Well begun, but only half done

The country has vaulted from 130 to 77 in the ease of doing business rankings in two years, but much work remains to be done in half a dozen areas where the scores are poor

Economies tend to reform when they must, rather than when they can” (extract from the earlier Doing Business Report 2018). The storyline is that governments are more likely to reform when their economy is experiencing a fiscal crisis (remember India in the 1990s?) rather than when it is business as usual.

From an Indian perspective, a move in ranking from 130 to 77 in two years is no mean achievement, but not one that has been accomplished on the back of any economic crisis. The icing on the cake is that India ranks fifth on the list of the countries with most improvements, and apart from Djibouti, the only country to have made it to the Top 10 list of countries with most improvements consecutively in the last two years.

The research uses 10 parameters for arriving at the score (an eleventh one on labour is used for reporting), and inputs are taken from governments themselves, experts, representatives of the World Bank and a reading of the relevant laws. India has significantly advanced on two indicators — dealing with construction permits and trading across borders, with scores of 181 and 146 respectively last year having come down to 52 and 80 this year. Further, the indicators of getting credit, electricity and protecting minority investors are very healthy, with a score of better than 30 score last year as well as this year. 

Power sector reforms, a focused move to ease the documentation on cross-border trade and changes in the corporate law granting protection to minority shareholders have all boosted the scores on those three fronts.

Photo: Reuters

While that is half the battle won, work needs to be done on five other indicators where scores are low (over 100) and need some serious improvement if one has to aim for moving into the Top 50. 

Registering a property has the lowest score at 166, with the indicator measuring the procedure, time and cost to transfer a property and the quality of the land administration system. Blockchain has been spoken about of late in digitising land records and transfers, and that would be one way of ensuring some progress on this front.

Enforcing a contract ranks the second lowest with a score of 163, but this may require an overhaul of the judicial system to reduce the time and cost required to resolve a commercial dispute, which is a key measurement criterion for this indicator.

It was good to see the indicator of starting a business move positively from a score of 156 last year to 137 this year, and while the Registrar of Companies has already speeded up the process of setting up a company by making it possible to do so online, what may need to be looked into is reducing the number of registrations with other authorities required for starting up a new limited liability company.

Paying taxes is hovering around the 120 mark since last year. The benefits of the use of technology in GST should overshadow the pain next year, and a move ahead on the reduction of the income-tax rate to 25 per cent as indicated would help in reducing the total tax and contribution rate for a firm which is measured under this indicator. Further, e-assessments may improve post-filing processes, but it would be helpful if the parameters on the basis of which tax officers are evaluated are enhanced beyond just revenue collection targets, since the post-filing process is the other piece which gets measured.

Lastly, the groundwork has already been done for the indicator of “resolving insolvency” in terms of introduction of the legislation. The benefits should hopefully start flowing in after the initial issues are resolved. 

The Doing Business Report has acknowledged that governments around the world have embraced and nurtured advances in information technology to reduce bureaucratic hurdles and increase transparency. India has made significant advances in the use of technology in various departments and their public interface with some great results, and a continued focus on this should help in making progress even on the indicators listed above where it has been tardy so far.

Research quoted by the Report suggests that an improvement in ease of starting a business helps in alleviating poverty and unemployment. With advancements in technology putting ever-increasing pressure on fresh recruitment, this is a good way to blunt the scourge of unemployment in India, which could get acute given the large workable population. Employment creation is also aligned with the government’s initiatives around encouraging startups and Skill India, among others.

With the globalisation wave swinging towards localisation, and with competition increasing among countries in a bid to attract financial capital (even the US has significantly reduced base income tax rates to around 20 per cent), there is need for speed on this front more than ever before.

And lastly, entrepreneurship abounds in India, and ease in doing business is likely to be capitalised on here better than elsewhere.

The writer is Partner and Leader, Tax & Regulatory, PwC India