Ease of doing business: India needn’t fret over ranking; Here's why it’s not all that bad

India's rank in World Bank's Doing Business has virtually remained unchanged in the 2017 schedule when compared with the revised number for 2016 which is 130. Otherwise it has moved up by one notch from what was announced last year. There has been some umbrage expressed in certain quarters that this index does not adequately capture the efforts that have been put in by the government. What is one to make of it?

Reuters

Reuters

It must be understood that moving along the doing business scale is not a one-time exercise but a continuous process which has to ideally be viewed over a period of time which could be say five years. While there are lots of announcements made and policies induced, there are time lags before the results are witnessed. Further, the interesting part of this scale is that it is based on relative performance too, and given that there are several such measures being taken by other governments too, the score is seen in relation to what happens in other nations too.

The World Bank exercise is commendable but will be limited by the sources of comparable information and the depth to which it goes when getting this data. Given that there are discrepancies in getting up to date information on various variables it is but natural that when juxtaposed with large volumes of data on other countries, the ranking could get exposed to errors. But then this holds for others as well. More so in the absence of any other way of making a global comparison this is probably the best that can be done and it is better to have some benchmark rather than live in a world of self eulogisation.

The significant part where the government can take credit is the improvement in the distance to frontier (DTF) which actually gives an idea of how much we are moving towards the ideal. Here the improvement of 1.34 percentage points is noteworthy and reflects relative progress made on these indicators. There is evidently still a long way to go.

The critics of this score argue that some of the major reforms of the government like GST or Bankruptcy Code have not been factored in. Arguably these are major steps taken but then they need to be implemented and monitored closely to be evaluated for efficiency. Having a policy is the first step, but the way it is implemented and the impact on the rest of the economy is the final test of how these reforms have worked.

India continues to be a leader when it comes to protecting minority interest for which Sebi and RBI need to be complemented. Getting credit has seen some decline in rank, which should be addressed in the coming years since the government has been aggressive with financial inclusion. While we do very well on procuring electricity, internally there could be disagreement here as power has been our Achilles heel for the last six decades and we seem to be still having problems on generation, transmission and distribution. But the distance to frontier has moved up by 5.3 percentage points. We have also improved on enforcing contracts though given the tenuous state of our banking system, there can be a modicum of scepticism here as we appear to have improved in score and DTF.

This said, the government has definitely made tax payments easier, which shows in the improvement in the DTF by above 3.4 percentage points. Trading across borders has also improved which is positive from the point of view of foreign trade where there is serious work done in making it easier.

Given a mixed bag across the 10 parameters how then can we evaluate the progress made by the country. The DTF as mentioned earlier is the critical factor for self evaluation and we can be happy that in 7 of the 10 indicators we have shown an improvement this year. In the other three, getting credit, protecting minority interest and getting construction permits, there has been no change in this distance. So, on the whole we should be statistics in improving the business environment which has been the hall mark of this government.

In terms of rank, we do have a long way to go, as it depends not just on what we do but also how we stand in relation to other countries which too are pursuing the reforms path. For example for starting a business our DTF has gone up but rank come down, as others are doing better. India is definitely the fastest growing economy among the larger countries and intuitively it can be reasoned that if we keep moving up the scale of doing business, the growth potential is enormous. Given that ours is a federal structure, there is a limit to what the central government can do. The states need to follow as several of these factors that go into this score are guided by state actions. The Centre has tried to foster and accelerate competition between states which are good because it will all add to improve the whole.

Our immediate goal should be to improve the overall doing business DTF to above 60 in one year and cross 70 in next five years. That will be satisfying.

The writer is chief economist at CARE Ratings. Views are personal


Published Date: Oct 26, 2016 11:26 am | Updated Date: Oct 26, 2016 11:31 am


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