India is understandably piqued at having moved up just one place, from 131 to 130, in the World Bank’s annual ease of doing business rankings (drawn up after assessing performance with respect to 10 factors) over the last year. The Doing Business 2017 report says that India has done well in ensuring that a startup gets an electricity connection easily, having moved up 25 paces, from a rank of 51 last year to 26 now. India has moved up six ranks with respect to contract enforcement, but 172 remains unflattering. There have been slippages in areas such as starting a business, construction permits, getting credit, protecting minority investors and resolving insolvency. The report, in fact, deploys a more significant measure, ‘distance to frontier’, which is both an absolute and dynamic norm. DTF assesses a country’s prevailing systems in relation to the best standards, as well as their progress over time. India’s overall DTF performance over a range of parameters has moved from 48.77 (100 signifying global best practice) in 2009 to 55.27 this year. To place the quality of India’s systems in perspective, New Zealand (ranked first this year in the ease of doing business index), Hong Kong, Singapore, Taiwan, US and the Scandinavian countries have scores in the mid-80s or higher, while the OECD group is in the region of 75-80. China and South Africa have DTF scores in the mid-60s, while Brazil is similarly placed as India. Russia’s DTF score has jumped 20 points since 2009 to above 73, similar to parts of Europe. The DTF is an important marker for foreign investors and governments keen on being investor-friendly. The report, however, spells out that it does not capture “macroeconomic stability, development of the financial system, market size, the incidence of bribery and corruption or the quality of the labour force”. However, its strength lies in focusing on reform areas that are not politically sensitive and therefore doable.
The Centre has been quick to observe that the rank does not reflect recent reform steps. Hence, moves — such as enacting the Bankruptcy Code, the constitutional amendment to enact a GST law and introduction of online clearances for building plans — have apparently not been factored in by the study. The Centre may be right in pointing out that the study, by sticking to Mumbai and Delhi, has overlooked steps taken by States. But it is possible that India’s DTF score looks respectable because it takes just these two metros into account.
This publication has sought to respond to the criticism that it pushes deregulation per se as a virtue. It claims to reward “better-functioning institutions (such as courts and credit bureaus)” or rules that address social and environmental concerns. Be that as it may, India needs to move from a regulatory regime that works as a formidable entry barrier to small businesses to one where market forces work to lift all boats.