Improving the Ease of Doing Business

Soon after assuming charge, Prime Minister Narendra Modi pledged to improve the business climate in the country. This was the first time that ‘Ease of Doing Business’ was accorded such high importance as an economic strategy. Industry has greatly appreciated the Government’s mission mode engagement on building an easier and more facilitative business environment.

The recent World Bank Doing Business Report for 2017, which indicated that India’s ranking among 189 countries barely went up from 131 to 130, is somewhat surprising, given the hectic activity underway to improve the business climate. The report focuses on the administrative procedures and time taken for ten defined parameters of the business cycle, from starting a business to obtaining credit, and exiting through insolvency. From 2014, India’s ranking has improved by 12 positions. In two parameters, ‘getting electricity’ and ‘enforcing contracts,’ the country has been ranked higher than in the previous report. In three others, ‘starting a business,’ ‘registering property’ and ‘resolving insolvency,’ India came in at the same rank as last year, while in the remaining five fields, the country’s rank has fallen.

Over the last two years, the Government has instituted comprehensive reforms across a number of areas, including company incorporation, tax procedures and dispute resolution, land allocation, environmental and forest clearances, and getting public utility connections, apart from many others. Digital technology has been leveraged to place more and more procedures online, and make processes time-bound and transparent. Some actions have been taken particularly for micro, small and medium enterprises, especially on compliances and inspections.

The State Governments have identified land banks to set up industrial parks and are moving forward rapidly on hand-holding investors and facilitating procedures through single window systems, online interface, and easier inspections. Many States are holding mega investor meetings to showcase their reforms and highlight sectors of opportunity for investments.

The World Bank report does not adequately capture these changes. To begin with, it currently looks at reforms in just two cities, Delhi and Mumbai. In addition, some major reforms such as legislation of the transformational Goods and Services Tax (GST) and the institution of the Insolvency and Bankruptcy Code came after the deadline of 1 June. The report also does not include some steps that were taken before the deadline in these two cities.

Further, the World Bank’s remit does not include the broader dimensions of what constitutes the entire investment climate, including openness to foreign investment, capital movement, the legal system, and the overall stability and orderly conditions of an economy. India is currently among the top three most attractive investment destinations, according to UNCTAD. The country has lifted its ranking in the Global Competitiveness Report of the World Economic Forum by 16 positions this year, and jumped up 19 slots in the World Bank’s Logistics Performance Index. The country has attracted more than $100 billion worth of FDI between April 2014 and March 2016, the highest in any two-year period.

Industry has long been calling for simpler, more transparent and time-bound administrative procedures and processes. Clearances and approvals for public utilities, environmental compliances, and other regulatory measures are often complicated and take time, adding uncertainty to business plans and raising costs. The thrust of this Government on the ‘Ease of Doing Business,’ initially as a part of the ‘Make in India’ campaign from 2014, and later as a mission by itself, is most welcome and timely.

The Department of Industrial Policy and Promotion (DIPP) and the World Bank, along with industry associations such as CII, undertook a comprehensive exercise to identify and address the pain points for industry. Recognizing that many of the areas fall under the domain of the State Governments, the DIPP last year brought out a list of 98 parameters on which the States’ business procedures were assessed. It was found that the highest achievement score was about 71%, with Gujarat at the top.

From the next year, DIPP expanded the list of areas to be taken up by the States to 340, and undertook real-time monitoring with the State Governments as willing partners. Today, ten States have achieved over 90% of the tasks, and 17 have achieved over 80%. This is a huge improvement and has resulted from the States taking up reforms wholeheartedly in the spirit of competitive and cooperative federalism.

At the ground level, both domestic and overseas industry have certainly experienced positive changes in the investment climate.

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