Difficulties in doing business

Let’s begin with the positive news. India’s rank in the World Bank’s ease of doing business index has improved from 142 to 130 out of a list of 189 countries. The bitter fact, however, is that this year the World Bank has adopted a new methodology to determine a country’s rank in the ease of doing a business index. Although, India was ranked 142 by the World Bank in 2015 on the ease of doing business index, its rank was later revised to 134 based on a new methodology. Therefore, India has improved its ranking by just 4 places and not 12. In sum, the scale of India’s improvement has not created much excitement.

There are several dark spots for India. Take for instance the ease of starting a business in India. The country is now ranked 155, an improvement of 9 places from 164 in 2015. In comparison, China ranks 136. What’s more, our neighbour Bangladesh ranks 117. On the delivery of construction permits, however, India stands at an embarrassing 183 – an improvement of one position from 184 in 2015. Bangladesh with an overall ease of doing business rank of 174 is ranked 118 in dealing with construction permits. 

Besides construction permits, India falls way behind on the issue of contract enforcement. According to the World Bank, the enforcement of contract index measures the time required to enforce a contract through the courts, the cost involved and quality of judicial processes. India is ranked at a dismal 178. China, meanwhile, is ranked 7. At this juncture, however, India’s courts are busy in deciding who will appoint judges, among other basic structural concerns. 

Meanwhile, India has slipped one spot in the criteria of ease of paying taxes. Under the ease of paying taxes, the World Bank measures the variety of taxes, frequency of filing and payment, tax rates and time required to comply with three major taxes. India ranks a poor 157. In an unfortunate reflection of our banking sector, India has slipped six spots in the parameter of accessing credit to 42, implying that it has become much more difficult to get credit in India.

These areas need attention if we are to improve India’s place as an attractive destination for investors. Our judiciary, supported eloquently by commentariats, are apparently oblivious to such trivial issues like India’s ranking vis-à-vis other competing nations. 

Taxation is India’s perennial weak spot thanks to those who supervise, adjudicate and enact. Construction permits are marked with similar maladies. Both drawbacks are accentuated suitably by the poor functioning of various state governments and local bodies. Many components necessary for starting a business in India get similarly blocked by decision makers at different corners. Most of us have merrily passed on the headache of improving India’s business environment to Prime Minister Narendra Modi while we enjoy our beef and pork parties.

Does it mean that the next generation will continue to suffer till a consensus can be reached on development? The saving grace is that the Centre is concerned. It is busy working on these soft spots. It is said that an estimated US$40 billion is stuck in litigation. Finance Minister Arun Jaitley is aware of the urgent steps necessary. “There is still an area of enforcement of contracts, easier adjudication of disputes... So we have brought out an ordinance for a fast-track arbitration procedure,” he said. The government has also brought in another ordinance a few days ago for the establishment of a commercial court in each High Court. The formulation of a bankruptcy law is at its last stage. This piece of legislation could be introduced in the forthcoming Winter Session of Parliament. 

To make the Income Tax Act simpler, the Government announced the formulation of a committee that would recast some of these provisions. Another committee is working on removing complications in the Companies Act. However, state governments will have to match these efforts. Some states may not be too keen on taking cues and will remain laggards. However, as long as cities like Delhi and Mumbai act in a positive manner, India’s ranking will improve. At present, the World Bank measures these two cities. 

On his part, Finance Minister Jaitley could take a look at certain issues. He may sign the minutes of the Foreign Investment Promotion Board (FIPB) meeting within a week, instead of the current four-week period. He may also cut down the role of the Department of Industrial Policy and Promotion (DIPP) in approving proposals on a single brand or multi-brand retail. Why do we need a havildar posted before FIPB? He may also check the pro-activeness of the desk officers in various ministries – especially the DIPP and FIPB. Why do these officers take so much time to process documents? 

No less important for Jaitley is the scrapping of illogical rules—for instance, the sourcing requirement of single brand retail. If Rolex or Apple is keen to set up its retail outlet why must we ask them to source 30 percent of their material from here? In any case, these companies are selling their products through their agents. Moreover, Indians are buying their products from abroad legally or illegally. Whose interests are we saving with such restrictions? On the other hand if these brands invest in their outlets, fresh investments will come, jobs will be created and tax revenues will be earned. Rules should be practical, not blind. 

The other step that the Government can take towards improving overall transparency. The moment an application is received the same must be placed on the website with its status updated at regular intervals. Unless the bureaucrats are forced to come out their closets, they will never work with accountability. They will remain rent collectors as before. 

The World Bank report, as its Chief Economist Kaushik Basu had said, is a wake-up call to India. Instead if we view it as a disturbance to our peaceful sleep, the nation will lose out.