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Ease Of Doing Business: A Lot Still Needs To Be Done

Binayak Datta

Last week brought us remarkably good news – we had leap-frogged 23 places up in the World Bank’s “Ease of Doing Business” 2019 rankings.  This greatly supports our reforms program, in my view.

We stand 77th now  (out of 190 countries)  whilst the other nine growing economies with most notable improvements in “Doing Business 2019” named, were Afghanistan, Djibouti, China,  Azerbaijan,  Togo,  Kenya, Côte d’Ivoire, Turkey and Rwanda.

The BRIC economies – Brazil, Russia, India and China, introduced a total of 21 reforms, with getting electricity and trading across borders being the most common areas of improvement.  The ten toppers were New Zealand, Singapore, Denmark, Hong Kong, South Korea, Georgia, Norway, US, UK and Macedonia for their excellence in a) Regulatory efficiency and quality, including mandatory inspections, automated tools used by distribution utilities to restore service during power outages, strong safeguards available to creditors in insolvency proceedings and automated specialized commercial courts. b) Training opportunities for service providers and users and c) Increased public-private communication on legislative changes and processes affecting SMEs.

I propose to take a closer reading of the rankings and at what my takes are from these. My Take:  My biggest take is that we have strong capabilities for improvements – but we may take time. I think – with our size and structure – it’s a given, provided there are plans with milestones.

Particularly, for example you may see Macedonia – one of the poorest economies in Europe with a per-capita GDP of $5440/- pa  (against ours of $1940/- pa) from the 30th place 4 years back – today it’s a topper at 10.

But then, we are still far away from the Prime Minister’s target of the 50th  spot – we have hard work on our plates!

The second is the “Distance to Frontier”. For example – India’s “Distance to Frontier” (overall) is now 67.23 which means if the best-in-class is at 100 – our marks are 67.23 – against China at 73.64 and the average South Asia marks is 56.71.

We made great improvements in “Dealing with Construction Permits” where we rose from 156th to 137th and in “Trading Across Borders” 80th (up from 146th).  But we still are expensive in construction compliance  (6.6% of  warehousing costs against OECD Bench Marks of 1.5%).

Trading across borders was a great breakthrough with the liberalised FDI Regulations, Port Infrastructure improvements, but fortunately enough, perhaps the recent turmoil in the banking sector must have come only after the assessments were already over.   In construction business, the Real Estate Regulatory Authority Act (RERA) might be good for scoring a few points here – but the point is, the Real Estate Industry itself is in shambles!

In ‘Getting Electricity’ Delhi took the cake – costs were down and connections easier.

Nothing much to show on ‘Ease of Paying Taxes’ over last year. I think the GST implementations glitches are the culprits. We infact fell 2 places here. The other disappointment is ‘Resolving Insolvencies’ – where we actually fell 5 places. The Insolvency Code had raised huge expectations, however last year only 2 out of the twelve cases referred in the first lot by the RBI two years back, had been resolved – the rest are hanging mid air in a maze of litigations. Our recovery rate was just 26.5% against an OECD bench mark of 70.5%  in settled cases.

In ‘Starting a Business’, we are inherently weak. Even after a 19-place improvement over last year, we are still at 137th  in the world out of 190. Our red tapes simply won’t let us improve.  And in ‘Registering Property’ we are falling from bad to worse each year having lost another twelve places here – we are 166th.

Ironically when we were 130th  overall – we used to get Rs 38,000 crores foreign investments in certain months – now at 77th  we lost Rs 38,000 crores  only last month.

Honestly – to an investor, what counts most is the risks and safety for his capital – and some of our economic and non-economic parameters do not unfortunately look inviting enough for foreign capital.

The uncontrolled vulnerability of the rupee, or the constant erosion in the economic-intellect pool amongst the top brass, in independence of the RBI and other statutory and constitutional bodies and universities, the mysterious bank heists and the piling NPAs (revealing abysmal failures in corporate governance), our alarmingly hazardous air-quality levels and our overall misplaced priorities in deploying resources and efforts on statues and renaming of places, may come as a few spanners in the maze of spokes.

My Prescriptions: I think there is a lot of learning from the rankings.  And I like Mr Mulliner in PG Wodehouse’s  “Mulliner Nights” where he says… “Cats as a class have never completely got over the snootiness caused by the fact that in ancient Egypt they were worshipped as Gods”.

Instead of harping repeatedly on our  “5000 year-old-civilisation”  and  “fastest-growing-economy…”  which of course we shall remain proud of, we must learn from other countries as well – for example from China, who comes 28th in “Starting a Business” where we are 137th  or say Vietnam 21st  in Construction Permits – where we still rank 52nd . Or can we learn from Russia, 12th  in “Registering Property” where we rank 166th ? Can we not  learn from South Africa 46th  in paying taxes where we rank 121?  Similarly,  Brazil ranks 48th  in “Enforcing Contracts” where we are consistently further than 160. Peer-level learnings are great.

The ten toppers did things differently in a) Implementation and constant inspection – where we positively need to improve, remember the demonetisation misadventure and the tardy GST implementation, b) Training – which we perennially have little time for and finally c) Transparency in communication–our glaring examples were the Financial Resolution and Deposit Insurance (FRDI) Bill misadventure and the Prevention of Corruption (Amendment) Act, 2018.

And in Conclusion: A measurement is only a tool for improvement – it should never be confused with results achieved. The results are in the hands of the implementor and there is still that long journey ahead.

 

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