The finding made in the World Bank’s ‘Doing Business 2016’ report that improvements in the regulatory environment helped lift India’s ranking four places higher will serve as a shot in the arm for the government, given Prime Minister Narendra Modi’s avowed focus on economic development.
The overall ‘ease of doing business’ ranking has climbed to 130 from a recalculated 134 last year following a change in methodology. And the distance-to-frontier score – which measures the absolute level of regulatory performance in an economy and the extent of improvement over time – has also advanced by two percentage points.
Significantly, the Bank has found that it is easier now to both start an enterprise and get an electricity connection in Mumbai and Delhi, the two cities chosen for the study. The observations by Augusto Lopez-Claros, director of the Bank’s Global Indicators Group, pointing to a concerted effort by authorities to improve the business environment, should also offer encouragement.
And his comment that a continuation of the process is likely to yield substantial progress in the coming year serves as vindication that the government is on the right track. Still, a closer look at the areas that need further loosening of regulations shows that Mr. Modi’s government has its task cut out.
For instance, access to credit for a business has become marginally more difficult over the past 12 months, resulting in the ranking dropping six places. More worrying for policymakers are the stubbornly low distance-to-frontier scores for the two measures of enforcing contracts and dealing with construction permits.
Only Bangladesh fares worse than India among the eight South Asian countries in the 189 nations on the list in resolving commercial disputes. And the region’s largest economy, by a distance, ranks a lowly seventh above war-torn Afghanistan on the ease of obtaining the approvals necessary to build.
Indeed, a herculean task lies ahead to achieve the government’s goal of breaking into the top 50 rankings in order to make the country a favoured investment destination for foreign capital and spur domestic enterprise.
The strife-torn Palestinian enclaves of the West Bank and Gaza still rank one place above India, with both registering property and paying taxes far easier in the combined territories than in Asia’s third-largest economy.
Even the smaller Asian and South Asian economies of Indonesia and Sri Lanka significantly outscore India on several parameters, showing why businesses find it easier to invest in these countries. In this context, the Income Tax Department’s move to set up a panel of experts to simplify direct tax laws has come not a day too early.
With several key bills to broaden economic reforms — including the centrepiece Act to create a common market through the much-delayed Goods and Services Tax — stuck in a legislative logjam, Mr. Modi and his parliamentary managers will need all their political nous if the ‘Make in India’ campaign is to succeed.
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