Opinion India at 142
Slide in Ease of Doing Business rankings points to the need for nuts and bolts reform
Many will be disappointed with India slipping two notches to be placed 142nd out of 189 countries in the World Bank’s Ease of Doing Business (EDB) rankings in 2014. Given the current government’s stated aim to push up India’s position to within the top 50 in the next two years, it may be disheartening to see the country only fall further, or be rated below Tonga, Lebanon, Swaziland, Lesotho and Pakistan. But that would be missing the point. The EDB list does not purport to grade economies based on their GDP growth rates or ability to receive foreign direct investment flows. If the latter criteria were used, one wouldn’t surely have found even China being ranked pretty low at 90 — behind the likes of Kosovo, Azerbaijan and Vladimir Putin’s Russia.
The EDB ratings have little to do with the macroeconomic environment. Their concern is only with the micro-climate in which businesses function. The inter-country comparisons here are with regard to the “ease” of doing business in terms of 10 defined indicators; they include the number of procedures, time and cost required for setting up or closing a business, obtaining construction permits and electricity connections, registering property and resolving commercial disputes. These basically relate to the regulatory regime — how conducive it is for any business venture to start and operate. Where India scores really badly is in enforcing contracts and dealing with construction permits, in which it ranks 186 and 184 respectively. The EDB report shows that compliance with all formalities to build a warehouse takes an average of 185.9 days in India, and 1,420 days when it comes to resolving a commercial dispute through the courts. The corresponding figures for the best EDB performer, Singapore, are 26 and 150 days respectively.
The EDB rankings may not provide a robust measure of growth potential across economies — foreign investors are unlikely to rely on them to choose Armenia over India or Estonia over China. Yet, they are useful in helping governments to recognise the need to design rules and regulations that make it easier to conduct business. Narendra Modi may well have ensured progress on this count while he was chief minister of Gujarat; the state’s EDB rating would definitely far surpass India’s. The challenge for him as prime minister is to extend Gujarat’s success to the rest of India. But this challenge — of addressing the nuts and bolts or plumbing underlying an economy’s day-to-day functioning — has to ultimately be met at the level of the states.
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