NEW DELHI: The government’s efforts to push manufacturing and inviting foreign companies to invest seems to have paid dividends as India improves its ranking in the Ease of doing business Index.
In the latest ranking from the World Bank’s ease of doing business index, India jumped 23 places to rank 77. In doing so, it’s the top ranked country in South Asia and places third among the BRICS. Adding to this, the World Bank’s report highlighted India’s ranking in the top 25 of the following indicators – acquiring electricity, getting credit and protecting minority investors.
India, for the second year in a row is among the top 10 improvers. World Bank President Jim Yong Kim lauded India’s efforts in improving its economy and calling the improvement in its ease of doing business ranking as a ‘historic and unprecedented achievement’.
The methodology adopted is based on feedback gotten from New Delhi and Mumbai and then tabulated with other metrics from previous years and other processes. This is a criticism that the former Finance Minister P Chidambaram pointed out, reiterating that the metrics were limited to only two cities saying in part, “I am happy that things have improved in few parameters but please understand that this is a limited study of private limited companies in two cities and let us take it with that caveat”. By allowing business to function with limited red tape and bureaucracy and regulation, there can be improvements.
While the government has encouraged foreign investment, the rankings do not necessarily mean that there is a correlation between increased investment and reducing the costs and procedure of doing business. Madan Sabnavis, Chief Economist at CARE Ratings, in a column or Firstpost highlights this point – “But what this improvement in rank means is that the cost of doing business is lower now. The goal quite certainly will be to also improve on the registration and insolvency issues…”
In the wake of the report being released, the industry has given thumbs up to the government for its efforts. The Associated Chambers of Commerce of India (ASSOCHAM) praised the government for taking policy initiatives such as taxation, insolvency procedures and ease in starting business to name a few. The government think tank NITI Aayog too sees this as a great performance. Its CEO Amitabh Kant suggested that within the next three years, India might break into the top 25 saying in part, “It was Prime Minister Narendra Modi’s vision to reach within top 50 positions in 5 years. It is very important to reach within top 25 in 3 years”.
One of the government’s most controversial policy positions, GST, was not fully take into consideration for the rankings. Given that 190 countries have been looked at, the reports and the rankings provide investors a comparable template in their decision making process. Shanta Devarajan, World Bank's Senior Director for Development Economics and Acting Chief Economist said in part, “It was also on the top 10 list last year… two years in a row, which is sometimes very difficult to do”.
While India has improved in many sectors, per the report, the country still lags behind when it comes to starting a business where it ranks 137th and in resolving commercial disputes as Rita Ramalho, Senior Manager of the World Bank’s Global Indicators Group stated , “This is something that has not changed. Probably one of the more challenging reforms in India is to get the judiciary on board to improve that part”.
While some points regarding the rankings and report are missing such as an overall picture of the investment climate and the limitations in terms of two cities as pointed out earlier, for the government this provides a compelling talking point going into an election year.