The Big Story: Easier
Soon after Prime Minister Narendra Modi took charge, his government made it clear that it wanted to move up the World Bank’s Ease of Doing Business index. The list examines the relative business regulation regimes of various countries and ranks them according to how simple it is to conduct commerce. This list is based on metrics such as how many licences are needed when starting a new company and how hard it is to shut one down. The report is based on quantitative data gathered in each of the countries it surveys, although because of the scale of the effort, the details tend to come from just the larger cities in each nation.
On Tuesday, when the most recent World Bank report was released, it was evident that Modi’s effort to move up on the list has paid off. India registered its largest jump on the index, moving from 130 up to 100 in just a year. But the great leap is vindication for the government, which has pushed through a number of changes in the hopes of altering India’s image of being a difficult market for foreign investors to enter.
On a number of metrics, India has seen a significant rise. The new insolvency law, for example, has helped India move up more than 30 places on that section of the list. On paying taxes, India has moved up from 172 on the list to 119, without the impact of the Goods and Services Tax changes being factored in. India remains one of the best in the world in protecting minority investors, moving up from 13 on the list to 4. Getting credit seems to have become easier, with the list saying India has gone from 44 to 29.
There are still some areas where India’s performance leaves much to be desired. In terms of starting a business, India is still one of the most difficult places in the world to do so, coming in at 156 on the list, one worse than the previous year. The index also saw India dropping on its property registration metric, down to 154 from 138 last year. On trading across borders as well as getting an electricity connection, India regressed.
Modi’s government is frequently accused of focusing on PR and managing headlines rather than improving the situation on the ground. But in matters like this, India’s image is about as important as the underlying factors. Since the list is built on what is supposed to be quantitative data, many believe that it is a reliable signifier of what it is supposed to be measuring.
Even if the findings are limited to doing business in Mumbai and Delhi, that is a huge positive, considering those cities are home to a signficiant portion of India’s economic activity. Even more promising is the fact that since GST was only implemented midway through this year, it hasn’t been factored in. This could push India even further up the list next year.
It is crucial for the government to capitalise on this momentum. The insolvency law, for example, is now being tested in real-life situations and the government must watch closely to ensure that it is serving the purpose for which it was framed. Self-goals like demonetisation and the chaotic manner in which GST was rolled out do not inspire confidence about the government’s ability to manage the economy – even if the signals to the outside world suggest India has become a better place to do business in. But overall the big jump in India’s ranking suggests this is one of those rare instances where the government’s promises to improve things are actually bearing fruit. This should set the stage for even more business environment reforms.
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