India improves ease of doing business index- Real Progress or Chimera?

Introduction:

Since 2014, the Indian government has taken many business reforms which have proven fruitful as it increased the “Ease of Doing Business” index of our country drastically. The below table shows the ranks from the year 2014 to 2020.

YearRank secured by India
2014134
2015131
2016130
2017100
201877
201963

And the point of showing this table is to observe the drastic change starting from the year 2017 when the rank was at 100 to the rank offered in the year 2019 which is 63. But the major point to discuss here is to decide whether this ranking should be considered as a proof for real progress or not.

What is “Ease of Doing Business Index” all about?

The Ease of Doing Business (EoDB) index is a ranking system established by the World Bank group. As per this ranking system, a higher ranking (in lower numerical value) indicate better, usually simpler regulations for businesses and stronger protections of property rights.

There are over 197 countries that are a part of this ranking index conducted by the World Bank Group. The evaluation is done based on the following factors:

  1. Starting a Business
  2. Dealing with Construction Permits
  3. Getting Electricity
  4. Registering Property
  5. Getting Credit
  6. Protecting Minority Investors
  7. Paying Taxes
  8. Trading across Borders
  9. Enforcing Contracts
  10. Resolving Insolvency

 If a country holds a good rank than it can be deduced that the country holds a good regulatory environment for conducting business activity of any form in this country. These factors are basic parameters a business requires to be fulfilled from the government’s end.

How can India be helpful in this ranking?

Development of Business reforms in India has taken the rank of the nation 79 places above the rank it was holding previously. These reforms generally include the following:

  • Reduction of the documents for registration.
  • Reduction in the price of electricity.
  • Online registrations are available.
  • Lenience observed in Mumbai and Delhi.
  • Amendments done in various acts.
  • Reduction in corporate taxes.
  • Implementation of Fast track courts and judgments.

These actions have created the numbers through which India can develop a healthy environment for business. The following can be the benefits India can get with this new rank:

  • Improvement in Business Regulations and Business Reforms.
  • It boosts the country’s image and will help to invite more foreign investments in the country.
  • A gap between government and entrepreneurs can be reduced as the ranking proves the need of changes asked by the entrepreneurs to the government.
  • This ranking index has proven the need as well as the impact of the “Make in India” and “Startup India” initiatives taken by the government.

Why the ranking can be a Chimera for India?

 But like every quantitative measure, this ranking holds errors that might not be helpful for the exact evaluation of the system.

This includes the fact that the evaluation of India’s data which is submitted to the World Bank are only from Mumbai and Delhi. This specification can cause a negative impact due to the presence of different reforms implemented in different cities.

Other than this a problem can occur in case of developing awareness of these reforms which is required to be done by the government to the entrepreneur who might lack the knowledge of the requirements as India has a high rate of illiteracy which might not be helpful in case of online registrations.

The parameters are completely varied dominance in various countries which gives us an imperfect parameter range to measure from.

The index only goes through the policy reforms done in the country rather than the impact of these policies on the business environment which can give an incorrect result to the investors. If we talk of the implementation of these reforms, then India is moving at a sluggish speed in implementing these actions which are completely opposite to the jump in the rank observed by the country.

Hence, these problems can make this “Ease of Doing Business” Index rank as a “Chimera” or an “Illusion” for our country.

Conclusion:

India can use this index rank to attract more FDI and start opportunities to the entrepreneurs, but by considering the irrationality and the lack of credibility of this index, the Indian government shouldn’t make this rank jumps synonymous to “Real progress”.

Author: Shraddha