Business of business

If India fared poorly in the ‘Human Development Report’, it didn’t do well in the ‘Doing Business 2008’ report either. In fact, in the latter report, the country lags behind even Pakistan, Bangladesh and Nepal in a survey involving 178 countries. The factor that underlines such poor ranking is common to both: governance. If governance is central to poverty alleviation, it is also central to business generation. Invariably countries, such as Norway and Denmark, that do well on human development parameters also do well in generating business.

This survey that looks at the ease of doing business notes the number of procedures to be followed for starting a business in a particular country, the number of taxes to be paid and the number of documents to be filled. All of this leads to higher costs, delays and — something the report does not mention but we are all aware of — an increased number of palms to be greased. While these may be irritating for the big players like General Motors, for instance, for small entrepreneurs they can become show stoppers. To protect themselves from harassment from the police and other agencies, the smaller units may choose to remain outside the organised sector. This only results in fewer jobs in the formal sector.

But we also need to look at the big picture. The obsession with days to entry, highlighted in reports like these, may encourage India to address this particular issue and no other. That, however, would be missing the wood for the trees. The delay in starting a firm is merely a manifestation of larger problems: a poor legal framework, delays in the judicial process and the inadequate state of law and order in the country. Although entry costs are unquestionably important, the quality of law and order in a state is a major determinant of how attractive a place is as a business destination. A single window mechanism to start a firm within an hour would not have attracted firms to Punjab at the height of its militant phase, just as it has not attracted firms to Bihar and Manipur today.