India’s Rankings in the World Bank’s Doing Business Report 2017

November 3, 2016 Posted by India Briefing Reading Time: 6 minutes

By Melissa Cyrill

The latest edition of the World Bank’s Doing Business Report (DBR) sees India marginally improve its ‘Ease of Doing Business’ ranking by just one spot, moving to 130^th from 131^st last year. New Zealand topped the Doing Business Rankings this year, displacing Singapore which fell to second place. Along with India, all the BRICS nations exhibited subdued performances as Brazil fell to 123rd from 121st in 2016, Russia fell to 40th from 36th in 2016, and South Africa slipped two places to 74th from 72nd in 2016. China marginally improved from 80th in 2016 to 78th.

With respect to India, the new ranking reflects the country’s progress in just two out of ten parameters, thereby exposing clear gaps between Prime Minister Narendra Modi’s government reform initiatives and actual implementation.

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What is the Doing Business Report?

Launched in 2003, the Doing Business Report (DBR) is an annual survey-based report that aims to measure the actual costs of doing business in 185 countries. The resultant study produces a quantitative assessment of each country’s regulations for starting a business, dealing with construction permits, employment of workers, registering property, access to credit, protecting investors, paying taxes, trading across borders, enforcing contracts, securing an electricity connection, and closing a business.

Based on their scores in each parameter, the report ranks the countries relative to each other’s performance.

Ease of Doing Business Index – India’s Performance for 2017

India’s overall ranking improved by one notch to reach 130 as improvements were observed in only two parameters – securing an electricity connection and enforcing contracts. India’s ranking deteriorated in five parameters – dealing with construction permits, access to credit, protecting minority investors, paying taxes, and trading across borders. No change was observed in the parameters of starting a business, registering property, and resolving insolvency.

Some of the achievements recognized by the World Bank for this past year include the establishment of an electronic system for companies to pay employee insurance contributions, easier procedures for exporting and importing, and new arbitral mechanisms for resolving commercial disputes.

Unfortunately, what really undercut India’s overall score this year was the country’s abysmal performance in the post filing index criteria. This criteria was included for the first time under the parameter of “paying taxes”, and is the product of a review initiated in the Doing Business Report for 2015, according to the World Bank. Post filing index measures what happens after a firm pays taxes, such as tax refunds, tax audits, and administrative tax appeals. In the DBR 2017 survey, India scored 4.27 out of a maximum score of 100 in the ‘post-filing index’ criteria – only Timor Leste and Turkey performed worse.

Methodology of the Doing Business Report – Advantages and Limitations

The methodology of the DBR does not take into account announcements of reforms but rather focuses on an on-the-ground assessment achieved through field surveys and interviews with corporate lawyers, businesses, and company executives. This is critical as the report shows whether the government’s policy record translates into real benefit for the stakeholders involved. India now realizes the need for a transparent and constant feedback mechanism to close the yawning gap between policy formulation and implementation.

On the other hand, the DBR’s methodology betrays certain limitations when evaluating a country as large as India. India is a federal democracy and regulations differ across the country according to respective state laws and institutions. The World Bank’s DBR only evaluates ease of doing business in Delhi and Mumbai, which do not accurately represent the country’s business conditions. In fact, in the latest state-by-state ranking for ease of doing business (a joint initiative of the government’s Department of Industrial Policy and Promotion [DIPP] and the World Bank), 16 Indian states were found to have implemented more than 75 percent of the 340 reforms proposed by the DIPP’s Business Reform Action Plan in 2015-2016. These reforms cover the following categories – single-window systems, tax reforms, construction permits, environment and labor reforms, inspection reforms, access to information and transparency, and commercial dispute resolution enablers. This year, newly divided states, Andhra Pradesh and Telangana, jointly ranked at the top while last year’s top ranker, Gujarat, slipped to third place.

The cities of Delhi and Mumbai, the focus of the World Bank’s Doing Business survey, belong to relatively low performing states with Delhi state coming at 19^th and Maharashtra state at 10^th, respectively, in this year’s state-wide assessment.

Expected Reforms in 2017-2018

It must be noted that for the 2017 report, the World Bank acknowledges only those reforms that were reported by business intermediaries as being implemented by at least June 1, 2016.

As a result, the government has highlighted some of the following reform measures, which should boost India’s next assessment:

Implementing the Insolvency and Bankruptcy Code by notifying regulations and institutionalizing proceedings at the National Company Law Tribunals;
Implementing the Goods and Services Tax (GST) by April 1, 2017 to replace the country’s convoluted indirect tax structure;
Implementing a single mandatory form for company incorporation, name availability, and director’s identification number;
Streamlining processes of customs clearances;
Online filing of application, scheduling of appointment, and payment of fees for registering properties;
Digitizing all encumbrances and record of rights of lands for last 30 years and making them available online;
Integrating land records with sale deeds at the sub-registrar offices; and
Introduction of paperless court procedures and systems including e-filing, e-payment, e-summons, and downloading of electronically signed orders in commercial courts.

Observations

Despite the disappointing performance in the Doing Business Report, the government remains committed to walking the reforms course, with various policy measures and regulatory easing in the pipeline. Given India’s federal set up, parliamentary model of governance, and bureaucratic institutionalism, progress will inevitably be slower than expected, but should not be written off. Repeated assessments of emerging economies also highlight that India remains a bright spot in the backdrop of a global slowdown. Meanwhile, an alternative appraisal of the country’s business environment can be found in the DIPP-World Bank’s state-by-state ranking for ease of doing business in India. This national index provides a clearer picture for foreign firms seeking to enter India or looking to expand their operations in the country as they can compare the relative costs of doing business in the respective states, analyze possible investment incentives, and evaluate each state’s proven track-record when it comes to regulatory reforms. At the same time, the status of the World Bank’s Doing Business Report will push the Indian government to stay on top of its reform promises.

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