#100 Ease of Biz: Cause for Applause, Much to be Modest About
By Shankkar Aiyar | Published: 05th November 2017 04:00 AM |
This week, the India Story had it’s aha moment; thanks to India’s ascent to the #100th spot on the World Bank’s Ease of Doing Business ranking. There is cause for applause—a jump of 30 places in one year is laudable. Investment is central to the growth story and validation of competitiveness must be celebrated for it is critical for the expansion of the constituency for real reforms.There is also reason to be wary of hubris and hyperbole—for there is much to be modest about.
The report is based on data for Delhi and Mumbai, and the big bump up in the ranking is largely due to the enactment of the insolvency law and expansion of credit information. More pertinently in five of the 10 parameters, India’s ranking puts it in the league of strugglers and stragglers, with Sub-Saharan economies. India’s rankings—in starting a business, in enforcing contracts, dealing with permits, registering property and trading across borders—reflect the distance governance must travel to deliver results. Take the issue of starting a business.
Last month, a friend visiting his sister in Hong Kong suggested she set up a company to leverage her talent in jewellery designing. It took the brother-sister duo less than 30 minutes to set up the company and by the end of the day she received a commencement certificate.It is not just Hong Kong. World Bank data reveals it takes less than seven days in 55 countries—and roughly half a day in New Zealand —to start a business. Four of the five in the BRICS group are placed better than India, which trails behind Malawi, Botswana and Iraq. It takes 14 days to start a business in Myanmar versus 29 days in India, which is ranked 156 on this parameter. Mind you, it is 29 days for Delhi and Mumbai— and as an IDFC Institute study done for NITI Aayog shows, average days to start a business ranges between 85 and 113 days.
Why does it take as long as it does to start a business? It is not for want of tech capacity. The problem is with codification of process and access to information. A recast is necessary and possible. Thailand shrank time taken to start a business from 25.5 to 4.5 days in just one year. The delicious irony about India’s sequencing of ease of doing business reforms is that it does better on resolving insolvency than on starting a business.
Once the investors have set up business, they are most worried about enforcement of contract. On this parameter every member of BRICS does better than India, which is ranked at 164—China is 5th, Russia 18th, Brazil 47th, and South Africa at 115. Indeed, it takes 1,445 days to enforce a contract in India as against 446 days in Burkina Faso, 560 days in Congo, or 620 days in Mali. The cause is known—the capacity and capability gap in legal infrastructure.
Similar is the story elsewhere. In dealing with construction permits, India lags behind BRICS peers and is ranked 181—and trails South Sudan, Cambodia and Central African Republic. In ease of registering property, India is ranked lower than Zambia, Somalia, and Trinidad and Tobago. And trading across borders is easier in Papua New Guinea, Guyana and Vanuatu.
The government has expressed confidence that India can shoot for the 50th rank on the World Bank table. By no means is that a mean ambition. This year, the 50th spot is occupied by Bulgaria. In fact, India is already ahead of Bulgaria in three of the parameters. It would be useful though to see what this ambition entails. India would need to prime processes to prune processing time —construction permits from 143 days to 97 days, property registration from 53 days to nine days, contract enforcement from 1,445 days to 564 days, exports documentation from 38 hours to two hours, and tax compliance hours from 453 to 214 per year.
The question is less about how doable this is. It is more about whether it will get done. Such is the level of systemic sloth. On Tuesday, the day the World Bank released its report, the Ministry of Railways had to request the Army to build the foot-over bridge at the Elphinstone road station in Mumbai. The bridge was originally approved in April 2015, but tenders were issued only in September 2017—on the day of the tragedy. Why not learn from the success in highways? This government invested faith in public investment to propel growth. Can India afford a system where processes take months if not years?
India, it is often said, is many economies. It is equally true that the level of governance resides in different eras. Illustrative of this is India’s position in three segments. It ranks 29th in getting electricity and credit and 4th in protection of minority investor interests—that is, right alongside developed economies. In stark contrast in five other segments, it is huddled at the bottom of the league.
Clearly, the divergence in rankings holds lessons for policy makers. There is the design deficit at the Centre and then there is the structural Centre-state fault line. Trading across borders and aspiration of export competitiveness is impacted by barriers at multiple levels—for starters, due to dependency on states to deliver on a range of corrective interventions. The challenge is to get states to push the envelope of reforms—in easing exports, construction permits and registration of property for instance. Why not institute a drop box of best practices for adoption?
Following the release of the World Bank report, there was a race for credit optics between the governments of Delhi and Maharashtra for their role in the rise in the ratings, for putting clearance of construction permits online. The question is how many other states have adopted the idea—and the NDA is in power in 18 states. Yes, India does well on getting electricity connection. But thanks to the fact that states have run electricity boards into the ground enterprises struggle with daily outages, which impacts efficiency.
The world is definitely not flat and investors are not invested in apologism—of scale, complexity, federal structure and the difficulties in democracy. The issue is really about sequencing of objectives and outcomes and finding champions to deliver. If governments in India focused on resolving day to day problems of Indians, global competitiveness will follow.