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Doing business easier, but a lot more needed PDF Print E-mail
Thursday, 02 November 2017 06:14
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Govt worked hard to move up on World Bank Index, but investment not just guided by rank on an Index

By most yardsticks, India jumping 30 notches to get to the 100th spot in the World Bank’s Ease of Doing Business rankings is a big achievement. The government set itself very clear targets and worked hard to push through the changes required, the Insolvency and Bankruptcy Code (IBC) being one example of this. One parameter on which India has scored is in protecting minority interests—it moved up from 13th to fourth position over the last year as a result of the new Companies Act in which small shareholders now have more redressal mechanisms to deal with transactions between interested parties. The IBC, a path-breaking legislation that will make it easier for companies to exit businesses and free up capital, helped raise India’s score in the area of resolving insolvency from 136th to 103rd over the year; indeed, IBC has helped push up the score for getting credit—an important area—from 44th to 29th. The reforms on EPF—where electronic payments are mandatory—has been another big positive, and with the World Bank going to take into account India’s GST, the overall ranking should improve further next year. In order to improve further, it is important to focus on areas where India’s score remains quite low, and has even slipped. In the key parameter of starting a business, India’s rank has fallen a notch to 156, and that’s when the World Bank measures progress in the most efficient parts of the country, Delhi and Mumbai. Even the government hasn’t been able to get affordable housing projects off the ground because acquiring land is such a challenge and, even today, a fairly big chunk of power capacity remains stranded for want of fuel linkages.

Moreover, even in terms of registering a property, India has slipped to 154 from 138 a year ago; there is little progress in titling and digitising land records, property documents remain complicated and applicants are still running from pillar to post—India’s rank on getting construction permits is up a bit, but it is still a dismal 181st and it is 164th when it comes to enforcing contracts. Also, a conducive business environment is more than just a rank on an index since it takes into account the size of the market, the opportunities and government policy. That is why, while Russia is a lot higher than China on the Index, it gets a fraction of the FDI China does. It explains why India’s FDI has shot up—to $56 billion in FY16 and $60 billion in FY17—when investors saw opportunities in e-commerce even while the overall rank on the Index was poor and why, even as the rank improves, overall investment levels continue to fall.

While it can be argued that a Nokia leaving the country—even though India is the fastest-growth market for mobiles—due to tax complications is a thing of the past, surely the same cannot be said of what Vodafone and Cairn continue to face; even after the improvement in ranking from 172nd last year, India is still a poor 119th on paying taxes. Businesses also look at whether government policy is getting more restrictive, as it is in the pharmaceuticals and medical devices sector; and the sad experience of Monsanto and DoCoMo only add to this. As the government goes about working to improve India’s ranking in areas like registering properties, getting construction permits and enforcing contracts—more commercial courts will help—it has to ensure the overall policy environment keeps improving as well. The way the government celebrated the improvement in India’s ranking suggests it realises the importance of getting it right.

 

 

 

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