Enforcing contracts, resolving insolvency weakest links

Disappointed but not discouraged is how Commerce and Industry Minister Nirmala Sitharaman summarised India's performance in the 2017 Doing Business rankings published by the World Bank each year. At a time when the government is making large efforts to promote India as a business-friendly destination, with endeavours such as the ambitious Make in India campaign and bids to modernise law and procedure, the meagre one-spot rise in the rankings has left many in the nation far from content.

One indelible fact that the rankings have revealed is that India still remains one of the toughest places to do business in the world. Ranked 130th out of 190 countries, there is still a lot of work to be done to appear among the top 50.

Access to electricity aside, India's performance on most other parameters remains far from satisfactory. In starting a business, the country has slipped four places since last year, sitting at 155th position. The nation's procedural framework related to registration of companies and ineffective management under the respective shops and establishments laws have once again come under scrutiny. It takes 14 procedures and 26 days to register an enterprise in India.

In registering property, the country has dropped two places and is ranked 138th. Though the nation has performed better in terms of days taken to register property as compared to South Asia, the lack of a national database with records of disputes and the time taken in resolving disputes have led to a score of 2.5/8 in the land dispute resolution index. The evidence points to the fact that administrative issues with the Land Acquisition, Rehabilitation and Resettlement Act, 2013, still remain, plaguing corporates and individuals alike. In getting credit, India ranks 44th, underperforming by two spots since last year. The lack of an integrated collateral registry, which is expected to change with the implementation of the recent amendments to debt recovery laws, and preference of tax payouts over creditor repatriation in the liquidation process are factors leading to the slide.

In protecting minority investors, India has slipped three places with continuing concerns over conflicts of minority interest regulations, corporate transparency, separation of powers and shareholder governance norms. Some of the changes to the company law seem to have aided India's performance, reflected in its 10/10 score in the shareholder rights index, while certain other advancements seemed to have been overlooked. The further implementation of the new regime is vital for the country to improve in this regard.

In enforcing contracts, India still ranks almost at the bottom of the pack at 172, though it has climbed six places since the previous year. According to the rankings, the average time taken to resolve disputes in the country is 1,420 days (3.9 years), as compared to 553 days (1.5 years) in OECD countries. The largest quotient of this figure is attributed to the time taken in the trial and judgment phase alone, caused by India's gargantuan problem of backlogs in the judicial structure.

The case management and automation indices scores are 0.5/6 and 2/4, respectively, highlighting India's problems with adjournments in the court process and the lack of electronic case management tools. The advent of commercial courts and legislative efforts towards making court procedures more timely and efficient are yet to be reflected in reality.

Even though the much awaited Insolvency and Bankruptcy Code, 2016, came into force in May, India's rank in resolving insolvency has improved by just one place to 136th and the recovery rate of 26 cents to a dollar is lower than its South Asian peers (32.6 cents to a dollar). The time taken for the recovery/liquidation process (4.3 years) is also more than double of the other countries in the region, reflecting in low scores in the strength of insolvency (6/16), management of debtors' assets (3/6), creditor participation (1/4) and reorganisation proceedings (0/3) indices.

Still, not all looks grim. With the formalisation of the insolvency code and the implementation of the goods and services tax framework, alongside the prime minister's swift calls for scrutiny of this year's ranking, one can hope for better performance in the future.