Published on 25/10/2019 9:00:23 AM | Source: Live Mint

Opinion | Right way of doing business for a $5 trillion economy

Posted in Economy News| #Economy #Expert Views #World Bank #Business

World Bank’s Doing Business 2020 report, which was published on Thursday and assessed the ease of doing business in 190 economies, has vindicated the government of India’s continued efforts to reform the business environment. For the fifth year in a row, India has improved its rankings, going up from 77 last year to 63 this year. This is commendable, especially in an economy where more than half of the policies and related approval processes are under the jurisdiction of the state and local governments, and outside the direct purview of the Centre.

There are essentially three reform areas, which have led to this year’s improvement in performance. First and foremost is “resolving insolvency", wherein the country’s ranking has improved from 108 last year to 52 this year, primarily due to the stabilization of procedures under the Insolvency and Bankruptcy Code introduced in 2016. This has led to reduction in average time taken to recover debt from 4 years to 1.6 years, and improvement in the recovery rate for secured creditors from 26% to 71%.

The second reform area, which has seen considerable improvement this year is “dealing with construction permits", wherein India’s rank improved from 52 last year to 27. As has been the practice for the last few years, the doing business assessment is carried out in Mumbai and Delhi—the two largest financial centres in the Indian economy. The key contributor for the improvement in ranking this year was the adoption of a common online application platform for construction permits by the Delhi Municipal Corporation, which led to a reduction in number of procedures for approval, as well as associated costs. Interestingly, the performance of Mumbai in this area was almost identical to last year.

The third reform area, which has contributed to the overall improvement in performance, is “trading across borders", where India’s rank improved from 80 last year to 68 this year. The primary reason for this was the reduced average time taken for import clearance procedures from around 96 to 60 hours due to the adoption of mechanisms, such as prior risk clearances for key trading partners under the authorized economic operator programme, and better integration between various agencies involved in the process through a common online system.

The report also highlights the key reforms that need attention from the Centre. Enforcing contracts is one area where India’s rank continues to be at 163 out of the 190 economies. Average time required to enforce a contract via court continued at the previous year’s level of 1,445 days, as against 590 days for OECD high-income countries, with costs also continuing at last year’s level of 31% of claim value (21.5% for OECD high income countries). Clearly, reformation of court adjudication processes and addressing the significant backlog of cases is the need of the hour.

The second area with continued underperformance is “registering property", though there has been a marginal improvement in rank from 166 last year to 154. Adoption of a real-time online solution for checking that the property is clear of all tax dues by the Mumbai city authorities was the main contributor to the improvement, which led to this activity being completed within a day. However, the average time for completion in Delhi continued to be around 7 days. While these are, at best, incremental improvements, the only way to achieve best-in-class performance in this area would lie in large-scale digitization of land and property records, backed by online integration of property transfer and mutation processes, which are handled by different agencies within the government. Finally, when it comes to “starting a business", India is still ranked 136, up from 137 last year. The time taken for completing the entire registration process across Delhi and Mumbai was 17-18 days, as against 9 days for OECD high-income countries, with costs ranging from 9.3% of per-capita income in Mumbai to 5.3% in Delhi, vis-a-vis around 3% for OECD high-income countries. The primary reason for lower costs in Delhi is that no additional charges are levied for registration under the the Shops and Establishment Act, unlike in Mumbai, which levies a separate charge. Interestingly, two out of the three areas where India continues to underperform have a direct impact on economic growth. When it comes to “registering property", a transparent, cost-effective and efficient property transfer-cum-registration process is critical for generating wider private confidence, and kick starting a virtuous investment cycle by channelizing private surpluses into investment. Similarly, from the viewpoint of “enforcing contracts", an efficient and effective judicial system, which provides timely and objective redress to commercial disputes, is critical for stimulating private investment and economic activity.

If the government is indeed able to tackle these areas on a war footing and achieve significant improvement, it may also go a long way in boosting economic activity and help India achieve its aspiration of becoming a $5-trillion economy by 2024.

Arindam Guha is partner at Deloitte India.