India ranks 63rd among 190 countries improving by 14 ranks from its rank of 77 in 2019 in World Bank’s Ease of Doing Business ranking 2020.
Ease of Doing Business(EDB)-
- Ease of doing business ranking 2020 is an index published by the World Bank. It is an aggregate figure that includes different parameters that define the ease of doing business in a country.
- The project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level.
- The Doing Business project, launched in 2002, looks at domestic small and medium-sized companies and measures the regulations applying to them through their life cycle.
- It captures several important dimensions of the regulatory environment as it applies to local firms.
- The first study, published in 2003, covered 5 indicator sets and 133 economies. This year’s study covers 11 indicator sets and 190 economies.
What is measured in Doing Business?-
It provides quantitative indicators-
Inadequacy in EDB index-
- Doing Business measures more at the micro-level and not at the macro level.
- There are little things such as security, the level of education of workers in a given country, infrastructure that can impact the business environment of a country that is not covered by Doing Business.
- Doing business does focus on the largest business cities. It's a limitation, but the bankruptcy laws, the secure transactions legal framework, Companies Act, all of these are, generally, in most countries, the same across regions.
- Instead of looking at whether reforms were actually implemented, and in what manner, the World Bank just takes governments’ words for it.
- Theoretically, GST was supposed to make it cheaper to do business and boost economic growth by simplifying tax payments. But even the government has admitted that the implementation was poor.
- It assumes that all business is subject to similar tax treatment. That is demonstrably false, especially in larger economies like India.
Key findings of the report-
India: Areas Of Strength
- Among the areas where India gained the most was in resolving insolvency. India’s rank here moved from 108 to 52.
- The Insolvency and Bankruptcy Code was passed in 2016 in India. Since then, its performance has been marred by delays in resolution.
- Amendments to IBC seek to enforce a strict time limit for dealing with troubled companies and clarify the rights of all types of creditors.
- The Commercial Courts Act, 2015 provides for commercial courts and commercial divisions of high courts to adjudicate commercial disputes with a value of at least one crore rupees.
Dealing With Construction Permits
- India also saw its ranking rise from 52 to 27.
- India made obtaining a building permit faster by implementing an online ‘Single Window System’ for the approval of building plans, according to the study in 2018.
- Delhi streamlined the process, reduced the time and cost of obtaining construction permits, and improved building quality control by strengthening professional certification requirements.
- Across Mumbai, the process of obtaining a building permit was faster and less expensive.
Trading Across Borders
- India’s rank jumped 12 places in the category of trading across borders.
- India made trading across borders easier by enabling post-clearance audits, integrating trade stakeholders in a single electronic platform, upgrading port infrastructure, and enhancing the electronic submission of documents.
India: Areas Of Weakness
Starting A Business
- India’s rank in starting a business remained poor at 136 out of the 190 economies. It gained just one rank in the past year.
- The small gain on this front followed the government’s decision to abolish filing fees for the electronic Simplified Proforma for Incorporating a Company, memorandum of association, and articles of association.
- Across key parameters, India’s weakest spot remains to enforce contracts. Here India ranks at 163. It’s rank remained unchanged.
- The report did not comment specifically on India’s track record in this area but said that it takes into account the “time and cost to resolve a commercial dispute and the quality of judicial processes” while judging ranking.
Protection Of Minority Investors
- While India ranks relatively high in the ‘protection of minority investors’, it saw its ranking slip in the latest survey.
- The country’s rank slipped from 7 to 13 even though its score remained unchanged.
Gains Over The Years
- The World Bank study stated that India has made a substantial leap upward, raising its ease of doing business ranking from 130 in 2016 to 63 in the 2020 survey.
- Over this period, India’s rank in dealing with construction permits has seen the sharpest rise from 183 in 2016 to 27 in 2020.
- The country’s standing in the areas of insolvency resolution and getting electricity have also moved substantially. In contrast, India continues to struggle with enforcing contracts and starting a business.
Central Government Initiatives-
Starting a business-
- Permanent Account Number (PAN), Tax Deduction & Collection Account Number (TAN), Director Identification Number (DIN) have now been merged into a single form (SPICe) for company incorporation.
- No requirement of inspection for before registration under Shops & Establishment Act in Mumbai and Delhi.
- Companies Act was amended to eliminate the requirement of a common company seal.
Dealing with construction permits-
- Municipal Corporations of Delhi, as well as Municipal Corporation of Greater Mumbai, have introduced a fast track approval system for issuing building permits with features such as Common Application Form (CAF), provision of using digital signature and online scrutiny of building plans.
- Delhi has uniform building by-laws that allow for risk-based classification regimes for different building types. It has a provision of deemed approval of sanctioning building plans within 30 days.
- Real Estate Regulatory Authority (RERA) helps to regulate transactions related to both residential and commercial projects and ensure their timely completion and handover.
Trading across borders-
- The Central Board of Excise and Customs (CBEC) has implemented the ‘Indian Customs Single Window Project’ to facilitate trade. Importers and exporters can electronically lodge their Customs clearance documents at a single point.
- E-Sanchit, an online application system, allows traders to file all documents electronically.
- The electronic self-sealing of the container at the factory has reduced the time and cost for exporting firms.
- The Commercial Courts and Appellate Division of High Courts have been established in Mumbai and Delhi.
- National Judicial Data Grid (NJDG), provides case data including case registration, cause list, case status and orders/judgments of courts district-wise across the country. NJDG is open for the public since 2015.
- A case management tool has been developed with the functionality of sending a notification to lawyers, viewing court orders/judgments, tracking the status of cases, semi-automatically generate court orders, etc.
- Central Registry of Securitization Asset Reconstruction and Security Interest (CERSAI) is a geographically unified electronic registry that provides for registration by asset type. Since 2017, CERSAI also provides searches through the debtor's name.
- Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) (Central Registry) Rules, 2011 was amended to include additional types of charges, including a security interest in - immovable property by the mortgage, hypothecation of plant and machinery, stocks, debt including book debt or receivables, intangible assets, patent, copyright, trademark, under-construction building.
- The definition of property, which now includes immovable as well as intangible, allows CERSAI to register these additional charges.
- Electricity connection is provided within 7 days if no Right of Way (RoW) is required and within 15 days where RoW is required.
- Service line cum Development charges are now capped at US$ 357.6 in Delhi.
- The number of documents required for getting electricity connection has been reduced to two and no physical documents are accepted.
- All sub-registrar offices have been digitized and its records have been integrated with the Land Records Department, in both Delhi and Mumbai.
- In Mumbai, all property tax records have been digitized. Property is mutated at automatically after registration. The digitization of property records ensures transparency and allows citizens to ascertain the history of transactions in digital mode.
- Online service for charges search at Registrar of Companies reduces the time taken for this procedure significantly.
- The Insolvency and Bankruptcy Code of 2016 has introduced new dimensions in resolving insolvency in India. It is India’s first comprehensive legislation of corporate insolvency.
- Under Fast-track Corporate Insolvency Resolution Process (CIRP) for mid-sized companies, the process for insolvency shall be completed within 90 days with a maximum grace period of another 45 days.
- Reduction of corporate tax from 30% to 25% for mid-sized companies.
- The Goods and Service Tax came into effect from 01 July 2017. It subsumes eight taxes at the Central and nine taxes at the State level.
- With the introduction of the e-verification system, there remains no physical touchpoint for document submission to income tax authorities.
It is notable that while India’s ranking has improved impressively in the last few years, there is much scope to enhance the EDB with proactive policy action, such as in the domain of enforcing contracts, registering property and starting a business. It should then be eminently possible to move into the top 50 of the global index, and, in the foreseeable future, to the top 30.
- On the ‘getting credit’ parameter, while India has a relatively high rank of 25, the fact is that the banking and financial sector faces rising contagion risks and requires sustained reform measures to better allocate resources economy-wide.
- On the ‘getting electricity’, for which India’s current rank is an impressive 22. Recent schemes to universalize access to power certainly seem to have helped matters.
- But the fact is that state power utilities remain financially declining, underperforming and underinvested, in the backdrop of reckless giveaways and rampant populism in tariff design in power distribution across the board.
- There is a need for much improved EDB nationwide, and not merely in the two main business and policymaking centers.
- It is glaring that under at least four heads enforcing contracts, registering property, starting a business, and paying taxes — the scenario has hardly improved, as per the latest scores.
- The way forward is to carry out long-pending reforms of judicial processes to do away with routine legal delays.
- High stamp duty rates seem a perverse incentive to undervalue and underreport real estate transactions. There remains a host of rigidities in housing and real estate that need to be reformed to promptly do away with extensive opacity.
- India needs to move faster on the reform front, to better attract global savings and investments.
India’s impressive progression in the Doing Business rankings over the past few years is a tremendous achievement, especially for an economy that is as large and complex. Sustained business reforms over the past several years have helped India jumped 14 places to move to 63rd position in this year’s global Ease of Doing Business rankings.
India is a region of the world that has a rich history of economic trade and commerce. As the world's biggest democracy grows, so does its needs, which makes it the perfect region to consider when your company is looking to expand abroad. Therefore, it is necessary that doing business in India should be favorable for investors.