India’s ranking in the latest edition of the World Bank’s Ease of Doing Business Index has jumped 23 spots to 77 among 190 economies — a substantial improvement over the last couple of years. The Index seeks to measure 11 areas of business, among them the procedures, timelines and cost related to construction, protection of minority investors, payments of tax, time and cost to export a product or import it and to resolve commercial dispute, the quality of the judicial process and time taken and the cost for resolution or insolvency. The scores should improve further next time with recognition of the laws on GST and more companies taking the resolution route under the insolvency.
India’s score was boosted this time because of the strides in cross-border trading with the streamlining of paper work and documentation — the country’s score has moved up from 146 last year on this count to 80 this time. The other area of improvement is in construction permits. All these underline the importance of supply-side reforms. As the World Bank points out, economies with better business regulations are the ones that create more job opportunities and the countries with more transparent and accessible information have lower levels of corruption. The other important takeaway from the Index is that what is common among the top-ranked economies is the pattern of continuous reform. India has considerable ground to cover on this front: When it comes to enforcing contracts, the country’s score has barely moved in the latest ranking. The lesson here is the absence of judicial reforms, bureaucratic and legal hurdles are hurting the economy.
In a federal structure like India, cutting the red tape or easing procedures across states is not easy. However, the signs are that many states have recognised the need to remove hurdles to attract industry. Yet, businessmen complain about the steep cost of doing business and the constraints they face in translating ideas into viable commercial ventures. For sure, it is good to benchmark the country’s progress on various counts of starting a business, but it is also important not to lose sight of the fact that this does not measure macro stability policies and development of the financial sector. The boost to ranking has come at a time when investment activity is far from vibrant. The key is, of course, a revival in demand, but removing systemic constrains would help business and industry become more competitive.