Saturday, September 13, 2008

Doing Business Report & India’s Performance

Earlier this week, the World Bank and its investment arm, the International Finance Corporation, published the Doing Business Report 2009. In this report, they rank a total of 181 countries in the world based on “tracking reforms aimed at simplifying business regulations, strengthening property rights, opening up access to credit and enforcing property rights.”

This year, India has been ranked 122, which is two notches below its previous (2008) ranking of 120. A summary of the report on India’s position is available here. There is no cause for celebration as India ranks far below several other emerging economies. In just doing a BRIC comparison, we find that India ranks below China (at 83) and the Russian Federation (at 120) which staying above Brazil (at 125).

In terms of various parameters considered in the rankings, on the positive side, India has shown only one significant improvement, which is in registration of property. On all other counts, it has either stayed in the same position as the previous year, or has gone lower down in the world rankings. In relative terms, India has achieved fairly high scores for getting credit (at 28) and protecting investors (at 38). However, the performance has been dismal in relation to paying taxes (at 169) and enforcing contracts (at 180). As regards enforcement of contracts, India is second from the bottom (only after Timor-Leste). A news report in the Business Standard attributes the lack of efficiency in the legal system as one of the factors for dragging down India’s ranking.

While there is an argument that these reports should not be taken seriously, there is an equally strong view that the adversely affect India’s image and credibility in the global financial markets. Whatever may be the case, this is certainly enough impetus for introspection raising the need for a thorough review of some of the issues that are responsible for the current ranking.

As I had stated last year in response to the rankings released for 2008, there are several issues to be immediately addressed (and these are only indicative and by no means exhaustive):

1. The need for streamlining procedures for carrying on business in India – reduction in number of procedures as well as number of authorities involved.

2. Avoidance of delays in granting approvals and licences that currently takes inordinately long. There is a dire need for cutting down time frames for governmental decisions taking.

3. Inducing transparency in the decision-making process, thereby minimizing the chance for corruption at various echelons of the governmental machinery.

4. Empowering the judiciary with the capacity to absorb contract enforcement tasks and perform them satisfactorily and in a time-bound manner.

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