India’s rank in the World Bank’s Ease of Doing Business 2019 survey climbed 23

places to 77 among 190 countries surveyed, making it the only country to rank
among the top 10 improvers for the second consecutive year. The sharp rise in the
ranking will burnish the reformist credentials of the Narendra Modi-led National
Democratic Alliance (NDA) and help the prime minister build a positive narrative
ahead of elections in five states next month and Lok Sabha elections in 2019.
Last year, India saw a record jump of 30 places to reach the 100th position in the
rankings. In more than four years of the NDA, India’s ranking improved 65 places
from 142nd in 2014 to 77th in 2018, a record for a major economy. (The complete
list of countries in World Bank Doing Business 2019 rankings can be
accessed here)

The reforms in India included streamlining the process of obtaining a building

permit and improved building quality controls," the World Bank said. “Starting a
business was made easier through consolidation of multiple application forms and
introduction of a goods and services tax (GST), while getting electricity was made
faster and cheaper. Other reforms in India included strengthening access to credit
as well as making it easier and faster to pay taxes and trade across borders."
Industry secretary Ramesh Abhishek said that earlier, breaking into the top 50 in
the World Bank rankings looked difficult.
“At 77, we are within striking distance of top 50. Momentum of reforms will
continue. ‘Team India’ will work harder, together, build more & more trust with
users & deliver on the promise," he tweeted.

The Doing Business 2019 report bases the rankings on field surveys and interviews
with corporate lawyers and company executives in Delhi and Mumbai. India is
seeking to reach the 30th position by 2020, according to an output-outcome
framework document prepared by the government.
India saw a massive jump in the parameter “dealing with construction permits" to
52th position from 181st a year ago by reducing time for processing permit
applications, streamlining procedures, and improving transparency among other
measures.
“By implementing the single-window clearance system in Delhi and the online
building permit approval system in Mumbai during the second half of 2017, India
also continued to streamline and centralize its construction permitting process," the
report said.
India saw a similar improvement in the “trading across borders" section to 80th
position from 146th a year ago. This improvement was made possible by reducing
the time and cost to export and import through various initiatives, including the
implementation of electronic sealing of containers, upgrading of port infrastructure
and allowing electronic submission of supporting documents with digital
signatures under its National Trade Facilitation Action Plan 2017-2020.
Ease of doing business Index has been developed by the World Bank and a nation s ranking
is determined based on 10 sub-indices. In India, World Bank calculates the Index based on
the data from Delhi and Mumbai.

Ease of doing business is key to achieve objectives of initiatives such as Make in India which
will boost the manufacturing sector. In the recently released World Bank report, India has
climbed 30 spots to reach the 100th position in Ease of doing business Index 2018 from
130th position in 2017. India has seen improvement of rankings in - protecting rights of
minority investors, getting credit and resolving insolvency, enforcing contracts and dealing
with construction permits.

Though the Central and State Governments have tried to improve the ease of doing business
by several initiatives like Goods and Services Tax, Insolvency and Bankruptcy Code and
striving towards cutting red tape, challenges still remain. In this article, we try to understand
the challenges faced for ease of doing business in India and also the prospects.

How are the Ease of Doing Business rankings calculated?

The Ease of Doing business rankings are calculated on the basis of the Distance to Frontier
(DTF) score. The distance to frontier score benchmarks economies with respect to regulatory
best practice, showing the absolute distance to the best performance on each Doing Business
indicator.When compared across years, the distance to frontier score shows how much the
regulatory environment for local entrepreneurs in an economy has changed over time in
absolute terms. Based on the DTF score, the rankings are calculated. When rankings are
compared then inter-country comparisons can be made.

What parameters are used in calculating Ease of Doing Business

rankings?
The rankings are calculated based on ten parameters and their sub-parameters as listed below:

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 along with
reliability of supply.

4. Registering property-Procedures, time and cost to register commercial real estate

and quality of land administration (index calculated)
 5. Getting Credit-Strength of legal rights index, depth of credit information index

6. Protecting Minority 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

10. Resolving insolvency-The time, cost and recovery rate (%) under bankruptcy
proceeding

Each of these parameters has certain sub-parameters that are quantifiable (mentioned
alongside). For example, the 'Starting a business' parameter has procedures, time, cost and
minimum capital required as calculative parameters. The best performers are used to set the
DTF reference. This is shown in the picture below. The second column shows which country
set the frontier i.e. which country was the best performer, while the third column specifies
that frontier.

Similar calculations are done for other parameters as well across economies.

How has India's performance been on the Ease of Doing

Business rankings?
The 2018 Doing Business report identifies India to be among the top five performers for this
year due to its massive jump in the rankings. Though, it has seen a considerable
improvement, it still lacks behind a majority of its BRICS peers, coming out ahead of only
Brazil which is ranked at 125. Russia (35), China (78) and South Africa (82) have all fared
better than India.
In South Asia, it performs above the regional average. This is represented in the DTF score,
as shown:

The following shows India's performance in the last two years:

As can be seen India's DTF has improved as compared to last year on all parameters.
However, if rankings were to be compared on each parameter then improvements have come
only in six. This is because other economies have improved better. Thus, we can compare a
country's performance individually through time with the DTF score and compare it to others'
performance by the ranking.
Download Ease Of Doing Business In India: Problems And Prospects PDF

What improvements has India brought in to help improve its Ease of

Doing Business ranking?
1. Starting a Business: India has made starting a business faster by merging the
applications for the Permanent Account Number (PAN) and the Tax Account Number
(TAN), and by improving the online application system. Mumbai also made starting a
business faster by merging the applications for the value-added tax and the profession
tax.

2. Dealing with Construction Permits: India made dealing with construction permits
less cumbersome by implementing an online system that has streamlined the process
at the Municipality of New Delhi and Municipality of Greater Mumbai. The online
system has streamlined the process of obtaining a building permit, thereby reducing
the number of procedures and time required to obtain a building permit in India.

3. Getting Credit: India has strengthened access to credit by amending the rules on
priority of secured creditors outside reorganization proceedings and by adopting a
new law on insolvency that provides a time limit and clear grounds for relief to the
automatic stay for secured creditors during reorganization proceedings.

4. Protecting Minority Investors: India strengthened minority investor protections by

increasing the remedies available in cases of prejudicial transactions between
interested parties.

5. Paying Taxes: India made paying taxes easier by making payment of EPF mandatory
electronically and introducing a set of administrative measures easing compliance
with corporate income tax.

6. Trading across Borders: India reduced import border compliance time in Mumbai
by improving infrastructure at the Nhava Sheva Port. Export and import border
compliance cost were also reduced in both Delhi and Mumbai by eliminating
merchant overtime fees and through the increased use of electronic and mobile
platforms.

7. Enforcing Contracts: India made enforcing contracts easier by introducing the

National Judicial Data Grid, which makes it possible to generate case measurement
reports on local courts.

8. Resolving Insolvency: India made resolving insolvency easier by adopting a new

Insolvency and bankruptcy Code (IBC) that introduced a reorganization procedure for
corporate debtors and facilitated continuation of the debtor s business during
insolvency proceedings.

9. Labor Market Regulation: India increased the mandatory length of paid maternity
leave.
What are the problems with the Ease of Doing business

ranking?
Though a great measure to gauge ease of doing business, the ranking suffers from a few
lacunae:

1. In large economies, only two cities are taken for consideration under the rankings.
This includes the largest and the second largest business city. In India, it is done for
Delhi and Mumbai. Thus, it does not give a true reflection of the economy. If ease of
doing business was calculated across other areas then the performance would most
certainly have dropped.

2. It only measures the policy side i.e. government efforts and ignores market forces and
other factors like human resource. Thus, it should not be taken at face value for
deciding which country is better to do business in.

Challenges for Ease of doing business in India

 It takes approximately a month to start a business in India while the OECD average is
12 days. Though some states like Telangana have eased up the procedures for starting
a business, this is yet to be achieved on a pan India basis.
 The procedures to secure permits are rather cumbersome and involve permissions to
be sought from various departments.
 The implementation efficiency of Insolvency and Bankruptcy code is yet to be
proven.
 Though India has been a modest improvement in enforcing contracts, it now takes
longer time than it did 15 years ago. The absence of effective means for enforcing
contracts impedes growth and development and is a disincentive for the private sector.
 When the domestic market is sluggish, it is important that foreign trade is boosted.
But India in the current year rankings slipped three positions in foreign trade or
trading across borders from 143 to 146.
 India s largest urban agglomerations, Mumbai and Delhi cannot host the kind of large
factories to generate adequate employment. The procedural reforms have not yet
reached the hinterland.
 There s been a significant improvement in paying taxes, but India ranks 119 on this
index. For the Ease of doing business index 2018, GST has not been taken into
consideration.
 Legislative roadblocks still exist for Land Acquisition.
 On his visit, the Prime Minister of Singapore has cited land acquisition, over-
regulation, and legal hassles as bottlenecks for ease of doing business in India. This
signals the hurdles faced by investors in working with India.
 A plan for the industrial park in Gujarat with Singapore has been abandoned due to
issues of land acquisition.
  Difficulty in cutting the red tape erodes the trust of investors and impedes the
prospects of small businesses.
 Lack of coordination among different government ministries and departments, Central
and State governments.

Prospects and Way forward

 India has significant room for improvisation in almost all the sub-indices.
 India fares among the best in access to credit in the South Asian region. Access to
credit should be assured for small businesses and rural entrepreneurs through
penetration of formal banking channels into rural areas.
 Effective implementation of reforms like GST, Insolvency and Bankruptcy code is
needed. The limit of 180 days prescribed in Insolvency and Bankruptcy code should
be pertained to.
 Governments should be proactive in obtaining regular feedback about the
implementation and initiating the changes accordingly.
 States can work towards providing a robust online system for registering property.
 Digitising land records, improving titling and streamlining procedures for transfer of
property should be taken up.
 Foreign trade needs to be boosted by cutting red tape and reducing transaction costs.
 A fair judicial and executive system need to be in place to achieve the confidence of
domestic and foreign investors.
 Fast track commercial courts, paper-less courts need to be set up to speed up the
judicial processes.
 Reforms should not be restricted to Mumbai and Delhi but should be implemented in
the hinterland as well.
 Create awareness about the reforms and procedures of institutional arbitration.
 Labour compliances need to be eased.
 Bureaucracy needs to be well trained and should try to come out of its popular
mindset of being lax and indifferent.
 In the spirit of cooperative and competitive federalism, all the states should initiate the
best and proven practices for ease of doing business.
 The government s assessment of states for implementation of Business Reforms
Action Plan is a step in the right direction and helps to reinforce the idea of
competitive federalism.

Conclusion
A high ranking in one year is not the end in itself. To reach the target of top 50 in the
rankings, India needs to be more vigilant in its approach. It needs to demonstrate not only the
regulatory, governance and economic reforms to investors but also political and
macroeconomic stability, law and order maintenance and quality physical infrastructure. At
the same time, reforms should not be restricted to Mumbai and Delhi as this would improve
the ranking on Ease of Doing Business Index but doesn t account for the actual ground
picture of the whole country. To address this issue, State wise ranking of implementation of
Business Reforms Action Plan needs to be continued. Not restricting to cooperative
federalism, cooperative sub federalism also needs to be explored by bringing local bodies on
board and encouraging their cooperation with Central and State governments.