Build on better Doing Business ranking

I have been urging the government to help create a better business environment to promote industrial growth, exports, foreign direct investment, and jobs. I regard this as the main requirement for high and sustained growth. Hence, I was delighted when I read that India has improved its Ease of Doing Business (EODB) ranking from 130 to 100 in just one year. For this, credit must go to the present government for moving us quickly from the dismal rankings over the past decade. However, we should not gloat over our success. We should try to put India in the top 50 ranking soon.

Given India’s economic performance, we should compare ourselves to the Southeast Asian countries such as Malaysia (ranked 24), Thailand (26) and Vietnam (68). How can we reach there? A careful look at the data indicates that India is still grappling with massive trade transaction costs. This is reflected in India’s abysmal ranking in “Trading Across Borders”, which measures time taken to import and export. India is ranked 146 against 143 in the previous year. We urgently need to focus on trade facilitation reforms that I had been pushing for over two decades. Recommendations made in the 2004 Ministry of Finance Working Group on Trade Facilitation Report that I chaired are yet to be fully implemented. We urgently need to implement the unfinished tasks in trade facilitation reforms. 

These are:

• Drastically reduce paperwork and signatures required to undertake trade from 29 different agencies. Hence, several days are lost before goods reach ports and airports. From my last check in, things have not improved though ministries of commerce and industry, and finance assert that fewer agencies are now involved

• Reliance on a trust-based system, in which importers self-certify. Audits can be conducted ex-post; there should be minimal physical inspection

• Movement towards a paperless system with minimum face-to-face contact and signatures. The real problem, however, is that there are too many agencies involved, with no real accountability. Given our software capabilities, we should have established a paperless system, with no human interface, through the full implementation of the electronic data interface (EDI) system. Although customs is covering over 90 per cent of the total declarations through EDI, other agencies are lagging considerably. We cannot avoid face-to-face contacts and a paper trail, unless other agencies are in line with the customs. Placing one authority in charge of trade facilitation is urgently required.

• Cargo dwell time at ports reduced to levels comparable to the best performers in Southeast Asia. After the paper chase, the exporter/importer has to wait for days to ship cargo from airports and ports. Typical cargo dwell time at airports is about two days, against an international norm of about 12 hours. For containerised sea freight, the cargo dwell time for imports is over a week, compared with the global norm of a few days. Delays in payment of duty, time taken by importers to file declarations and getting clearance from other ministries are the main contributing factors to high cargo dwell time. Unlike our competitors, we do not allow a line of credit, use of credit cards or a deferred payment system. Then, there are delays associated with clearance requirements from other ministries to safeguard health, safety, security, and environment concerns. In most countries, this is taken care of by reliance on a sound risk management system, to which we are now committed. 

• Quarterly monitoring of cargo dwell time in major ports and airports by the National Committee on Trade Facilitation (NCTF) with the full attention of the PM, preferably chaired by him. We have no line ministry whose primary function is trade or logistics facilitation. Areas of concern are the administrative responsibility of several ministries and agencies — ministries of commerce and industry, finance, shipping and ports, surface transport, railways, and civil aviation. Allied agencies at the border that govern regulations related to technical standards include ministries of agriculture, food, health, environment, among others. This means genuine industry efforts to lobby for reforms get diluted, given the multiplicity of agencies with no accountability. This also results in poor coordination and lack of administrative urgency in implementing reforms. No wonder our cargo dwell time is still in weeks as against days in all successful trading nations. In addition, our exporters and importers still have to get signatures from numerous agencies, which add immensely to transaction costs.

To set things right we need to have the NCTF set a target for cargo dwell time in all ports and airports for exports and imports within a defined timeframe. The NCTF should break cargo dwell time down for each of the components — manifest filing, declaration, assessment, duty payment and examination — for all ports and airports. The time taken for each stage should be explained. A target should be set for the next quarterly meeting, which should be monitored by the PM himself. The agencies responsible for not meeting the target should be held accountable and punished. Only then will cargo dwell time be sharply reduced. Similar targets should be set for administrative processing of trade documents by numerous agencies, leading ultimately to a couple of clearances.

The recently published National Trade Facilitation Action Plan (2017-2020) has provided a good road map for the government to work on. It is broadly in line with my recommendations on trade facilitation stated above. Nevertheless, the monitoring of the cargo dwell time by the PM himself through the NCTF is definitely required to ensure its success. The improved ranking of “Trading Across Borders” that will result from it will not only ensure our smooth passage to top 50 ranking in EODB but also put us on a high export growth trajectory.

The writer is a former  economic advisor in the Union commerce ministry