India betting on GST and IBC to improve ease of doing business rank

The government is banking on big-ticket policy measures such as goods and service tax (GST) and the insolvency and bankruptcy code (IBC) to secure a higher ease of doing business ranking for India in the upcoming survey by the World Bank, set to be released in October.

The high optimism by the Department of Industrial Policy and Promotion (DIPP), which implements the reforms to ease business processes, comes weeks before the official team from the World Bank headquarters in Washington DC reaches India to finalise the country's global ranking. 

On Thursday, senior DIPP officials said multiple reforms in the categories of paying taxes, trading across borders and resolving insolvency are expected to better India's score in the upcoming report. 

 

In last year's report, ‘Doing Business 2018: Reforming to Create Jobs’, India had jumped 30 places to the 100th rank among 190 countries. This year, the World Bank will take into consideration all reforms taken up by various government agencies before May 1, 2018. 

“India had covered significant ground in easing the payment of taxes and resolving insolvency. This is a direct result of GST and IBC implementation,” a senior official said. Now, a year after GST, DIIP's assessments show that the preliminary pangs of adapting the new tax regime has passed for most companies. 

“The number of hours taken to prepare, file and pay for the four taxes that have been subsumed under GST has gone down from 105 to only 36,” the official added.

On resolving insolvencies, the government is set to claim the IBC procedure as a major hit among companies which had been stuck in the gridlock of the earlier liquidation process. It estimates claimants have realised almost 59 per cent of all claims.

But on trading across borders, India's ranking had taken a hit last year. This year, the government plans to showcase the round-the-clock operations of major ports, inauguration of single window interface for exports and direct port delivery services which have reduced turnaround times for ships.

India's distance-to-frontier ratio, which tells how similar a country's economic practices are to best practices globally, had improved in nine out of 10 categories. Also, it was 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. While India's rank in dealing with construction permits was a low 181st among nations, it ranked 164th in enforcing contracts.

Last year's report had not taken into account the government's demonetisation drive, which has led to widespread disruption in business and has also pulled down economic growth. It didn't consider the goods and services tax either. Back then, Junaid Ahmad, country director of the World Bank had said they were not factored in because the report only took into account comparable factors across the world.

Eyes set on higher rank

Reforms in major areas

Paying Taxes

a. Overall compliance burden went down as four major taxes were subsumed uder GST

b. GST refunds for exporters being cleared systematically

c. Number of hours required to prepare for, file and pay taxes went down from 105 to 36

Resolving Insolvency

a. Realisation by admitted claimants at Rs 494.30 bn

b. Total admitted claims for insolvency under IBC at Rs 838.09 bn or 58.98 per cent

c. Average number of days required for resolving insolvency at 233, expected to go down

Trading across borders

a. Risk management system waives inspection requirement for 80 per cent of products 

b. E-Sanchit mobile app makes e-payment of customs documents

c. Number of major seaports made operational 24x7

Source: Department of Industrial Policy and Promotion