We need to think beyond ease of doing business ranking: Mint 21st November 2018

The ranking is based on what happens in Mumbai and Delhi but investment takes place everywhere

India has done very well on the Doing Business rank in the last two years. There is a lot to cheer. On the other side, The Economist, in its 3 November edition, has been caustic about India and China on this score. It says, “India now thinks it could mark its own exam. It announced, long before the bank’s official assessment, the score it felt it ‘should’ receive." It does appear that once you know the formula, one can work towards improvement.

We need to think beyond the rank. A puzzle which we have faced is that notwithstanding all that has been done on improving conditions for business, the investment rate or the gross fixed capital formation, remains unchanged at 28.5%. Lesson number 1 is that higher rank does mean higher investment. Other conditions like demand for investment, availability of finance, sector policy, actual ease of operating etc. are important.

The limited success of public–private partnership is testimony of why investment is not forthcoming in infra. The ranking is based on what happens in Mumbai and Delhi but investment takes place everywhere. Lesson number 2 is that we cannot sit back and wait for investments to take place as in a federal structure there are central, state and municipal laws which have to be aligned. A positive is that there is an effort to rank states too.

India has improved its rank on getting credit. But this is just the kind of conundrum we are facing today with there being pressure to lend more to small and medium-sized enterprises and farmers. We do not seem to be bothered about quality when we chase such ranking. Lesson 3 is that when it comes to credit, we should not let emotion or rhetoric fog our vision as the dangers of reckless lending can be hard to address.We have not done too much in ranking in terms of enforcing contracts and resolving insolvency where the rank is almost unchanged. We have the Insolvency and Bankruptcy Code (IBC) which augurs well for improvement.

But we have seen that while IBC was brought in with a lot of fanfare, the will to carry it out seems to be missing as the recent debate on dilution of the central bank’s February circular shows. Lesson 4 is that the centre should back up any major reform in doing business as mere announcement will not suffice to improve investment flows. The same analogy can be carried to other areas of reforms which have not seen considerable success post announcement and implementation. For example, Ujwal DISCOM Assurance Yojana was quick to be absorbed on debt, but the commitments of the distribution companies have not been met in general. “Indradhanush", the seven-point agenda for banking reforms, has yet to be implemented. So, while there have been a plethora of reforms there needs to be a will to follow up and implement in spirit to make a difference. Also, as can be seen on the ten-point scale, the ones which are process-based have been easy to beat like starting business, construction, electricity, and probably even registering property in the future. But where there is ideology which affects commitment, there is still some push that is required. Admittedly, all this takes time.