Ease of doing business: from 130 to 50

Long road to genuinely improving business

The World Bank's Doing Business 2016 report, which evaluates the ease of doing business across the world, has said that India is the 130th toughest nation in the world in which to do business. This is four ranks higher than it was in 2015, in which its rank has been recalculated to be 134 instead of 142. The Narendra Modi-led government's stated aim, to drag India into the top 50 before its term is over, at present, looks distant. Even this improvement underlines, in fact, how deep and wide-ranging reform will have to be just to improve on paper, let alone in fact and in the eyes of entrepreneurs and investors. The improvement in the national ranking comes from, essentially, a few procedural changes in how Delhi's power distribution company BSES gets new connections to customers in south, east and west Delhi. The number of inspectors has been reduced from two to one and the number of steps to the process reduced. And, the reason why India has jumped many steps in the new method of evaluating ranks is because "reliability" of power supply is now a criterion, which it wasn't in the old method used till 2015. Of course, power supply in Delhi and Mumbai, the only locations the World Bank considers, is reliable - but, in the rest of the country, that is not always the case. Far deeper and broader reform will be needed, and it would be risky to be content with such improvements.

Coincidentally, the government has also announced a committee, led by a retired judge, to look into how to redraft the income-tax law. This is a valuable effort; by making the language clearer and less ambiguous, the number of disputes between the taxman and companies or individuals could theoretically be reduced. The number of tax cases has gone up in the past decade, and several thousands of complex legal cases block up India's courts. Of course a well-drafted law might conceivably help settle cases quicker. But without a better-administered income-tax department, one that is not incentivised to chase down targets, a well-drafted law will make only a limited impact in tackling the current problems. Nor will a better-drafted law help settle outstanding or frivolous cases quicker in the absence of judicial capacity at every level.

Finally, the quality of drafting of the tax law is not its only constraint on the ease of doing business - India ranked 157th in the world in terms of the ease of paying taxes. According to the report, 243 hours a year are devoted by business to paying taxes, which they have to do as many as 33 times, at an effective tax rate of close to 60 per cent of profits. In other words, the tax system needs to be overhauled not just in terms of legal but also economic effectiveness. And this is not a difficult task either. The finance ministry has in its possession a series of reports on taxation reforms, which have outlined a detailed action plan on how to make India's tax system less adversarial, more friendly to the tax-payer and less prone to litigation. It is time the ministry took a closer look at those recommendations for overhauling the tax system. A shallow effort will not work.