The unease of doing business: Latest rankings a result of World Bank parameters, can’t be taken as overall improvement

world bank, economyOf the parameters that the World Bank uses to rank the countries, India’s position has remarkably improved in ‘construction permits’ and ‘trading across borders’ (owing to improved regime around export of goods).

By Sidharrth Shankar

The World Bank has come out with its Ease of Doing Business ranking. The latest ranking has pushed India up by 23 spots, and taken its overall ranking to 77 (from 100, a year ago). Talking about numbers, India has improved its rank by 53 positions in the last two years, and 65 positions in the last four years (2014-18). If we look at the ‘distance to frontier metric’—a measure to gauge how far an economy’s policies are from global best practices—India’s score improved to 67.23 from 60.76 last year.

Of the parameters that the World Bank uses to rank the countries, India’s position has remarkably improved in ‘construction permits’ and ‘trading across borders’ (owing to improved regime around export of goods). The latest ranking also specifies some of the areas where significant improvement is required. These include ‘starting a business’ (where India ranks 137th as opposed to 154th in 2018) and ‘enforcing contracts’ (where India ranks 164th as opposed to 163rd in 2018). India’s position on ‘paying taxes’ (rank 121) and ‘resolving insolvency’ (rank 108) are also disappointing. However, since both the GST regime and insolvency regime are in their nascent stages, we could expect India’s position on these to improve in the near future, subject to there being no policy surprises.

The hiccups relating to ‘starting a business’ continue to downplay the overall improvement in rankings. The enforceability of contracts has long been a pain point for Indian industry and foreign investors, and the latest rankings reflect the reality. It must be noted that the government has taken steps to improve India’s ranking in this, most notably through amendments to the Specific Relief Act and the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act. The amendments to both of these statutes have given a positive signal from the policymakers, but what remains to be seen is the extent to which these are successfully implemented.

While the latest rankings acknowledge some of the positive steps taken by the Indian government in the recent past, these rankings are only a function of the parameters set out by the World Bank, and therefore, should not be taken as an overall improvement in ease of doing business on other parameters. Policy certainty is a factor that needs to be considered while gauging the actual ease of doing business. The memories of the supposed retrospective tax implantation that was proposed a few years ago, and the market concerns thereafter, should serve a lesson to policymakers today.

The recent move by the ministry of corporate affairs and SEBI regarding significant beneficial ownership created a lot of discomfort amongst NRIs and foreign investors. Other examples include the recent foreign investment reporting format instituted by RBI. The new reporting regime goes against the very notion of ease of compliance and has rather made foreign investment reporting more cumbersome and confusing. Further, the draft e-commerce policy that was release earlier this year by the government received a huge backlash from every corner of the industry, and had to be taken back to the drawing board.

With the global economy yet to come back to its pre-Lehman crisis days, and the protectionist sentiments sweeping large parts of the Western world, the Indian government has many challenges to face for keeping the economic growth above 7%, while also ensuring job-creation. In such a scenario, it would be important for the government to tread carefully and ensure that rash policy decisions are not taken.

Partner, J Sagar Associates, Advocates & Solicitors. Views are personal.

(CV Srikant contributed to this article.)

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Source: Financial Express