India moving up 14 places in the World Bank’s ‘ease of doing business’ (EDB) index has kicked up an intense debate on the ranking’s relevance, and the pros and cons for businesses. From a dismal 143rd position in 2014, India has gone up 80 places in the global rankings. Getting to the 63rd position in the EDB index that covers 190 countries is no doubt a good beginning. The consistent improvement in India’s standing over 10 parameters during the last six years is being highlighted by the Narendra Modi government as a huge achievement.
Top ministers going gaga over the new rankings released by the World Bank calls for an introspection as to what it actually means for a large developing country like ours. The truth is that improvement in ease of doing business covers just Mumbai and Delhi. Only in the 2020 rankings revamp might the survey be extended to Kolkata and Chennai, with four cities each to be chosen in populous countries. Even when all four metro cities traditionally regarded as harbingers of change are covered, the indexing is indicative and may not represent the real India and its businesses in entirety.
Having said this, if India’s pulse on ease of doing business needs to be gauged, then at least a dozen cities including both metropolitan and semi-urban areas may have to be surveyed. Unlike Hong Kong and the city state Singapore, India’s diverse work and business cultures cannot be reviewed or understood unless a workable model is evolved. Given that India is a federal republic with central, state and local laws applicable to businesses, the World Bank index in its present format could at best serve as a pointer and nothing more.
In this context, the Modi government’s objective of breaking into the top 30 in the EDB index would mean a lot more hard work on several fronts. For instance, India ranks poorly, figuring in the bottom 50 on enforceability of commercial contracts. It means that commercial disputes and related transaction costs are huge in India, which would not be to the liking of both domestic and foreign investors. For instance, the industrial consumers who have signed power purchase agreements (PPAs) with state-owned power distribution agencies in Andhra Pradesh have had a shock as the new government has gone about routinely reviewing the power pacts signed by its predecessor.
Given that energy costs are factored into pricing industrial products as well as services, large business consumers are in a quandary.Big companies in India usually do not adhere to timelines while releasing payments to small- and medium-size vendors. With none to intervene or enforce the commercial contractual obligations, micro, small and medium enterprises perpetually face a liquidity crunch. This not only impacts their own businesses, but puts banks in a spot. Only recently, Finance Minister Nirmala Sitharaman assured some relief to MSMEs via the bill-discounting schemes through banks.
Starting a new business could turn out to be a nightmare. Getting timely statutory clearances from central, state and local governments for starting a new venture is as significant as making foolproof business strategies to be a successful entrepreneur. There is no reason why dozens of projects should continue to face inordinate time and cost over-runs. The Centre’s offer to appoint relationship managers for companies bringing investments worth $500 million point to the complexities of starting and running a business in India.
Can a new entity register its property without hassles or greasing the palms of officials at the lowest rung? Are honest businessmen able to pay taxes without spending sleepless nights? Does India offer an environment where trading across borders can happen in a jiffy? Can a business enterprise access cost-effective credit on time without batting an eyelid? These are some questions the government needs to ponder over while claiming to be the best in providing a business-friendly ecosystem. Red tape and corruption continue to singe small businesses all the more.
There’s no point in self-promotion by the top leadership when investments are hard to come by. Unless domestic and foreign investments materialise big time, these rankings hardly matter. They could at best be used as tools for marketing India as an investment-friendly destination.
What the Centre should be doing is using the rankings to get at least 10 large investment proposals of about $100 billion cleared annually in a time-bound manner and ensure ground-level work begins in right earnest. There are hardly any recent big-ticket investment proposals announced by a domestic or foreign company, especially after the PM was re-elected in May. This should serve as a grim reminder for the government that has claimed it has made life easier for businesses.
In fact, the economic slowdown should serve as the backdrop to push for serious reforms and talk up the industry sentiment. Apart from ushering in competitive tax rates and reduction in interface with tax officials, businesses will have to breathe easy while leasing or acquiring land for industrial purposes. For that to happen seamlessly, the government may have to prioritise putting in place a modern land acquisition act through Parliament by balancing out interests of local communities. Unless states become active partners in land acquisition, uncertainty for businesses will continue to hamper investments.
Till the fruits of development reach the society at large and jobs are provided for highly skilled or semi-skilled Indian workers, celebrations over the ease of doing business rankings can wait.
K A Badarinath
Senior journalist and economic analyst based in New Delhi
Email: badarinath61@gmail.com