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Historic Rise in India’s “Ease of Doing Business” Rankings

Publication: The True Picture
Date: October 31, 2017
URL:   http://thetruepicture.in/historic-jump-in-indias-ease-of-doing-business-rankings/

As per the “Doing Business 2018” report, India has just climbed a historic 30 spots on the World Bank’s “Ease of Doing Business” ranking. This is the biggest ever jump for India and also the highest for any country this year. From 130 in the previous installment of the Doing Business 2017, India has jumped to rank 100.

Further, inheriting a nation ranked 142 on the “Ease of Doing Business”, the current administration has ensured an improvement of 42 positions in 3.5 years. (See Figure)

The Doing Business report’s reference period is usually until and including the month of May of the previous year. For example, the Doing Business 2015 reflects conditions until the end of May 2014. The Doing Business 2015 report ranks India at 142. In other words, according to conditions prevailing as of May 2014, India stood 142nd in the world on the “Ease of Doing Business”.

Going further back, India’s rank was 134 in 2014 and 132 in 2013 and 2012. Essentially, in the final few years of the previous administration, the conditions to do business suffered so much that their final year in power presided over a fall of 8 spots between 2014 and 2015.

From there, as soon as the evaluation period coincided with that of the current administration, India saw a turnaround. In 2016, India improved itself by 12 positions and moved to the 130th rank, a rank better than any of the last 4 years of the previous government. India held its position in 2017.

However, India’s 2018 ranking has seen an unprecedented jump of over 30 spots. This historic rise comes on the back of sustained reforms and the period of reference for the Doing Business 2018 report, interestingly, also encompasses the period during which demonetization happened.

The important highlights of India’s performance in the report released today are:

Resolving Insolvency –
•Rank improved from 136 to 103
•Distance to Frontier (DTF) score improved from 32.75 to 40.75
•Strength of insolvency framework index increased from 6 to 8.5
•Insolvency & Bankruptcy Code created for efficient handling of restructuring & insolvency proceedings
•Professional institutes set up for handling restructuring & insolvency proceedings

Paying Taxes –
•Rank improved from 172 to 119, the highest improvement in any sub-sector
•DTF score improved from 46.58 to 66.06
•Payments reduced from 25 to 13 in a year
•Time reduced from 241 to 214 hours
•Total tax rate reduced from 60.6% to 55.3% (% of profit)
•Post filing index improved from 4.3 to 49.31
•Enabled electronic registration, return & payment of ESI & EPF contributions

Getting Credit –
•Rank improved from 44 to 29
•DTF score improved from 65 to 75
•Strength of legal rights index improved from 6 to 8
•Credit bureau coverage increased from 21.4% to 43.5% (% of adults)
•Increased coverage of security interest registration under SARFAESI Act
•Secured creditors prioritized over Government dues for purposes of recovery

Enforcing Contracts –
•Rank improved from 172 to 164
•DTF score improved from 35.19 to 40.76
•Cost reduced from 39.6% to 31% (% of claim)
•Quality of judicial process index improved from 9 to 10.3
•Dedicated commercial courts established
•National Judicial Data Grid (NJDG) to monitor and manage court cases

Protecting Minority Investors –
•Rank improved from 13 to 4
•DTF score improved from 73.33 to 80
•Strength of minority investor protection index increased from 7.3 to 8
•Extent of conflict of interest regulation index increased from 6.7 to 7.3
•Extent of shareholder governance index increased from 8 to 8.7
•Greater transparency requirements for interested parties transactions
•Greater shareholder protection through action against directors & claims for damages

Construction Permits –

•Rank improved from 185 to 181
•DTF score improved from 32.83 to 38.80
•Procedures to obtain construction permits reduced from 35.1 to 30.1
•Time reduced from 190.0 to 143.9 days
•Cost reduced from 25.9 per cent to 23.2 per cent of warehouse value
Factors in the Study


Detailed Reading

The factors that the Doing Business report typically looks at are the below crucial aspects that impact the business lifecycle:

•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
•Labour market regulation

India’s improvement has come on the back of many reforms that the current administration has enacted. Some key reforms that may have impacted the ranking surge have been mentioned below.

Ease of Starting a Business

Starting a business in India was often seen as a hassle. However, the current administration has sought to streamline the process by doing away with needless regulations. Doing away with the minimum capital requirement for incorporation, extending the period of validity of industrial licences from two years to three years with provision for further extension, scrapping the requirement to obtain a certificate to commence business operation, and other similar steps, have all boosted the ease of starting as well as continuing a business.

Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code is one of the biggest reforms in boosting the “Ease of Doing Business”. Ease of exiting a business, resolution of insolvency and balancing the interests of all stakeholders are key to “Ease of Doing Business”. A fragmented and often ineffective set of laws governed various facets of insolvency resolution earlier. In a competitive environment, to allow failed businesses to wrap up quickly is to free up a lot of time, energy and resources for other productive endeavours.

Compliance-Friendly Processes

The Shram Suvidha portal brings to the table a single platform for compliance of multiple labour laws and requirements. Since the portal is online, it improves transparency and ease of compliance. Further, labour inspections are being guided by a digital system that sifts through data and objective criteria, thus reducing the scope for random inspectors swooping on companies.

The eBiz portal enables transparent and easy government to business interaction. Reducing delays in regulatory processes, it keeps all stakeholders informed and on one single platform for a range of activities, ranging from the start of a business to its operations and even closure.

The Customs Electronic Commerce Interchange Gateway portal has brought multiple documentary compliance processes online on a single platform. This has greatly improved both ease of compliance as well as saved time for the stakeholders involved.

Ease of Getting Electricity

A focused push for reforms – both regulatory and administrative — saw India’s power sector improve its health dramatically. The time associated with getting electricity connections has reduced and so has the cost associated with it. To quote the Doing Business 2017 report, “As a result, the time needed to connect to electricity was reduced from 138 days in 2013/14 to 45 days in 2015/16. And in the same period, the cost was reduced from 846% of income per capita to 187%” [In Delhi]. India’s ranking in the Ease of Getting Power dramatically jumped from 99 in 2015 to 26 in 2017.

Further, there have been many more reforms like the dissolution of the FIPB, easing of FDI norms in various sectors as well as increasing the FDI cap across many sectors, reduction of documents needed for import-export trade, multiple regulatory relaxations to start-ups, streamlining of environmental approval mechanisms through mandatory online processing and, lately, the Goods and Services Tax.

It should be kept in mind that the Goods and Services Tax regime came into being after the evaluation period of this Doing Business 2018 report. Since GST is a game-changing step towards achieving Ease of Doing Business, there may be a further improvement in ranking even next year. India’s historic jump of 30 spots in the Ease of Doing Business rankings seems to be only a beginning towards a much more enterprise-friendly environment.
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