The Big Picture-Ease of Doing Business: Why is India Stuck?
Ease of doing business rankings, one of the most important indicators of the country’s environment for small and medium businesses evolved by the World Bank known as International Financial Corporations Rankings has come out for the year 2017. India ranked 130 among 190 countries however, has not made any improvement from the last year as its rank has been downgraded to 131. This lack of improvement in the rankings though Indian Government was hoping to jump substantially this year has triggered a strong reaction and disappointment. Though several reform measures have been taken by the Government, it feels they are not reflected in these rankings. The only bright side in these rankings is that India has improved substantially in getting electricity for businesses and enforcing contracts. Out of the 10 parameters, India has slipped down in 5 parameters and on other 3, there is a status quo.
This ranking is a methodology which the World Bank has come out with across the world. It undergoes peer reviews, audits and is pretty robust. Looking at the index, it can be said that most of the items are not within the control of Central Government of India. For example: getting construction permits, registering of property etc. These areas are covered under state administration. Few things which are positive in this index working for India are capital markets which is why on getting credits and protection of minority shareholders, India has been termed exceptionally good.
Only Mumbai and Delhi have been taken into consideration for ranking and both are metropolitan cities where we are trying to decongest. However, there are stark differences such as a businessman in Mumbai might get credit much easily as compared to a person who wants to start a small business in a city like Kanpur. This is where employment growth is going to come. There is a need to improve conditions to allow people to start small and medium enterprises in tier 2 and tier 3 cities and grow by making sure that they don’t face bottlenecks of credits. Life of a small entrepreneur has to be made better if the aim is to ensure ease of doing business for all. India needs to step up in private investment because more than ease of doing business, what they need is business itself.
The Index does not capture many key items in the ease of doing business like infrastructure. Other than electricity, nothing else is there like improving roads and ports. It does not include anything on taxes. If GST is rolled out, it would mean a huge improvement in ease of doing business in India. There is a parameter of paying taxes in the Index but it has nothing to do with GST. Most of these are procedural parameters like how much time it takes to file a return or to get an assessment.
Two key items depend on judicial processes i.e. enforcement of contracts and resolving insolvency. For insolvency, there is a law in place but lot of work has to be done to make the system work efficiently. Arbitration can be way for contract enforcements but its costs are huge. In India, judicial processes are in huge mess because of delays etc. The Government can do very little to clear it.
The Government should not be obsessed about this Index although all other BRICS nations are ahead of India. It should go ahead and keep on doing what it thinks is necessary for betterment of small and medium enterprises in coordination with the state governments. However, setting a national target of attaining a certain rank has also helped in bringing consensus across other parties involved like state governments and judiciary to improve overall environment of India in doing business.
A lot of the parameters on which our rankings are poor are the ones where the processes are yet to be modernized. Therefore, schemes like Digital India and e-governance have to sustain in the long run. In a nutshell, the parameters of the Index may not be the ideal ones but they certainly give some directions to work upon in future.