All posts by CS Gyanendu Shekhar

Ease of Doing Business: Unlocking The Potential of Asia’s Next Superpower

Introduction.

During the last 10-15 years, despite of enjoying the demographic dividend and abundance of resources, many projects were stalled thereby reducing the growth of the economy and loss of jobs. The case of Vedanta Resources in Orissa can be quoted as an example. The growth was plagued due to policy paralysis and reluctance of the Government in creating conducive environment for business. India was being labeled as an underachiever. Fortunately, history is not destiny. The new Government led by Honourable PM Sh. Narendra Modi who is seen as a can-do autocrat, admired by businesspeople, raised expectations among the citizens.

The success story of the Government which fairly indicate the growth of the economy can be summarized below:-

  • India was the fastest riser, rising up 16 spots to 39th rank in World Economic forum Global Competitive Index.
  • Improved 9 ranks in Transparency International.
  • Improved its rank from 89 to 66 in Global Innovation Index.

Re-positioning the Brand India by Securing Better EODB Index

To promote India as an investment hot-spot, the Government of India has aligned its policies to secure a better rank in Ease of Doing Business. Ease of Doing business (EODB) index is an index created by the World Bank group to rank the 190 economies of the world with respect to the conducive environment the country provides to the business. 10 parameters which are analyzed and ranked to create the EODB index, are elucidated below: –

  • Starting a business
  • Dealing with construction permits
  • Getting electricity
  • Registering property
  • Getting credit
  • Protecting minority investors
  • Paying taxes
  • Trading across borders
  • Enforcing contracts
  • Resolving insolvency

Steps Taken by the Government

The Government of India has taken several initiatives to encourage investments in India by aligning its policies towards Ease of Doing Business. The major initiatives taken by the government are listed below:-

  • Digitization of the Industrial License (IL) and the Industrial Entrepreneur Memorandum (IEM). 14 services have been brought under one portal (Ref: https://www.ebiz.gov.in/industriallicense). Initial validity of the IL has been increased to three years from existing two years.
  • Grant of security clearance on IL in shorter time frame
  • The documents required for export and import have been reduced from existing 11 to three only, viz. Bill of lading, Invoice cum packing list and Import declaration.
  • Online registration for ESIC and EPFO
  • Introduction of integrated process for application for incorporation of a company through SPICe.
  • The process for applying for Environment and forest clearances has been made on-line.
  • A new law to resolve insolvency – Insolvency and Bankruptcy Code
  • Integration of the multiple taxes into GST – (Expected to be implemented wef July 2017).

Present Scenario 

Analyzing the enthusiastic steps taken by the Government of India, it can be deduced that every step is focused towards simplifying the incorporation process, easing the process of construction permits, getting electricity in shortest possible time, resolving insolvency and trading across the borders. However, the overall impact of all the steps in securing a lower rank of EODB is not so encouraging.As per the World Bank report, India has just moved one ranking ahead, i.e. from 131 in 2015 to 130 in 2016. The complete report can be assessed at http://www.doingbusiness.org/rankings. The performance of our economy can be assessed at http://www.doingbusiness.org/data/exploreeconomies/india. A comparative study of some of the important parameters of EODB is tabulated below: –

Topics

Present Rank Previous Rank

Change in Rank

Overall 130 131 1
Starting a Business 155 151 -4
Dealing with Construction Permits 185 184 -1
Getting Electricity  26 51 25
Registering Property 138 140 2
Getting Credit 44 42 -2
Protecting Minority Investors 13 10 -3
Paying Taxes  172 172
Trading across Borders  143 144 1
Enforcing Contracts  172 178 6
Resolving Insolvency 136 135 -1

It is evident that India has made remarkable improvement in ease of getting electricity only. It seems that the present ranking is largely on the back of reforms in power sector. Similar reforms are expected with the roll-out of the GST as it would eliminate the multiplicity of the taxes in the federal structure. The effect of the Insolvency and Bankruptcy reforms is yet to be seen on ground. Hence, the GST and the Insolvency reforms would be the prime game changers in the next year’s ranking. The data for these rankings is freezed by the World Bank on 01 June every year. It seems that the ranking are not going to have a major shift till the next year.

Reasons for no Remarkable Improvement in Rank 

The rankings were not improved as per expectations, which Government of India officially accepted. The possible reasons for the present situation can be summarized as below:-

  • Reform is still a Work-in-Progress which has not been fully implemented (insolvency and Bankruptcy Code and the GST).
  • Reform has been done, but the World Bank has not accepted the documentation (online registration for ESIC and EPFO)
  • The studies conducted by the World Bank for this ranking system are done only in Mumbai and Delhi. To that extent the ranking is essentially EODB in Delhi and Mumbai rather than India. The steps taken by the Telangana, Gujarat, Jharkhand and Chhatisgarh Governments should also have remarkable impact towards EODB.

Conclusion 

Though the improvement in overall EODB ranking is not so encouraging, it can be expected that with the roll-out of GST and the effect of Insolvency and Bankruptcy laws, the rankings will improve next year. The enormous cash available with the banks post demonetization and the improved condition of the banks after the NPAs clearance drive, is also expected to have considerable impact on getting credit for the business. If we consider the protection of the minority investors’ rights, it can be boasted that we are the leader with having the 8th ranking. As regards to the compliance of complex laws, the professionals have a greater role to play towards easing the process and time taken by rendering expert advice.