Relevance: GS Paper III (Indian Economy)
Why has this issue cropped up?
Recently, there has been an improvement in India’s “Doing Business” rankings..
Recent improvements in ‘doing business’ rankings
This is the second year that India has seen a massive jump. This year the jump in the ranking has been from 100 to 77. In two years, therefore, India’s position has improved from 130 to 77.
Areas where we lag
- The ease of doing business survey indicates that little has changed over the last year in some areas where India historically performs poorly — enforcement of contracts, paying taxes, and registering property stand out, in my mind.
- Each of these are multi-sectoral issues where improvements would require coordinated efforts across multiple layers of the government and, therefore, legal and procedural changes would be more complex.
Do such rankings reflect the reality of business in India?
- There has been a significant improvement in the paperwork associated with business in many areas of the government. Permissions and form submissions of various types have become much easier.
- Significant improvements are happening, and many of those are through improved use of information technology, particularly, many government departments both at the central and state level.
- However, there is much that this ranking does not capture.
- First, they do not capture the out-of-the process issues related to the daily running of a business, the various investigations conducted by the revenue department, or company law matters, or labour-related issues, or, for that matter, the various demands of the inspectors of quality and processes.
- Second, the reality of business in India requires the entrepreneur to focus on a whole range of aspects not covered adequately in such ratings. For instance, businesses have a problem of employability, poor skills, corruption, and controls on internal trade, avenues for accessing capital for small and micro-businesses being some examples.
- Third, input costs, demand factors and infrastructure issues are another class of factors that ease of doing business does not intend to capture. While that enables it to retain its focus, these are important factors that impact both global and domestic investment.
- Dependence on IT has perversely made things more difficult for those entrepreneurs who are less digitally able. This would require the government to constantly keep on working at making its IT-enabled interfaces more user-friendly for the small and micro-business entrepreneur.
- The objective of improving India’s economic climate, however, requires the government to take on far tougher tasks, some of which are included in the ratings, but many are not.
- While we can and should celebrate the improvement, the focus and prioritisation need to remain on issues relevant for India, which may or may not be, captured in the ratings.
To sum up, the ease of doing business ratings’ improvements are very welcome and are an affirmation of the changes occurring within both the state and central governments.