The improvement made by India in the World Bank’s latest ‘Ease of Doing Business’ report is significant and commendable. The country has jumped 30 rungs to the 100th position from last year’s 130th rank among 190 countries, and is among the 10 countries that have improved the most in the past one year. The big leap should give confidence to the government and investors and some hope to the people. The pace of economic development depends crucially on how easily and smoothly businesses, including trade and industry, can be started, run and even wound up. Policies, practices, laws and their implementation should create a conducive environment and that is what the World Bank tries to measure in each country with the help a number of parameters. India has done well in some areas while there are serious challenges in others.
The enhanced ranking is on account of the performance related to four parameters – resolving insolvency, protection of minority investors, paying taxes and access to
credit – out of 10. The insolvency and bankruptcy code enables companies to exit businesses without much difficulty, the licensing of new banking entities improved access to capital and the new Companies Act gave better protection to minority interests. Simpler and better rules have made payment of taxes easier and improved compliance. The ranking went up from 136 to 103 in resolving insolvency and from 44 to 29 in access to credit. The best performance was in the protection of minority interests where the ranking went up from 13 to four. While these are positives there are many negatives. The ranking is very bad in the case of important parameters like enforcing contracts and registering property. The rank is 156 in the case of starting a business and 181 in the case of securing construction permits. In some areas, the ranking has fallen from last year’s position.
The World Bank’s index is limited by its scope and design. It is not representative of all of India, because the survey on which it is based was done only in Mumbai and Delhi, which are traditionally business-friendly. The challenge of doing business in the rest of the country is much more forbidding. The improvement in ranking has in any case yet to translate into gains on the ground. The higher ranking will indicate a better business environment only when domestic businesses start investing, when there is higher inflow of FDI and more start-ups start registering and at least some of them succeed. It should be noted that Russia’s ranking on the index is above China’s and Rwanda is in the top 50. So, all the song and dance about the rank, including the finance minister’s rhetoric, is a little premature. There’s a long way to go.