Smallness at the border

In World Bank’s doing business rankings, India doesn’t do as well on trading across borders as it does on other parameters.

Written by Bibek Debroy | Published: December 22, 2016 3:45 am
india business, business in india, world bank, world bank report, world bank business report, india news, india business rank, business news, latest news World Bank President Jim Yong Kim. (Source: Reuters)

In 2017, World Bank’s “Doing business” project ranks India 130th out of 190 countries. Rankings are a function of how other countries also perform. Ignoring that point, these rankings are based on 10 heads: Starting a business; dealing with construction permits; getting electricity; registering property; getting credit; protecting minority investors; paying taxes; trading across borders; enforcing contracts, and resolving insolvency. There is another head on labour, but that doesn’t enter the overall rankings. Compared to the other nine, the eighth head, trading across borders, receives relatively less attention in reform discussions. Let’s first understand what the World Bank does. As most people know, the entire World Bank exercise is based on two cities, Delhi and Mumbai. Specifically, on trading across borders, there is an export side and an import side. For exports, a shipment has to go from a warehouse in India (Mumbai/Delhi) to the US. The representative item is electrical machinery and equipment. For imports, it is the reverse and the representative item is parts and accessories of motor vehicles, imported from the Republic of Korea. The respective ports are Nhava Sheva and Mundra.

There are a bunch of documents associated with exports/imports — bill of lading, invoice, packing list, customs declaration, terminal handling receipts, import general manifest, bill of entry, cargo release order, certificate of origin. Notice this has nothing to do with price-based measures like tariffs or duties. Notice also that had it not been for export incentives or preferential trade agreements, the documentation would have been simpler. Straightforward exports/imports require fewer documents. In the bank’s work, there is an attempt to capture three types of costs — documentary compliance (non-custom type documentation), border compliance (custom type documentation) and domestic transport, cost defined both as time taken and money spent. There is no need to get into the rest of the methodology. Suffice to say, India doesn’t do as well on trading across borders as it does on getting credit, getting electricity or protecting minority investors. In the future, I suspect increases in India’s rank will be driven by starting a business, dealing with construction permits, enforcing contracts, getting credit and resolving insolvency.

The government has charted out an eight-point strategy to improve rankings and except the focus on increasing the percentage of direct delivery shipments, most elements pertain to these, not trading across borders.

In the past, if you look at what the World Bank considered a big bang (worthy of separate mention) under the head of trading across borders — you will find electronic data interchange (EDI) in 2008/09 and IceGate, the e-commerce portal of CBEC in 2017. Here is a quote from the CBEC website. “ICEGATE stands for the Indian Customs Electronic Commerce/Electronic Data interchange (EC/EDI) Gateway. ICEGATE is a portal that provides e-filing services to the trade and cargo carriers and other clients of Customs Department (collectively called Trading Partner). At present, about 24,000 users are registered with ICEGATE who are serving about 6.72 lakhs importers/exporters.” If IceGate delivers what it promises, why isn’t there a greater improvement in the 2017 rankings for trading across borders? Let me digress and mention a study done by the IIFT (Indian Institute of Foreign Trade) for the National Shipping Board in June 2016. This is titled “End-to-End Logistics & Costs for Shipping through Ports” and is a fairly recent report. There is a typo that is symptomatic of what this study found. “In import, goods are generally transported under CIF terms in which the fright (sic) is paid by the importer.”

The logistics story isn’t that good. Broadly, major problems are too many unorganised and unregistered players; registration, regulation and accreditation by too many agencies under too many statutes/orders; too many heads for levying charges; and non-standardised formats for documents. That’s the gist of it. You need to read the report for a wealth of detail. One can repeat the question. Why is a June 2016 study not that bright either?

Both the World Bank and IIFT findings are driven by responses to survey questions. Under the WTO, there is a trade facilitation agreement (TFA). India formally ratified this in April 2016. (That doesn’t mean India has to accept every provision of the TFA.) Following this, the CBEC now has something called SWIFT (Single Window Interface for Facilitating Trade) that integrates into IceGate. This should integrate assorted government agencies and standardise documents, declarations and forms. Not too many countries have such a single-window interface and clearance system. Stated differently, whether it is the World Bank or IIFT, there is a time-lag issue. Because of what has already been put in place, somewhere down the line, India’s rankings will inevitably improve, subject to the caveat that ranks are a function of what other countries also do.

However, there is yet another caveat, flagged by the IIFT. There are too many unorganised and unregistered players. This is true not only of ports but elsewhere too. Efficiency improvements occur only when there is a greater degree of formalisation and fragmentation declines, leading to larger players. Years ago, thanks to Schumacher, people used to say “Small is Beautiful”. His book was published in 1973 and was then regarded as one of the most influential books ever published. That book had a point, particularly from the point of view of choosing appropriate technology. However, in other areas, efficiency and competitiveness have little to do with beauty. Trading across borders need not be beautiful and small.

The writer is member, Niti Aayog

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