Doing business

Next Budget should focus on easing laws for business

As Prime Minister Narendra Modi met on Saturday the Centre's top bureaucrats and urged them to find "transformational" measures to put into the next Budget, he should have pointed to the World Bank's "Doing Business" league table as the major criterion they should consider. India has been losing ranks, travelling from 131 in 2012 to 142 (out of 189), slipping two ranks over the previous year in the latest survey based on 2014 data. All the BRICS countries (Brazil, Russia, India, China and South Africa) are far ahead of it, as are most of its neighbours. Indonesia (114) and Brazil (120) are over 20 notches ahead, not to speak of Sri Lanka (99) and Vietnam (78), which is ahead of even China (90). With barely a country of any consequence coming after it, India is like a child who comes last in the class.

The sole area in which there has been an improvement compared to the previous year is in "protecting minority investors" (a 14-notch rise to seven, which is in the global top league). The credit for this goes to the securities regulator, and the steady capital market reforms since the 1990s. It is also quite easy (rank 36) to get credit, although there has been a six-rank fall over the previous year. The decline is probably the result of credit tightening to control inflation, but the overall ease bears testimony to the growth of banking and the quality of the central bank's regulation.

As opposed to this, India is virtually at the bottom of the global league in "enforcing contracts" (the law's delay) and "dealing with construction permits". As the survey is based on data from two leading cities, Delhi and Mumbai, which are the most important markets for real estate, it is not surprising that real estate starts and the market are down in the dumps. The problems faced in "starting a business" and "paying taxes" are almost as bad. The position on "resolving insolvency" and "getting electricity" are only slightly better. It is only marginally easier to conduct foreign trade ("trading across borders") and "registering property". Starting a business, provided it does not require environmental clearances or holding public hearings, should be dead easy, particularly for a small or a medium unit. Similarly, getting an electricity connection (uninterrupted power supply is a different matter) should be equally painless.

India should improve its rank by at least 50 notches, so that it gets in the neighbourhood of China. That should be the government's aim, though it will take more than tinkering to get there. Mr Modi has promised to attack archaic laws. This should be followed up on; incremental process reform and moving things online may not be enough. The political executive will need to keep pushing officialdom, which will use every trick in the book to stall change. Mr Modi's promise of a transformational Budget will be remembered, and it has only added to the anticipation.