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Is doing business in India getting easier?

Last fortnight, India’s ranking in the World Bank’s doing business index jumped from 100 to 77, and in the previous year, it had leapt from 130 to 100. So, from 130 to 77 in two years! Quite a performance!

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Last fortnight, India’s ranking in the World Bank’s doing business index jumped from 100 to 77, and in the previous year, it had leapt from 130 to 100. So, from 130 to 77 in two years! Quite a performance!

It is enlightening to go a little deeper into how this ranking is done. The World Bank started indexing the ease of doing business in different countries in 2002, and this indexing is based on ten different criteria, which try to encapsulate very important, if not all, factors influencing business decisions and practices. The ten criteria are the ease of starting a business, construction permits, electricity, registering property, credit, minority investors, taxes, trading across borders, enforcing contracts, and resolving insolvency. These are surely significant factors and India had been losing heavily in the past due to almost absence or tending to zero on some of them.

For instance, resolving insolvency, enforcing contracts, construction permits, and credit have been pulling India down heavily. Thus, some substantial work in these areas in the form of creating a necessary legislative framework and establishing institutions has made a remarkable difference. Reforms made in the last four years or so, along with broadly following the economic reforms process consistently - slowly but at least without making complete U-turn on several initiatives made by previous governments, irrespective of the party or coalition in power - have been noticed by the world. It is true that there has been a serious criticism of the reality and effectiveness of the ease of doing business at the practical level, particularly for the small and medium businesses. However, the index is more relevant for foreign investors who have to compare India with other contending destinations while making a decision for investing their money. The index helps in giving a broad picture with the help of data and numbers so as to convert subjectivity of the analysis into an objective analysis based on numbers. As these numbers are determined with several assumptions made at the outset - as such indexing is not a natural science like gravity or growth of a plant - investors usually take the index as a basic framework to guide them in making decisions, which eventually are individual specific.

There would hardly be any serious investor who would immediately jump with pots of gold to be invested in India as the country has moved up by 23 notches, from 100 to 77. There are numerous other intangible factors which play an instrumental role in final decision making.

Thus, it can very well be said that the apprehensions of foreign investors, consultants and commentators about India being a good destination as reflected by the index,  but still not a hot destination which should be lapped up without any delay, do have some merit. The wrangling between the Reserve Bank of India and the government, though a recent development which hopefully will not last long; judicial delays; still pervasive corruption despite missions against it; social engineering through judicial pronouncements having indirect impact on the business environment; political uncertainties depending on the whims of political masters; bureaucratic stronghold; and highly ineffective municipal planning and execution making most of the towns and small cities living in heaps of garbage, among other reasons make India not the most favoured nation for investment.  Regardless of all these issues facing businesses - both foreign and domestic, though foreign face more difficulty in adapting themselves as compared to domestic for the obvious reason of far less or almost zero familiarity with the system - there can be no denying the fact that India has moved up markedly in the ease of doing business. This escalation needs to be fortified with pruning of legal proceedings in general matters and concerted efforts have to be made to bring down the litigation cost in terms of money, time, and effort.

Anurag K Agarwal, The author is a professor at IIM-A, akagarwal@iima.ac.in

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