Much To Be Eased Out For The Ease Of Doing Business

The latest of World Bank’s Ease of Doing Business (EoDB) Rankings has given a rude shock to the Government of India. It has belied the centre’s year-long efforts to improve things on the ground, especially since it has been vigorously pushing states to adopt and implement 340-point reforms covering 10 areas.

However, we need not react negatively as the report has dedicated columns highlighting India’s major reforms and encourages its endeavours to compete with and adopt international standards. The government needs to understand that other countries are also growing and have improved their rankings at a rapid pace. The report mentions that 96 per cent of economies in Europe and Central Asia have implemented at least one reform and are doing so continuously. Further, indicative criteria related to tax and public procurements have been added, including, for the first time, a gender approach, one of the areas where India has a long way to go. Since the World Bank rankings are more of a relative measure than an absolute one, where India has scored better, the cause for concern should be addressed distinctly.

Reforming States and Limited Government

While the World Bank rankings take into account Delhi and Mumbai, it should be noted that the performance of the states of Maharashtra and Delhi is inferior to many others in the ongoing EoDB state rankings undertaken by the Department of Industrial Policy and Promotion (DIPP). Currently, the states are at tenth and nineteenth positions respectively with the state capital implementing less than half of the reform action points. A closer look shows that Delhi has also lagged behind in adopting a single window system for approvals/clearances and enabling implementation of labour reforms. These are key areas that influence the relative measures of the World Bank rankings and entrepreneurs’ choice to invest and decision to set up/expand shop. The Business Reforms Action Plan is definitely a good beginning, but should be a continuous affair that considers the concerns of industries and is proactive to the emerging issues. The World Bank index highlights this problem as it shows how important it is for the government to look holistically on its role and functions. Studies shows that freer economies with strong rule of law and greater ease of doing business have prospered and this is not directly influenced by gross domestic product (GDP) growth.

While the current government has emphasised ‘minimum government and maximum governance’ slogan, it has not really translated into action. The government needs to move forward in creating the right environment for businesses to operate, which will mean ‘less government’ in certain areas. Paul M Romer, senior economist and vice president of The World Bank, in his foreword to the report, mentions ‘smarter regulation’, which is intended to strike a balance between facilitating private sector while providing adequate safeguards to consumer/social group’s interests.

The Inspection Raj

Raghuram Rajan, the former governor of the Reserve Bank of India (RBI), has warned of the ‘Inspection Raj’ that has been distinctively bothering all forms of enterprises alike. Our analysis showed that nine out of 10 retailers find inspections to be non-transparent, troublesome and unwanted, often forcing them to pay hefty bribes or face the wrath of the officers wielding penal powers. The current set of reforms has largely addressed the ‘Licence Raj’ by implementing and integrating online systems, reducing licensing norms and enabling information to be made public, but will need to standardise inspections to gain business confidence. Large enterprises have complained about the risks and unpredictability factors, which could be addressed only through a consistent policy adopted across all states. A single bureau acting as nodal agency for all compliances, investor support and assistance will require the legislative mandate to operate across different subject matters, since key areas like environment clearances and company compliances touch upon the Union List. This will be important as the government moves from policing to regulation and will require local level monitoring.

The Mole In The Reforms

Given the sensitivity of the relations between the government and judiciary, EoDB got a mention in the recent NITI Ayog Arbitration Conference hosted by the Ministry of Law and Justice. A slow judicial system has been decelerating India’s quest for higher rankings. The Commercial Courts (Act) have been a face saver, as the real reduction in pendency and litigation does not show visible signs of improvement. The Chief Justice of India has mentioned how India has failed to have a good arbitration centre to handle commercial matters at a time when Indian companies are clogging Singapore and London dispute resolution centres. Very few courts have adopted a case management framework or have considered treating commercial matters distinctively. The silent rift between the government and judiciary, if continued, will be disadvantageous to all sections of people.

Moving Beyond Rankings

While The Economist has chided India’s pursuit of rankings and records, the government should not be bogged down and stop pursuing business reforms, rather it should carry forward the process of deregulation. What it needs to do is to involve all stakeholders in these processes. For instance, trade bodies could be given more responsibility in implementing various reforms. The American Chamber of Commerce vets companies and technically certifies them, thereby reducing the burden on the government. Even technical certifications could be handed over to such bodies through a transparent and meaningful process.

A major step towards any reform is identifying the major pain points affecting local industries. The state authorities should have regular consultations with entrepreneurs, industries and trade bodies to identify and prioritise the areas that need to be fixed and effectuated through amendments or government orders. The district industries centres located in various states which conduct business perception surveys area failure in this regard and need to be disbanded.

‘Doing business’ goes beyond regulations and legislative actions. Social factors also influence investments and decision making of entrepreneurs. A case in point is Bengaluru, which has emerged as the largest start up ecosystem in India, as it provides access to opportunities, education and health support. Liveability and human development parameters are interlinked with business ecosystems. The states cannot ignore them, if they want to build investments and industries. No number of government notifications or orders will help to build such an ecosystem where businesses and societies thrive together.

The writer is Director (Research and Projects), Centre for Public Policy Research