Suresh Subudhi & Abhishek Gopalka: A lesson in doing business

Russia's jump in rankings in the World Bank 'Doing Business' report shows how central and state governments in India can commit to better its business climate

The latest World Bank “Doing Business” report, which ranks 190 nations on how easy it is for companies to follow regulations, has India ranked 130th. This represents an improvement of only one spot over last year, which is worrying, given the concerted efforts of the government to make it easier to do business in India. While Prime Minister Modi’s aspiration to have India ranked in the top 50 by 2018 currently seems daunting, there is reason for hope.
 
Many countries have leapfrogged others in these rankings in the past. Russia’s ranking improvement is of particular significance to their economy, since the government chose it as a universal indicator to reform the business environment.

 
An analysis of a top performer like Russia provides insights into a series of transformative changes that it has made to improve its business climate.
 

Journey from 120 to 40
 
The Russian federation has focused on three key levers to catapult in the ratings:
 

•  Create focus and momentum around the change agenda

 

•  Ensure the investors’ voice is heard, especially that of small businesses

 

•  Enable regions to succeed — strong role of Centre for giving regional support

 
The first step taken by President Putin was to announce the goal — of taking the Russian federation to 20th on the World Bank Doing Business rating. In 2012, this was a bold target — Russia was languishing at the 120th spot. Second, an annual high-profile regional business environment rating was introduced for Russia’s regions, reflecting the opinion of the business community on four key dimensions: regulatory environment, institutions for business, infrastructure and resources, and support for small business.

 
The role played by small businesses in this rating was critical to its success. For example, in 2016 over Rs 400,000 entrepreneurs took part in the survey, and were instrumental in driving overall investor centricity. The Putin government understood that small businesses are, more often than not, the ones that bear the brunt of procedural inefficiencies, and so additional emphasis was put on the experience of small and medium businesses.
 
Finally, the federal government played a key role in enabling the regions to continuously improve their business environment, namely through:
 

• Institutional support — e.g. setting up the Agency for Strategic Initiatives, the organiser and the main platform of the regional ratings.

 

• Capacity building — creating Regional Programme Management Offices, with working groups for the specific indicators that the region was lagging behind.

 

• Measurement and tools — Rigorous data collection and validation systems were developed to support states, along with sophisticated statistical analyses to reveal actionable insights.

 

Russia is already one of the top performers on multiple dimensions such as its system for registering property and contract enforcement placed in the top 10 worldwide. Its business environment has never improved so meaningfully for so long. As India seeks to overcome current challenges in the overall business environment, there is a need to assess where the nation stands and its priorities for action.
 
A three-step action plan will help put India on a path of paradigm shifts:
 

• Create a burning platform and foster inter-state competition: PM Modi has set a target for India to attain an EODB rank of 50 by 2018. This should be the driver of transformative reforms ensuring the targets flow down to the states. How? One way is via a competitive inter-state ranking, informed by business opinion. Key factors for such a ranking to be successful is the transparency of its performance measurement system, strong incentives to engage chief ministers effectively (e.g. higher central allocations, investment subsidies) and finally, publicising these state rankings to drive catalytic impact and foster developmental competition.

 

• Focus on SMEs: The SME (small and medium enterprises) sector has 98 per cent of the companies in India employing Rs 15.6 million people and growing faster every year. The need to focus on this segment has never been more — to capture inputs from small entrepreneurs, understand their pain points and create tangible solutions to mitigate day-to-day challenges. Such engagement with the SME community will help shape an ecosystem that is uniquely tailored to local needs while possessing world-class capabilities.

Support states to succeed: Key central organisations like DIPP and Niti Aayog need to provide active support for states to improve their business climate. State-specific best practices and innovations should be identified, like Chhattisgarh’s Auto CAD-based online verification of building plans or Andhra Pradesh’s single window system for investors. These best practices should be shared proactively, mainly with states with common pain points. In addition, state-specific capacity building and overall institutional support for data systems and monitoring will be key levers to drive state-level progress.

 
In conclusion, it is worth reiterating that India is facing a tremendous opportunity. With a growing economy, supported by bold steps to reduce corruption, the country is poised to attract the next wave of investors. The onus is now on governments, central and state, to commit to undertaking specific actions to help the business climate rise. Others have shown it is clearly achievable.
  Subudhi heads public sector infrastructure practice and Gopalka is principal, public sector practice, for Boston Consulting Group, India