India jumps 14 spots in the ease of doing business ranking

An interesting thing to note about the 149-page World Bank’s “Doing Business 2020” report is that it clarifies that its study is “narrow” and does not take into account many factors that define the economic development of a nation. It does not, for instance, measure the full range of factors, policies, and institutions that affect the quality of an economy’s business environment or its national competitiveness. It does not “capture aspects of macroeconomic stability, development of the financial system, market size, the incidence of bribery and corruption, or the quality of the labour force”.

Yet, almost everybody is excited about India improving its ranking to 63 from 77 climbing 14 spots in the latest World Bank report. It is, after all, a clear indication that the business environment has improved considerably despite the current slowdown. Adi Godrej, chairman of Godrej Group, says, “It is fantastic that India has made strong strides in improving the ease of doing business—from rank 130 in 2016 to 63 in the recently released ranking.” To be among the top 10 improvers for the third year in a row, he adds, is commendable and speaks volumes about the effort that the government is putting in to unshackle the economy.

Vishesh C. Chandiok, CEO, Grant Thornton India LLP, could not agree more. “It’s great to see continued progress in India’s World Bank Ease of Doing Business Ranking—the biggest opportunity to break into Top 30 lies in ‘Enforcing contracts’ where our sub-rank has remained at 163rd out of 190.”

There is much to cheer about India’s improvements in some of the 12 parameters identified by the World Bank in its report. These include issues like starting a business, employing workers, dealing with constructions permits, getting electricity, registering property, getting credit, etc. After all, having clarity on these issues or having proper regulations allows individuals and companies far greater freedom in conducting their businesses without bothering about other minor issues. For instance, it allows for smooth voluntary exchanges between economic actors, ensure strong property rights, facilitate the resolution of commercial disputes, and provide contractual partners with protections against arbitrariness and abuse.

India’s position as one of the top 10 improvers for the third consecutive year, the report maintains, was made possible because four new business reforms were put in place during the past year. The reform agenda focussed on starting a business, dealing with construction permits, trading across borders and resolving insolvency.

The establishment of a modern insolvency regime in 2016 as part of a comprehensive strategy to reform corporate law has ensured that the overall recovery rate for creditors has jumped from 26.5 cents to 71.6 cents on the dollar. “India now is by far the best performer in South Asia on this component and does better than the average for OECD high-income economies,” says the report.

Similarly, completing the procedures required to build a warehouse now costs only 4% of the warehouse value. Building quality control measures were also improved, and now only six economies in the world score better than India’s 14.5 out of 15 on this index. Importing and exporting have become easier for companies for the fourth consecutive year. “With the latest reforms, India now ranks 68th globally on this indicator and performs significantly better than the regional average. The time necessary for the logistical processes of exporting and importing goods has been significantly reduced,” adds the report.

Junaid Ahmad, country director for World Bank in India, is pleased with the country’s performance. “India’s impressive progression in the Doing Business rankings over the past few years is a tremendous achievement, especially for an economy that is as large and complex as India’s,” he says.

He believes that all this has been made possible because of special focus given by the top leadership of the country both at the central and state levels, and the persistent efforts made to drive the business reforms agenda. However, he adds that the focus now needs to be on continuing this trend to maintain and improve its ranking.

India, says the report, still lags in areas such as enforcing contracts (163rd) and registering property (154th) among 190 countries. It takes 58 days and costs on average 7.8% of a property’s value to register it. In high-income economies which are members to the Organisation for Economic Co-operation and Development (OECD), the process takes a shorter period and costs less. It takes 1,445 days for a company to resolve a commercial dispute through a local first-instance court, almost three times the average time in OECD high-income economies. “It will be critical to ramp up this momentum and bring in further reforms at a much faster pace, to bounce back from the recent slowdown and march ahead to realise our ambition of becoming a $5 trillion economy,” Godrej says.