World Bank publishes its Business Ranking Report periodically, with respect to ‘Ease of Doing Business’ in different countries. According to this report published on 31 October, India has jumped from 130th position last year to 100th position this year among 190 countries. It’s obvious that the present Narendra Modi government is patting itself on the back for this achievement.
For the government, which had been facing the wrath of the opposition post demonetisation and GST for what they call ‘deterioration’ in the economy, this report comes as a big relief. It’s notable that the economy has been passing through a difficult phase due to slowing down of both GDP and investment growth in the past couple of quarters.
It is being claimed that jump in the ‘Ease of Doing Business’ ranking might lead to an improvement as the nation would attract more foreign investment. Some people also believe that it would improve business climate for domestic investment as well.
World Bank ranks 190 countries with respect to ‘Ease of Doing Business’ on the basis of 10 criteria. These include ease of starting a business, ease of closing of business in the event of loss and bankruptcy, ease of getting credit, ease of paying taxes, ease of trade across borders, ease of implementing the contract, ease of getting permission of construction, ease of getting electricity connection, ease of getting property registered and protection of investors.
World Bank has reported that India has done better in terms of at least six heads as compared to last year and has a result jumped 30 places. It is notable that India was at 142nd position in 2014. This improvement in ‘Ease of Doing Business’ ranking is not by fluke.
The present government has been very conscious of these criteria and has been working on bringing improvement at all levels. According to the tweets of the Prime Minister’s Office this improvement in ranking is historic and depicts the government’s commitment to reform, perform and transform.
This not only is a big leap forward in overall terms, but India has also emerged as the only country amongst South Asia and BRICS countries to have achieved improvement. The report also underlines the structural reforms brought about by India in the last year. Experts believe that there are many reforms which the government has already undertaken, such as recapitalisation of banks, introduction of GST etc., that were not covered by the present report.
These reforms and many others which are in the pipeline may further improve the country’s position and we could soon achieve the 50th rank in the near future. This would really be a remarkable achievement. The World Bank has reported this jump after taking into consideration various reforms. This ranking may further improve next year with implementation of many other facilities, easier processes for getting sanction for construction in Mumbai and Delhi, ease in getting credit, ease in trade across borders, ease in depositing taxes and other official charges, and successful implementation of Bankruptcy and Insolvency code, 2016.
Generally, the World Bank’s focus is on ease of doing business for foreign investors. Therefore, international ranking agencies rate the country on the basis of this ranking. It is true that foreign investors keep an eye on the ‘Ease of Doing Business’ ranking, however, it is equally true that India had been one of the most sought-after countries despite worse rankings because investors are attracted by the huge Indian market. We cannot and should not underestimate the importance of domestic investment while facilitating foreign investors. It is notable that in 2015-16, when the country recorded gross capital formation of Rs. 45,59,318 crores, the contribution of foreign investment was only Rs. 2, 94,258 crores. That is, the share of foreign investment was hardly 6.4 per cent of gross capital formation and only 2.36 per cent of GDP. We should understand that domestic investment is much more important than foreign investment.
Therefore, we need to take care of ‘Ease of Doing Business’ for domestic investors also. We should prepare a ‘Ease of Doing Business’ report for domestic investors as well. Different states should be ranked according to ‘Ease of Doing Business’; and at the same time an index should be prepared. World Bank’s Vice President of the South Asia region has stated that this improvement in ‘Ease of Doing Business’ in India would help small and medium industry and employment therein. It is worth noting that many steps have been taken in India for the success of Prime Minister’s Start-up flagship scheme.
These include tax holidays for start-ups, concession in capital gains taxes, self-certification of compliance in labour and environment laws and liberation from Inspector Raj for three years and concession of 80 per cent in patent registration fees etc. which are making business easier for start-ups.
We need to take up steps for making business easier for small businesses most urgently, especially with regard to compliance of contracts, ease of paying taxes, freedom from Inspector Raj, ease of getting credit etc. Only then will the small entrepreneur feel that doing business has become easier.
(The writer is Associate Professor, PGDAV College, University of Delhi)