Don’t read much into India’s march in the ease of doing business rankings

| Updated on October 28, 2019

When it comes to genuinely addressing the pain points that its entrepreneurs undergo in their quest to set up and scale a business, India still has miles to go

Amid a gloomy economic environment, India has continued its upward march in the World Bank’s Ease of Doing Business (EODB) rankings. With its rank climbing to 63 (among 190 economies) in 2020, the country has managed a quantum improvement in its relative position over just a four-year span from 130th place in 2016. Increasingly though, it is becoming difficult to reconcile the ‘all-is-well’ scenario painted by India’s performance in the EODB rankings with the marked deterioration in business sentiment on the ground. India’s latest wins in the EODB rankings come at a time when its Index of Industrial Production has gone from expansion to contraction, credit flow to industry has all but seized up and RBI surveys have noted a marked dip in business expectations on order flows and output.

The reasons for this dichotomy could lie in the World Bank’s methodology for this survey, which uses several short-cuts to compress the complex assessment of the business-friendliness of a country into a catch-all number. To arrive at a country’s EODB rank, the survey relies on interviews with a panel of business facilitators situated in the business capitals alone. In India’s case, this restricts the responses to the experiences of lawyers, consultants and government officials dealing with limited liability companies in the cities of Mumbai and Delhi, while in reality, Indian enterprise is powered by millions of own-account MSMEs operating from the hinterland. The smooth experience that businesses in Mumbai or Delhi report in getting an electricity connection from private power utilities, for instance, is unlikely to be mirrored by businesses in smaller towns which deal with draconian State utilities. To assess the costs of setting up a business, securing necessary permits or paying taxes, the survey counts the official fees that exist on paper. But it is an open secret that under-the-table payments dwarf official costs for Indian businessmen. The fixed panellists and known set of ten parameters that the World Bank uses also allow ample room for individual countries to game the system by making quick fixes to the disclosed parameters, while turning a blind eye to more substantive reforms on the ground. In India’s case, recent improvements in rankings have come mainly from e-governance initiatives to transition business incorporation, tax filings and trade documentation to the online mode, while its rank has flat-lined in trickier areas such as contract enforcement and property registration. India has enthusiastically embraced e-governance, but other irritants to enterprise abound in the form of rent-seeking by officialdom, convoluted tax laws, a heavy compliance burden and whimsical interventions by sector regulators.

While the checklist approach may serve the World Bank well in making cross-country comparisons, it is important that Indian policymakers don’t read too much into the EODB rankings. When it comes to genuinely addressing the pain points that its entrepreneurs undergo in their quest to set up and scale a business, India still has miles to go before it rests.

Published on October 28, 2019

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