India’s Jump in the Ease of Doing Business Index 2019 – Complete Analysis

Recently, the World Bank has released the Ease of Doing Business Index. India has jumped 23 places in the ranking at 77th position as the country made it easier to start a business, deal with construction licenses and enabled faster cross-border trading.

EODB Mind Map IAS EXPRESS

What is Ease of Doing Business (EODB) Index? (Important for prelims)

  • The World Bank ranks the 190 countries on their ease of doing business based on 10 indicators across the lifecycle of a business as follows
    • Starting a business
    • Dealing with construction permits
    • Getting electricity
    • Registering property
    • Getting credit
    • Protecting minority investors
    • Paying taxes
    • Trading across borders
    • Enforcing contracts
    • Resolving insolvency
  • A high EODB ranking means the regulatory environment is more contributive to the starting and operation of a firm.
  • The top 3 countries in the index are Newzealand, Singapore, and Denmark, which retained their spots for a second consecutive year. The three countries are followed by Hong Kong, South Korea, Georgia, Norway, U.S, U.K, and Macedonia.
  • EODB data is used to make other key reports as well such as the World Economic Forum’s Global Competitiveness Index and Heritage Foundation’s Index of Economic Freedom.
  • The “distance to frontier metric” in the report is a measure to indicate how far an economy’s policies are from global best practices. This score helps assess the absolute level of regulatory performance over time.

EODB

What are India’s ranking and progress?

  • India jumped 23 spots from 100th last year to 77th this year.
  • India was at the 131st spot in 2016.
  • India has improved its rank by 53 positions in the last two years, and 65 positions in the last four years (2014-18).
  • India in the 2019 edition stands well ahead of South Africa (82) and Brazil (109) and is fast closing the gap on China (46) and Russia (31).
  • Now, India is the best-ranked country in South Asia and has almost caught up with other competitors like Indonesia (73) and Vietnam (69).
  • The World Bank report also recognises India as one of the “top ten improvers” in this year’s assessment, for the second consecutive time. India is one of only 9 economies around the world and only one in BRICS nations to be included in this list.

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How did India improve its ranking?

The 6 reforms recognised in this year’s report are

  • Starting a business
  • Getting electricity
  • Dealing with construction permits
  • Getting credit
  • Paying taxes
  • Trading across borders

The most dramatic improvements have been registered in the indicators related to “Construction Permits” and “Trading across borders”.

  • For construction permits, India has implemented an online single window system, introduced deemed approvals, and reduced the cost of obtaining these permits.
  • For trading across borders, India has reduced the time and cost for export and import by means of several key initiatives such as the implementation of electronic sealing of containers, the upgrading of port infrastructure and allowing electronic submission of supporting documents with digital signatures.

Measures that were taken on three indicators such as getting electricity, getting credit and protecting minority investors placed India in the top 25 with respect to these three indicators.

  • In the electricity sector, the time taken for getting a new connection has been minimised from 105 to 55 days.
  • For resolving insolvency, India has created a new Insolvency and Bankruptcy Code and quick recognition procedure for corporate debtors.
  • Furthermore, Mumbai abolished the practice of site inspections for registering companies under the Shops and Establishments Act.

Measures taken to reduce the time to start a business

  • In 2017, India made starting a business easier by entirely integrating multiple application forms into a general incorporation form.
  • India also replaced the Value Added Tax (VAT) with the Goods and Services Tax (GST) for which the registration process is faster in both Delhi and Mumbai, the two cities measured by the report.
  • Due to these measures, the time taken to start a business has been halved from 30 days to just 16 days.

On the distance to frontier metric,  India’s score improved from 67 to 60.

What are the concerns with the ranking?

  • The continuous increase in the ranking of India is perhaps the best answer to questions with respect to the credibility of India’s reform agenda. Moreover, since the World Bank fixed May 1 as the deadline for measurement, various initiatives that were taken by the government after the deadline will only reflect in next year’s rankings including the full effects of GST and IBC (Insolvency and Bankruptcy Code).
  • But there are ailing concerns at the ground level which still needs to be addressed as follows.
    • For instance, enforcing contracts is the traditional aspect where India continues to lag behind and stands currently at 163.
    • In addition, despite the GST and IBC, India’s overall score on paying taxes and resolving insolvency stays at a very low level.
    • This reflects the extent to which the actual enforcement of these reforms needs to be made more effective.
    • Also, to attract new investment (foreign & domestic), various macroeconomic issues need to be resolved such as political and economic stability, law and order maintenance, quality physical infrastructure, and buoyancy in financial markets.
  • Major institutional and governance reforms not covered in the World Bank study needs to be taken for new businesses to start and grow.
  • Furthermore, these rankings are based on the improvement in two of the main cities namely Delhi and Mumbai, both of which benefit from being the political and financial capitals of the country. Only the rankings of these cities do not reflect the true state of the country’s economy. The reality in other big cities and smaller towns are most likely worse and were not considered in the ranking.

Also read: Data Localisation Issue – All that you need to know

Way ahead

The strong reform measures taken by the government to improve the business climate in India for small and medium enterprises started bearing fruit. It is also reflected in the government’s strong commitment to improving the business reforms at the state as well as at the district level. These efforts need to be sustained in order to help India maintain its goal of having strong and sustained economic growth. Based on the EODB ranking of two cities (Delhi and Mumbai), other states must prove that the rest of the country can also improve the ease of doing business.