Reform, transform and perform

The Asian Age.  | Rama Kamaraju

India, All India

The World Bank measures aspects of business regulation focusing on small and medium-size companies in the largest business city of an economy.

The World Bank report notes India is one country which has made structural reforms this year. (Photo: PTI)

It all depends on one’s priorities. Gandhiji once said: “Action expresses priorities.” The structural reforms in business environment undertaken by the government during last three years have fructified as India joined 100 club in the ease of doing business this year.

In the “Ease of Doing Business Report, 2018 — Reforming to Create Jobs” released by the World Bank recently, India improved its global ranking significantly by 42 positions since 2014 and ranked 100 out of 190 countries — biggest quantum jump among all the countries this year. Immediate results following day are very encouraging to notice — Nifty closes above 10,400; Sensex above 33,600 and Rupee rises to six-week high.

The Prime Minister in 2014 made it very clear his vision to bring the ease of doing business ranking to 50 and mandated department of industrial policy and promotion to coordinate the task. It was hard to believe whether India could ever improve its ranking let alone 50. It took three years of concerted efforts and mammoth change management exercise to achieve this historic moment.

The World Bank measures aspects of business regulation focusing on small and medium-size companies in the largest business city of an economy. It provides quantitative indicators on regulation for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Thrust is given to simplification of forms/procedures, enhancing transparency and predictability of approvals.

Doing Business Report presents results for two aggregate measures: the distance to frontier (DTF) score and the ease of doing business ranking, which is based on the distance to frontier score. The ease of doing business ranking compares economies with one another; the distance to frontier score benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best performance on each Doing Business indicator. When compared across years, the DTF score shows how much the regulatory environment for local entrepreneurs in an economy has changed over time in absolute terms, while the ease of doing business ranking can show only how much the regulatory environment has changed relative to that in other economies.

For the 2018 report, based on the reforms implemented in the past year (June 2, 2016-June 1, 2017) in Delhi and Mumbai, India did remarkably well, in terms of DTF. Scores show positive incremental change on all parameters, meaning thereby, reforms has taken place holistically across business lifecycle — paying taxes (DTF score 18.39 per cent), getting credit (10 per cent), resolving insolvency (8 per cent), protecting minority investors (3.33 per cent), dealing with construction permits (2.63 per cent), enforcing contracts (1.86 per cent), starting a business (1.71 per cent), trading across borders (0.95 per cent), registering property (0.25 per cent) and getting electricity (0.04 per cent). Second, we are not very far from China.

In rank, China is 22 positions ahead and interestingly, in respect of change in DTF (year on year), no regulatory changes took place in six parameters. In the remaining four parameters the change is not significant. With the concerted on-going reforms agenda, we are sure to overtake China if not next year but for sure in next two years’ time.

But does that mean structural reforms and ease of doing business is confined to only Mumbai and Delhi. Definitely not. The annual “Business Reforms Action Plan” and ranking of states, since 2015 undertaken by DIPP, in collaboration with the World Bank, equally ensures reforms undertaken on ease of doing business pan-India. As a result, in the first year, Gujarat topped the table. Following year, Andhra Pradesh and Telangana shared the top position. Also, states like Chhattisgarh and Jharkhand have also made significant reforms and stood fourth and seventh respectively with 97.32 per cent and 96.57 per cent scores.

Then the question would be, how well these reforms percolated on ground for an investor? Are investors able to take advantage of these reforms? There seems to be a significant gap. The methodology of World Bank involves stakeholder consultations wherein a sample of effective users of services will be interviewed and any reform will be considered done only when the stakeholder acknowledges the reform and the benefit derived out of it. Thus, reforms undertaken would remain ineffective and there won’t be much change visible on ground until and unless acknowledged by the user.

For instance, one of the major reforms undertaken was “Incorporation of a Company” in one day through seamless online integration of multiple ministries with one composite application form. But it is still perceived that it takes 30 days to incorporate a company. Delivery of reform, therefore, remains a big challenge.

In order to strengthen the delivery of reforms to last mile and bridge the gap, it is suggested to set up an independent oversight mechanism with a sole responsibility of reaching out to prospective investors and obtaining feedback from investors on their experiences with agencies involved in obtaining clearances. A dashboard-based approach with latest technologies may be adopted. The outcomes so obtained should be shared with respective ministries/regulators/state governments to enable them to fine-tune the reforms agenda. Hopefully, the expectations of the investors and the intended purpose of reforms will be fulfilled.

Finally, it’s time to applaud all involved in contributing to this historic 30-rank jump and there is no doubt India will surely be one amongst the best 50 destinations on ease of doing business. Now it’s the turn of the businesses.

The writer is public policy consultant, Niti Aayog. The views expressed are personal.