Thumbs up from World Bank

Improvements in doing business need to be broad-based

The release of the World Bank's 2018 global rankings on the ease of doing business has delivered some much-needed good economic news. India is now ranked 100 worldwide – a jump of 30 places – putting it in the set of 10 “most improved” economies. This is a shot in the arm for Prime Minister Narendra Modi’s government, which had set out to breach the top 50 economies worldwide in terms of this index. After a somewhat slow start – for instance, last year, India improved just one rank – it appears that the government’s efforts are now beginning to register. It is important to note that, whatever the limitations of such indices in general and this index in particular, these have an impact on sentiment and on the decisions taken by global investors. Thus, the government’s decision to focus on improving India’s standing in the index, which appears to now be bearing fruit, is eminently justified. 

The factors most responsible for the jump in India’s ranking between 2017 and 2018, according to the World Bank, are greater ease in the payment of taxes online, the possibility of submitting building plans in advance of applying for a construction permit, a new form for business incorporation that combines the permanent account number or PAN with the tax account number or TAN, and a reduction in the time required to complete provident fund and state insurance applications. The World Bank report also gestured towards the passage and implementation of the new insolvency and bankruptcy code, as well as claiming that infrastructure at Nhava Sheva port in Mumbai had been upgraded and improved, and saying that some importers could take advantage of new online platforms at this point of entry for goods. There are, of course, important caveats to be made. The World Bank’s Doing Business Index has been criticised in the past for having too narrow a focus. It seeks to evaluate, through expert interviews, the difficulties involved in specific activities related to business in Delhi and in Mumbai. Other aspects, such as tax and bankruptcy law, are also examined. India has always performed well in terms of having solid protections for minority shareholders, but other aspects of the index have needed work. The paperwork involved in securing an electricity connection in India’s two largest cities, for example, has been improved in recent years.

It is important to note that these changes, while no doubt important improvements, do not scratch the surface of what is needed. Indeed, the general idea that tax compliance and payments have become easier will surprise many, given the general air of dissatisfaction surrounding the specific requirements for the goods and services tax or GST. The World Bank rankings have not taken the GST into account since it was not implemented in the period being evaluated. However, that is just one way in which such rankings depart from the actual facts on the ground. The NITI Aayog’s own estimation of doing business in Indian states, which was released recently, makes it clear how great the divergences are across India and the difficulties actually faced by Indian business. The government deserves credit for working to improve India’s World Bank ranking, but it cannot rest on its laurels as the World Bank itself has said that the rankings do not measure all aspects of the business environment. So, while the study offers useful insights, it may not be representative of what the stakeholders experience in real life.