Ease of Business Ranking- 2018

India has jumped in the World Bank’s “Ease of Doing Business” index from 146 in 2014 to 100 in October, 2017.

What is Ease of Doing Business Index?

This index developed by World Bank on the basis of 10 parameters or 10 sub-indices. These include:

1. Starting a business– Procedures, time, cost and minimum capital to open a new business
2. Dealing with construction permits– Procedures, time and cost to build a warehouse
3. Getting electricity– procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
4. Registering property– Procedures, time and cost to register commercial real estate
5. Getting credit– Strength of legal rights index, depth of credit information index
6. Protecting investors– Indices on the extent of disclosure, extent of director liability and ease of shareholder suits
7. Paying taxes– Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit
8. Trading across borders – Number of documents, cost and time necessary to export and import
9. Enforcing contracts– Procedures, time and cost to enforce a debt contract

• Resolving insolvency– The time, cost and recovery rate (%) under bankruptcy proceeding

Apart from the above, the index also provides insights into a country’s entrepreneurship environment, good practices and transparency in business regulation.

What is methodology to compute the Ease of Doing Business Index?

Higher rank means lower numerical value and it indicates simple regulations and stronger protection for property rights. The calculation is done by aggregating the distance to frontier scores of different economies. The distance to frontier score uses the ‘regulatory best practices’ for doing business as the parameter and benchmark economies according to that parameter.

For each of the indicators that form a part of the statistic ‘Ease of doing business,’ a distance to frontier score is computed and all the scores are aggregated. The aggregated score becomes the Ease of doing business index. Indicators for which distance to frontier is computed include the above mentioned parameters such as construction permits, registration, getting credit, tax payment mechanism etc.

What are key highlights of this year’s report?

This year, India is among top 10 countries viz. Brunei Darussalam, Thailand, Malawi, Kosovo, Uzbekistan, Zambia, Nigeria, Djibouti and El Salvador that have marked an improvement this year. These 10 top improvers implemented 53 regulatory reforms making it easier for them to do business.

Europe and Central Asia regions continue to have highest share of economies implementing at least one reform as 76% of economies in the region implemented at least one business regulatory reform.

India is only country in South Asia and BRICS economies to feature among most improved economies of the DB Report this year. In South Asia region, India was top improver, but was ranked below Bhutan (75). Nepal (105), Sri Lanka (111), Maldives (136), Pakistan (147), Bangladesh (177) and Afghanistan (183) were ranked below India.

What helped India?

This year, India was expecting a significant rise in ranking mainly on account of several steps taken by the country. This rise was led by some key sub-indices such as ‘paying taxes’ (rank moved from 172 to 119), ‘resolving insolvency’ (rank moved from 136 to 103) and ‘protecting minority investors’ (rank moved from 13 to 4). According to the report, India has made strides in eight areas as follows:

Starting a business

The key reforms in this included:

• Merging applications for Permanent Account Number (PAN) and the Tax Account Number (TAN)
• Improving online application system.
• Maharashtra made starting a business faster by merging the applications needed for value-added tax (VAT) and the Profession Tax (PT).

Dealing with construction permits

• The municipal corporations of Delhi and Mumbai reduced the number of procedures and time required to obtain a building permit by implementing an online system.

Getting credit

• Access to credit was improved and the new insolvency law provided time limit and clear grounds for relief to the automatic stay for secured creditors during reorganization procedures.

Protecting minority investors

• Protections for minority investors were strengthened by increasing the remedies available in cases of prejudicial transactions between interested parties.

Paying taxes

• In both Delhi and Mumbai, paying taxes was made easier by requiring payments to the Employees Provident Fund to be made electronically, and introducing administrative measures that make it easier to comply with corporate income tax regulations.

Trading across borders

• In Mumbai, reducing the time taken to comply with import regulations at Nhava Sheva port made it much quicker to trade across borders. In Delhi and Mumbai, the elimination of merchant overtime fees and the increased use of electronic and mobile platforms reduced the time taken to comply with both export and import regulations.

Enforcing contracts

• In both Delhi and Mumbai, the introduction of the National Judicial Data Grid made it possible to generate case management reports on local courts, thereby making it easier to enforce contracts.

Resolving insolvency

India made resolving insolvency easier by adopting new insolvency and bankruptcy code that introduced a reorganization procedure for corporate debtors and facilitated the continuation of the debtor’s business during insolvency proceedings. This reform applies to both Delhi and Mumbai.

In other words, the key legislative & policy reforms that helped India in this jump included (1) adoption of Insolvency and Bankruptcy Code, 2016 (2) liberalizing FDI policy and abolition of FIPB (3) Implementation of GST (4) use of digital / online system for imparting government services.

What does it means for India?

The recent jump will send a positive signal to the investor community. The Insolvency and Bankruptcy code was one of the major concerns and India has improved a lot in this direction. Full impact of the code will be seen in next few years when some major issues and cases are solved under that act. Further, out of the stream of reforms initiated, the World Bank has not recognized 122 reforms and the rank would improve as they are recognized in future. Similarly, as of now, GST is also having mixed response. The full impact of GST will be see in next years’ rankings.