Ease of doing business: How did India improve its ranking to 100th spot?

India improved its rankings in six of the 10 sub-categories used by the World Bank to judge the climate of business

India has jumped into 100th place on the World Bank’s ranking of countries by Ease of Doing Business for the first time in its report for 2018, up about 30 places, driven by reforms in access to credit, power supplies and protection of minority investors. The report, based on data from  New Delhi and Mumbai, ranked India among the top 10 “improvers” globally, having done better in eight out of 10 business indicators. 

As BS notes in its editorial, "This is a shot in the arm for Prime Minister Narendra Modi’s government, which had set out to breach the top 50 economies worldwide in terms of this index."

So how did India jump 30 places? The factors most responsible for the jump in India’s ranking between 2017 and 2018, according to the World Bank, are greater ease in the payment of taxes online, the possibility of submitting building plans in advance of applying for a construction permit, a new form for business incorporation that combines the permanent account number or PAN with the tax account number or TAN, and a reduction in the time required to complete provident fund and state insurance applications. Read more: Editorial Comment

What does the World Bank report say?

The report, covering the period from June 2 last year to June 1 this year, ranked India top among the South Asian nations. India's distance to frontier ratio, which tells how similar a country's economic practices are to global best practices, has improved in nine out of 10 categories. Also, it is now among the top 30 nations in three categories — getting electricity, securing credit and protecting minority investors. However, the World Bank noted that India lagged in areas such as starting a business, enforcing contracts, and dealing with construction permits. 

The multilateral agency has recognised reforms by the government in eight sub-categories. It said the country had adopted 37 reforms since 2003. "Nearly half of these reforms have been implemented in the last four years," it said. Read more 

Thumbs up from World Bank

In the protecting minority investors, India is now the fourth best country in the world, a jump from the 13th place last year. The initiatives taken by Sebi in the area of “ease of doing” business include rationalisation of knowing your customer (KYC) norms, increasing the number of arbitration centers and simplifying FPI (foreign portfolio investor) norms for investing in the debt market. Read more 

The passage and implementation of the Insolvency and Bankruptcy Code (IBC) as well as setting up of sectoral regulators saw India climb 33 notches in the parameter for resolving insolvency. 

India has jumped 53 places from 172 to 119 on ease of paying taxes. Read more 

In access to credit, the country improved its ranking by 15 places to 29. Here, too, the insolvency process played a key role. 

Despite hoping to bag a better rank in the securing construction permits category, India only improved to 181 from 184. 

Why India's rankings have improved?

1. Paying taxes: In 2016, Income Computation and Disclosure Standards (ICDS), an accounting standard for the purpose of income tax was introduced. It advances some income and postpones some expenses to arrive at the profitability of companies. Hence, data gathering has become automated due to the use of the latest software. 

2. Dealing with construction permits: India made obtaining a building permit faster by implementing an online single-window system for the approval of building plans.

3. Getting credit: India has strengthened access to credit by amending the rules on the priority of secured creditors outside reorganisation proceedings and adopting a new insolvency and bankruptcy code.

4. Trading across borders: India reduced border compliance time by improving infrastructure at the Nhava Sheva Port in Mumbai; export and import border compliance costs reduced in Delhi and Mumbai after removal of merchant overtime fees.

5. Resolving insolvency: The country has regulated the profession of insolvency administrators apart from adopting a new insolvency and bankruptcy code.

6. Starting a business: India streamlined the business incorporation process by introducing the SPICe form. Read more 

World Bank on GST

The World Bank did not specifically ask respondents about the implications of the GST.

It said the tax was not an issue mentioned by a majority of the respondents but added that it would have a significant bearing on India’s rankings over the next few years. 

Interestingly, the report has not taken into account the government's demonetisation drive. 

What industrialists and others have to say

Vedanta Group Chairman Anil Agarwal said the robust rise showed the reforms by the government were finally bearing fruit, making India one of the most compelling investment destinations globally. 

Axis Bank MD & CEO Shikha Sharma asserted that the jump in ranking was in the expected lines. "Jump in rankings does not surprise us. The government has been stepping up efforts to create a transparent business environment, Sharma said.

"Speed at which reforms have been happening is remarkable and it was only a matter of time before India was rewarded for this," said Chandrajit Banerjee, director general, CII. 

India is climbing up faster than other economies in the Ease of Doing business list 

Finance Minister Arun Jaitley said that the jump of 30 places is the highest jump that any country has made in the ranking.

"We were ranked 142 in 2014, and 130 last year in ease of doing business World Bank list. The World Bank report says India has been undertaking numerous reforms," he said while addressing media in the national capital. Read more 

"Work is in progress and I think if we are able to expedite the work over the next few months in these areas, there is a huge scope for us to jump up from 100," Jaitley added. 

However, he said that India still lag in building construction permits. "We are going to request states to expedite municipal permits," the finance minister said.

Speaking to ANI, economist DK Pant said, "This shows that we are observing that there is continuous change in the system. Now there is more push to make India business friendly. We are improving and have made certain changes in all aspects. The pace of improvement in India is better than other economies. When we are jumping 30 places then this shows that certainly we have done something better and faster than what other economies are doing. Read more