete Acts is imperative. Human intervention must also be minimised.
Despite certain sporadic initiatives taken by central and state governments, there has been no tangible systemic reform to really ease the process of Doing Business on a sustained basis. The bureaucracy has routinely revelled in the licence-permit ethos, creating different layers of intervention, involving a huge cost on the exchequer, and making life difficult for entrepreneurs as well as aam aadmi.
The government took some baby-steps to make starting a business by the eliminating minimum capital requirement and the need to obtain a certificate. The e-government initiative MCA-21 in 2006 reduced registration time. The time to obtain the certificate of incorporation, now available online, has also been dropped. But the bureaucratic stranglehold came through the backdoor because an applicant is still required to await a copy of the certificate before starting operations. Federal India is large and complex. Local regulations and their enforcement differ from one place to another.
An analysis by a World Bank group, called Coordinated Assessment of State Implementation of Business Reforms, revealed that States occupied different levels of implementation of the 98-point action plan on ease of Doing Business. While Gujarat, Andhra Pradesh, Jharkhand, Chhattisgarh and Madhya Pradesh scored over 60 per cent, Odisha, Maharashtra, Karnataka, Uttar Pradesh, West Bengal, Tamil Nadu, Telangana and Haryana performed above 40 per cent but below 60 per cent. Delhi, Punjab, Kerala and Goa figured in the 20- 40 per cent range, and all others below 20 per cent. A Rajya Sabha sub-committee on ease of Doing Business concluded that the regulatory framework in India remained fragmented, and there was urgent need to bridge the gap between implementation on paper and on the ground.
It recommended that a simple online single-window approval mechanism coupled with self-assessment/declaration of having complied with the applicable regulations needed to be ensured. Instead of requiring two separate post-construction certificates ~ and often two separate inspections ~ only one single completion and occupancy certificate would simplify the process considerably. The country’s economic progress is linked to the ease of Doing Business. The government is anxious to break the mould and change the paradigm.
As The Economist has stated, “India’s regulations for foreign investors are more attractive than in most of East Asia, but overzealous bureaucrats weave webs of red tape”.
The Modi government has been trying to enforce the concept of “minimum government, maximum governance” by pruning the bureaucratic behemoth and applying a surgeon’s scalpel to rid the body of accumulated growth because of which accountability gets diffused.
A large state is not necessarily a strong state. The gigantic character of public entities makes them slow and clumsy.
(The writer is Senior Fellow, Asian Institute of Transport Development, and former CMD, Container Corporation of India)