What to do about the heavy cost of doing business in India
- The IMF’s executive board recently expressed confidence in the leadership of Kristalina Georgieva in the Doing Business survey controversy that raised doubts over the integrity of Ease of the Doing Business (EoDB) rankings. India has made considerable progress on these rankings since 2016.
- While the Centre’s focus on EoDB has been commendable, several state governments have also made efforts to improve business conditions.
- This, along with the cut in corporate tax rates, the launch of Gati Shakti, the sale of Air India as part of an aggressive asset monetisation plan, the scrapping of retrospective taxation, the PLI scheme and labour reforms are likely to provide a boost to the manufacturing sector.
Case against Ease of Doing Business:
- Recently World Bank informed it had paused the next Doing Business report and initiated a series of reviews and audits of the report and its methodology.
- World Bank also informed that it will be working on a new approach to assessing the business and investment climate.
Ease of Doing Business Rankings:
Key Points
- Background: The Ease of Doing Business Report was introduced by the World Bank in 2003.
- Objective: to provide an assessment of objective measures of business regulations and their enforcement across 190 economies.
Parameters used for Ranking: Ease of Doing Business Report used the following ten parameters-
- Starting a Business,
- Dealing with Construction permits,
- Electricity availability,
- Property registration,
- Credit availability,
- Protecting minority Investors,
- Paying Taxes,
- Trading across borders,
- Contracts enforcement, and
- Resolving Insolvency.
Significance of Ease of Doing Business Report:
- Informs the actions of policymakers,
- Helps countries make better-informed decisions, and
- Allows stakeholders to measure economic and social improvements more accurately
- Acts as a valuable tool for the private sector, civil society, academia, journalists, and others, broadening understanding of global issues.
Ease of Doing Business Rankings: India’s Performance
- India showed the most notable improvement in 2017, 2018, and 2019 Ease of Doing Business Ranking.
- India’s 2017 Ranking- 100th Rank
- India’s 2018 Ranking- Placed at 77th Position
- India’s 2019 Ranking (most recent)- Secured 63rd Ranking
- India’s ranking in the Ease of Doing Business Report basically depended on the performance of only two cities- Delhi and Mumbai.
- Weightage of Mumbai- 47%
- Weightage of Delhi- 53%
Ease of Doing Business Rankings: Reasons for discontinuation
- Ease of Doing Business Rankings was paused as World Bank found data irregularities on Doing Business 2018 and 2020 which were reported internally in June 2020.
- Ethical Issues: Distortion of data in the internal reports raised ethical matters, including the conduct of former Board officials as well as current and/or former Bank staff, leading to this decision of World Bank.
Way Forward:
- However, the controversy over EoDB notwithstanding, India must now sharpen its focus on the Cost of Doing Business (CoDB).
- There is a big underlying change that warrants this pivot to CoDB — the pandemic has made countries inward-looking in terms of their supply chain and domestic capacities, which will dictate their broader economic and trade policies.
- This may affect global trade and growth over the medium term and make countries extremely discerning on costs and competitiveness.