The Department for Promotion of Industry and Internal Trade (DPIIT), a central government department under the Ministry of Commerce and Industry, made a statement recently that India will soon break into the top 50 in the World Bank’s ease of doing business (EoDB) ranking. The nation will be in the league of advanced industrialised countries, where any incremental progress will require stronger reforms. Crux Management Services president Vikas Singh tells Y V Phani Raj that though EoDB rank improvement is a good sign but India needs to do more beyond the ranking.
EoDB as a benchmark
In the “Doing Business (DB)” report published by the World Bank, India jumped up 14 places to rank of 63. The DB index calibrates 10 indicators, linked to various sub-indicators, aggregated into a final score. Globally, 190 economies are ranked on this score. India maintained its position as a ‘top ten’ reformer for the past three consecutive years, improving its ranking in the seven of the 10 metrics. A measure of credibility is the score on the “distance to frontier (DTF) metric”, which gauges how far an economy’s policies are from global best practices. The index compares a large set of advanced and emerging economies. The country’s score improved by 10 per cent. This is significant as it measures progress in absolute terms. Though EODB rank has improved, India has been ranked 95 in Gender Equality Index among 129 economies, 102 in Global Hunger Index among 117 economies and 129 in Human Development Index among 189 countries.
Concerns over criteria
A matter of concern has been small sample size (sometimes only a single firm) from which inference is drawn, often the implicit or explicit biases with the data. A truer picture would emerge if the samples were more widespread and deeper. India’s business ‘produces’ and serves beyond Mumbai and Delhi. Also, there is a marked bias towards deregulation. Even if the regulations support holistic growth, equally concerning is that indicators overtly focus on laws and not enough on the actual implementation. The government needs to focus beyond the 10 indicators that determine the final score. While the momentum and the effort of the Government towards EODB need to be applauded, it is the direction and the approach that need to be reviewed.
There is no linear relationship between economic outcome and EoDB. The DB ranking needs to be equated with the overall welfare. India needs to improve on several development indicators. The country is home to 45 per cent of the ‘deprived’, an UNDP term for the unfortunates who suffer ‘multi-dimensional poverty’. DB measures only how ‘business-friendly’ are the regulations. Concern is not the number of regulations, but the speed and convenience of complying with them. A crux study demonstrates that the small businesses tend to suffer the most from onerous regulatory compliance. In the absence of a nationwide sample, the DB rank is only indicative and symbolic. Reading, interpreting and extrapolating for the whole country will give us a false sense of achievement. Our competitors are running harder and covering more. China leapfrogged and catapulted from 46 to 31. Even Malaysia is ahead.
Subsidising the elite
The ‘index’ has triggered a zeal for reform with the explicit goal of improving ranking. It also means corporate loan write offs and speedy environmental clearance. Deregulation of labour laws too. At the State-level, Rajasthan, an underdeveloped State which ranks low on several development parameters, pitches high on labour flexibility and the EoDB.
Direction of reforms
The reduction in the corporate tax rate hasn’t moved the needle one bit, because it does nothing for the informal economy that constitutes about 90 per cent of the jobs. The improvement in the DB ranking doesn’t help a small business as the labour laws are stringent. They struggle for tax rebates. The SMEs take five years on an average to resolve a commercial dispute and enforce contracts in the absence of resources and the unyielding procedures. The larger organisations do it in one year. Deregulations help the big businesses, making smaller businesses less competitive and perpetuating them to remain small. The Government needs to institute policy measures to nurture entrepreneurship and create an enabling ecosystem for holistic development.