TWO MOST BADLY PERFORMING AREAS
India’s moving up 14 places to be ranked 63rd among 190 nations in the World Bank’s Doing Business 2020 report, fails to give a clear picture of the situation prevailing in the country, since the two most important areas among 12 are not included in this report. They are employing workers and contracting with the government indicator sets. Moreover the report is primarily based on assessment of the situations mainly in Delhi and Mumbai (weight given 53 and 47 per cent respectively), ignoring the situation in the rest of the country.
It must be noted that Doing Business investigates the regulations that enhance business activity and those that constrain it, and covers 12 areas – starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across border, enforcing contracts, resolving insolvency, employing workers, and contracting with the government.
The report has included India among the ten economies with the ‘most notable improvement’ which included Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China and Nigeria. Among these ten countries, India’s performance is second worst with a change of only 3.5 only a little better than Nigeria’s 3.4. All other countries performed better.
India performed better than its own recent past only in four areas out of ten assessed. These four areas are starting business, dealing with construction permits, trading across borders, and resolving insolvency. In the six other areas assessed the country’s performance was found to be dismal, which are getting electricity, registering properties, getting credit, protecting minority investors, paying taxes, and enforcing contracts. It shows how difficult it is to do business in India. After all, these areas determine the decisions regarding doing business in a country. Who can dream of doing business with ease without getting electricity or credit, or even with difficulties in paying taxes?
It is also worth noting that India still lags in areas like enforcing contracts (163rd rank) and registering property (154th rank). It takes 58 days to register a property, and one has to spend on an average of 7.8 per cent of the properties’ value. The worse, it takes 1445 days (over four years) for a company to resolve a commercial dispute through a local first-instance court.
Despite such problems in India, the report says, that India, which has conducted a remarkable reform effort, joins the list of top performing economies for the third year in a row. Given the size of India’s economy, these reform efforts are particularly commendable, the report said. However, it is indicative of only comparative performance vis-a-vis other countries, and therefore Indians must be beware of the other existing pitfalls in the country’s economic and administrative environment, otherwise the downturn in the Indian economy cannot be reversed.
India scored 71 per cent in ease of doing business as on May 1, 2019 in ten areas and only two cities, Delhi and Mumbai. It goes without saying that the score does not reflect the true picture prevailing in the country, since the level of facilities available in the two metropolises for doing business is not spread in other cities and town all over the country.
In 2015, Modi has given a call to his own government to make India among 50 top economies on the ease of doing business ranking by 2020, in which the government failed. Modi’s ‘Make in India’ campaign was focussed on attracting foreign investment, boosting the private sector – manufacturing in particular – and enhancing the country’s overall competitiveness. He miserably failed in almost all these areas, and now, in his second term he is not even mentioning the phrase ‘Make in India’. The administrations reform efforts targeted all the areas measured by Doing Business, with focus on paying taxes, trading across borders, and resolving insolvency. However, these have remained the most problematic areas in the Indian economy.
Much is desired to be done even in the area of cross border trade reforms. Cross-border cooperation needs to be improved by ensuring easy customs clearance procedures, harmonization of compliance rules, and border control efficiency. Nepal has decreased the time to export and import by opening new joint border crossing point with India, but India needs more such measures will all its bordering countries.
The report, on the basis of a study, said that restrictive labour regulation in India is associated with a 35 per cent increase in firms’ unit labour costs. It makes a case of labour reform in the country, though it is highly controversial on account of anti-labour stance. Labour and employment scenario is worst in the last 45 years, and therefore the government will tread carefully in this regard.
Doing business report cites another study to suggest higher quality institutions that help firms to invest in institutional-dependent inputs which might affect a firm’s performance. As an example, it says that, in India, judicial quality is a significant determinant of higher firm performance, for both exports and domestic sales. A conservative estimate suggests that a 10 per cent increase in judicial quality increases firm sales by 1-2 per cent.
The report lauds the new insolvency regime under which more than 2000 companies have used the new lay. Of these, about 470 have commended liquidation and more than 120 have approved reorganization plans with the remaining cases still pending. Obviously there is much scope of improvement.