The economy is moving in the right trajectory
In this year’s Ease of Doing Business report, India moved up 23 positions to reach 77th — the highest the country has ever been placed in the 15-year history of the survey. India must continue its journey on that path until it ranks at or near the top of the ranked countries
“We want to make India a destination which not only welcomes business but where it is easy to do business.” Prime Minister Narendra Modi made this promise at the US India Business Council meeting on June 7, 2016. Now, just a little more than two years later, India is on the right path to deliver on that promise.
That’s what the flagship Ease of Doing Business Report (Report or World Bank Report) released by the World Bank shows. In this year’s report, India moved up 23 positions to reach 77th — the highest the country has ever been placed in the 15-year history of the survey.
The Ease of Doing Business survey studies regulations that affect businesses in over 190 economies around the globe. Its ranking is based on indices such as the required procedures and time to start a business; registering property; protection of investors; and enforcement of contracts.
The new report highlighted the fact that India is one of the 10 countries “with the most notable improvement in Doing Business” this year. In fact, India was one of the only two countries that figured in the list of top 10 improvers for two consecutive years. The other is Djibouti.
This is evidence that the flurry of reforms made by the Indian government to improve business conditions, after Modi’s promise to the global business leaders in the US Capitol, have paid off. As the World Bank Report notes, India has made 14 “sizeable improvements” in the past two years.
Most notable among them was the replacement of the value added tax (VAT) with the Goods and Services Tax (GST). The GST got off to a rough start because of considerable initial confusion regarding it and multiple changes during its first year of existence. It is established now and — it will, no doubt, make life a lot easier for businesses. As the World Bank Report pointed out, the GST, a single-tax system, is a vast improvement on the multilayered VAT framework, making the payment of tax a lot easier.
Other regulatory measures initiated by India in the past year that have resulted in the higher ranking identified in the report include the integration of multiple application forms into a general incorporation form; the streamlining of construction permits; the lowering of electricity charges; and increased access to credit.
Another example of substantial improvement is provided by the area of business registration. In 2003, the process was a long-term project requiring roughly three months. Currently, the process takes less than two-and-a-half weeks. Today, there is also much greater access to capital in India than ever before.
Each and all these improvements are critical to India’s future economic growth. An economy as large as India’s will always pique the interest of the outside world because of its sheer size and the number of consumers it boasts. That’s why since the early 1990s when doing business was not as easy multinational companies have pursued selected business development opportunities in India.
But, now with the country’s nominal GDP fast approaching the $3-trillion mark, an uninterrupted and increased inflow of foreign investment and sustained domestic investment are essential for the continued growth of the economy. There is a definite need to diversify and magnify the nature and levels of investment.
The good news, as the foregoing attests, is that the Modi administration has made excellent strides in improving the investment climate and the ease of doing business. This has given both domestic and international businesses the confidence to increase and expand their business initiatives in India.
In spite of this real and significant progress, much work still needs to be done for India to unleash the full potential of its economy and to become a world leader in terms of the ease of doing business.
The permit raj may have weakened, but it is still there. As an example, in the report’s specific index for starting a business, India ranks behind 136 countries. In India, it takes more than six months on an average to obtain a construction permit and registering a property takes more than a month and a half. These signal that there is quite a way to go on this path.
But India is on the right path. Just two years ago, India was ranked 130th. Today, it ranks 77th.
India must not consider 77th as good enough. It must continue its journey on that path until it ranks at or near the top of the ranked countries. Reaching that destination will ensure a solid future for India and its citizens.
Frank F Islam is an entrepreneur, civic leader, and thought leader based in Washington DC.
The views expressed here are personal