Factors checked in ranking for ease of doing business and India’s growth story

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The health of a private sector is an integral part of any economy. Because it is the private sector that generates jobs, income and economic opportunities. Income generated from this sector has multifarious uses which indirectly builds the foundation of a country. A government that cares about its state, needs to carefully pay attention to laws and regulations affecting the various enterprises.

‘Ease of Doing Business (EODB)’ is what captures and assesses the regulatory environment of domestic businesses. There are two terms that need to be pondered upon- (1) Doing Business and (2) Ease.

The column highlights EODB in context of the World Bank report for 2018-19 and discusses how India performed in the last two years.

‘DOING BUSINESS’

‘Doing Business’ measures and records the regulatory reforms in an economy. It covers a wide array of criteria to ascertain the quality and efficiency of the business processes. Some of them include – getting building permits, obtaining an electricity connection, transferring property, getting access to credit, protecting minority investors, paying taxes, engaging in international trade, enforcing contracts and resolving insolvency. It also collects data on labor market regulation, focusing on the flexibility of employment as well as job quality.

In its recent report, World Bank stated that it takes approximately 7 months to set up a new company in Uganda involving more than 20 long procedures with the local and central authorities. In contrast, a Danish entrepreneur can expect to set up a new warehouse in a little over 2 months, complete with all the legal requirements, electricity and permits.

This highlights the importance of ‘Doing Business’.

However, it does not claim to cover all the areas pertinent to the private sector development. It has a set of clear limitations like it does not assess the market size, macroeconomic conditions, foreign investment, and political stability. Despite this, it offers a clear picture of the reforms and improvements to be brought in the local business environment.

‘EASE’

This word ‘ease’ applies almost literally. The number of procedures, their complexity, informality and the number of entities to deal with, captures the ‘ease’ with which a new company can be started in a country. In our previous example, it was clear that the ease with which a business can be started is comparatively more in Denmark than that in Uganda.

METRIC USED BY WORLD BANK TO ARRIVE AT THE RANKING

The World Bank uses 11 performance metrics to gauge the ease with which a company or factory can be set up in a country. These metrics cover areas ranging from efficiency, regulation, operations and permits. Some of the key measures are as follows:

In the context of construction permits, regulatory burdens can pose caveats in the setting up of infrastructure. If the processes aren’t simple and transparent, with unnecessary compliance requirements from multiple sources, it can drive up costs and lead to unsafe infrastructure in the informal construction sector.

Next comes electricity. It is an important element in the competitiveness and strengthening of a business. If electricity costs and permits are high in a country, it can take a toll on the production capacity. Equally important is the reliability of the power connection.

Similarly, sound property rights help to ensure expansion of operations. If the government does not put adequate land ownership rights in place, investors will be left open to land disputes and seizures which will disincline them to invest money in land and property development projects.

Another area measured is protection of minority investors. What this means is that there should be essential checks and balances to keep the power exerted by corporate executives, directors and majority stakeholders in place.

Finally labor market regulation is a critical area which helps to understand the relationship between adequate worker protections and labor efficiency.

HOW INDIA MANAGED TO CLIMB UP TO THE 77TH RANK FROM 140TH RANK IN 2014

The Doing Business 2019 report bases the rankings on surveys and interviews conducted in Mumbai and Delhi. India simultaneously attacked all the measures and made reforms in the same.

The process of obtaining construction permits was streamlined and was made faster and less expensive. It also improved building quality control by introducing decennial liability and insurance. India made starting a business easier by fully integrating multiple application forms into a general incorporation form. At the same time, Mumbai abolished the practice of site inspections for registering companies under the Shops and Establishments Act.

The Delhi Electricity Regulatory Commission reduced charges for low voltage connections. Getting electricity was also made easier through a reduction in the time for the utility to carry out the external connections work. Getting credit and paying taxes was also made easier by amending the insolvency law and replacing the multiple tax regime by a single tax, GST respectively.

Upgradation of port infrastructure and allowance of electronic submission of documents with digital signatures has reduced the time and cost to export and import goods and services thus improving trading across borders.

All these reforms helped India to climb to 77th position among the 190 countries surveyed.

CONCLUSION

India in the last few years has made attempts to fight the vices strangling the business environment. Crony capitalism, corruption and crippled policies with poor execution are some of them. Consistent efforts in the right direction in the long term will certainly help to achieve the ambitious target set by the government to reach the 30th position by 2020.

Author | Deepti Kansal