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More improvement needed in ease of doing business

By DM Deshpande

The World Bank’s Ease of Doing Business Report 2020 is out and it has some good news for the Indian economy.  India’s ranking vaulted 14 places to 63rd in the survey that covers 190 countries. While this is welcome it does not by itself solve all the outstanding economic challenges the nation faces.

The ranking gives the macro- economic picture. Though it is a good starting point not all investors go by these ratings. After all they are aware of the limitations of the study. For example, it covers just two cities, Mumbai and Delhi though two more Bengaluru and Kolkota, are going to be added in the next year.

Much of the spike in rankings this year is owing to improvements in two areas, insolvency resolution and electricity. In terms of access to credit, India is placed 25th in global rankings and as for getting electricity 22nd. Ironically, on both these parameters rankings do not tell the whole story. Resolving the problem of stressed assets with banks is no doubt a reform measure but it still remains work in progress. In fact, the problem of NPA’s has worsened due to a host of factors notwithstanding implementation of insolvency code.

Urgent attention of both, the government and the RBI, is needed to fix the mess in NBFS and now the co-operative sector too is calling for remedial measures. Without an active bond market in place, lending to long term projects has been hit severely.

Electricity is another example of how the two stories are different. Whatever the status in Delhi and Mumbai, almost all electricity boards are broke and states owe huge amounts of money to distribution companies. Political patronage continues unabated to select categories of users such as farmers and households despite some reforms and measures in the power sector. It may be easier to get electricity in two metros, but for a vast majority of small and medium firms in the hinterland it is a different story all together.

On at least four transactions, India has made little improvement over last year. We still rank low on enforcing contracts at 163rd, registering property 154th, starting business 136th and paying taxes 115th. Going digital and increased use of technology could help in better performance in these areas but for enforcing contracts, judicial reforms are a must. This has been pending for a long time and is hurting the cause of industrial growth and faster development.

Resolving a case on an average according to the report still takes 1,445 days whereas in high income OECD countries it takes 590 days. China does even better. There the average number of days is 496 days. Even the cost calculated as a percentage of claim is higher in India at 71 per cent whereas in China it stands at 16.2 per cent.

Ease with which one can start a business is one parameter on which we have consistently lagged behind. To reduce the pain points of entrepreneurs, big and small, the whole country needs to be governed and operated as one, not just leave a few islands exceptions such as Delhi and Mumbai. Focused policy attention in two urban centres may give us highly improved rankings within top 50 for instance, which is also the avowed objective of the government.

Going a step further, several nations including India, have learnt the art of ‘gaming’ the system of ranking used by the World Bank. But that will be self defeating. For a start, the government needs to pays its contractors on time and as per the agreement. Right now, they are made to run from pillar to post, pay bribes and at times even go through arduous and time consuming processes of arbitration and litigation. Then and only then we will begin to see genuine improvement at the ground level in the ease of doing business. After all, the old adage, that charity begins at home, holds good here too.    

 The author has four decades of experience in higher education teaching and research. He is the former first vice chancellor of ISBM University, Chhattisgarh.

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