What Are the Criteria for Ease of Doing Business? - India Jumps 30 Ranks (Important)

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India has jumped 30 ranks in the Ease of Doing Business index making it one of the best where businesses can come in. The following criteria are used by World Bank for deciding its Ease of Doing Business rankings:

Ease of Doing Business 2017

India՚s Achievement in 2017

  • India stood out this year as one of the 10 economies that improved the most in the areas. The lone country in South Asia and even the BRICS to do that
  • India՚s Distance to Frontier score rising by a whopping 4.7 points compared to China՚s 0.4 points
  • In South Asia, 20 reforms were implemented by six of the region՚s eight economies. India carried out eight reforms, the highest number for the country in a single year.
  • In last several years of the 189 countries - India was hovering around 130 - 140. In 2015, India was 142. Then the next two years the ranks were 131 and 130.
  • There are 19 more reforms in the pipeline, which are expected to significantly improve the business ecosystem.
  • India՚s improving perception in ease of doing business has a huge federal element. Junaid Ahmed, India head of World Bank said, “India՚s unique story has a federal spread. Means not just the centre but states too have created reforms. that՚s the real reason behind 30 ranks move up.”
  • In its annual ease of doing business rankings, New Zealand, Singapore and Denmark retained their first, second and third spots, respectively, followed by Republic of Korea, Hong Kong SAR, China, United States, United Kingdom, Norway, Georgia, and Sweden.
Table Contain Shows the Parameters List
PARAMETERS20162017
Starting business155156
Construction permits185181
Getting electricity2629
Getting credit4429
Minority invest134
Paying taxes172119
Trading borders143146
Enforcing contracts172164
Insolvency136103
Table Contain Shows the Methodology and Measured Parameters
MethodologyMeasured ParametersIndian Regulations which Had an Impact
Starting a BusinessProcedures, time, cost and minimum capital to open a new business
  • Fifteen years ago, it took over 50 days on average to start a business in the region, compared to 17 days now.
  • India՚s digital drive is having an impact on starting a business.
  • Online application system helped India՚s ranking.
  • Region specific solutions like merger of pleas for profession tax and value added tax in Mumbai and the merging of applications for PAN and Tax Account Number or TAN were seen as elements cut short significantly the time taken to start a business.
  • Report says that India made it more difficult by introducing a requirement to file a declaration before the commencement of business operations.
  • Streamlining of business incorporation process by introduction of the SPICe Form (INC-32) , which combined the application for the Permanent Account Number or PAN.
Dealing with Construction PermitsProcedures, time and cost to build a warehouse
  • Reduction in the slew of procedures. Reduction in time taken to obtain a building permit due to the new online system has streamlined the process at the Municipality level.
Getting ElectricityProcedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
Registering PropertyProcedures, time and cost to register commercial real estate
Getting CreditStrength of legal rights index, depth of credit information index
  • Automatic stay for secured creditors during reorganization procedures
  • Changes in rules on priority of secured creditors outside reorganization proceedings
  • Adopting a new insolvency and bankruptcy code.
  • Governments sustained efforts to reduce NPA՚s- establishment of debt recovery tribunals reduced non-performing loans by 28 % and lowered interest rates on larger loans, suggesting faster processing of debt recovery cases cut the cost of credit.
Protecting Minority InvestorsIndices on the extent of disclosure, extent of director liability and ease of shareholder suits
  • Here India՚s improvement is among the best in the world.
  • Slew of reforms introduced by SEBI Protection mechanism for minority investors through creation of increased remedies available in cases of prejudicial transactions.
Paying TaxesNumber of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit
  • Easy to comply with corporate income tax regulations
  • Electronic payments to the Employees Provident Fund
Trading Across BordersNumber of documents, cost and time necessary to export and importIncreased use of mobile and electronic modes and end of merchant overtime fees has reduced time taken to comply with export and import regulations at ports.
Enforcing ContractsProcedures, time and cost to enforce a debt contractEnforcing contracts became easier after the introduction of the National Judicial Data Grid as this has allowed case management reports on local courts to be generated.
Resolving InsolvencyThe time, cost and recovery rate (%) under bankruptcy proceedingThe Insolvency And Bankruptcy Code, 2016 introduced a reorganization procedure for corporate debtors and facilitated continuation of the debtor՚s business during insolvency proceedings.

Extra Information Derived from Doing Business Data

  • Distance to frontier - Distance each economy to the “frontier,” representing highest performance observed on each of the indicators across all economies since each indicator being included in ranking.
  • Entrepreneurship - Measures entrepreneurial activity based on data collected directly from 130 company registrars on newly registered firms over the past seven years
  • Good practices - How other governments have improved the regulatory environment in the past
  • Transparency in business regulation - Accessibility of regulatory information- fee schedules for 4 regulatory processes in the largest business city of an economy

Methodology for Coming up with Doing Business Ranking

  • Ranking is based on questionnaire responses.
  • Sometimes simpler regulations might not increase ratings- protecting the rights of creditors and investors and establishing or upgrading property and credit registries, may increase regulation.
  • Case study generally is based on domestically owned manufacturing company with no direct relevance to foreign investors and large companies.
  • Methodology uses simple averaging approach for weighting sub-indicators and calculating rankings.

Caveats in Doing Business Rankings

  • Does not measure all aspects of the business environment- macroeconomic conditions, level of employment, corruption, stability, or poverty.
  • Does not consider the strengths of the global financial system, financial system of every country, and state of the finances of the government.
  • Does not cover all the regulation like financial market, environment, or intellectual property regulations relevant for the private sector.
  • Not intended as a complete assessment of competitiveness of a country but is a proxy for regulatory framework faced by the private sector in a country.
  • World Bank ranking system is based on samples in just two Indian cities - Mumbai and Delhi. World Bank ranking system did not factor in the direct or indirect impacts of demonetization and has not yet taken into account GST.

Advantages of Good Ranking

  • Movement of businesses typically does not happen just because a couple of indicators but India over the last three years has consistently moved the bar making quite a difference in the way foreign investors are coming in.
  • Doing business indicators capture the completely regulatory framework for small and medium firms as well. Therefore, domestic investment also will be impacted which ultimately influences growth in terms of jobs, in terms of employment.

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