Ease of Doing Business

The Ease of Doing Business (EODB) index is a ranking system, established by the World Bank Group. In the EODB index, 'higher rankings' (a lower numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

The research presents data for 189 economies and aggregates information from 10 areas of business regulation, which are as follows:

  • Starting a business
  • Dealing with construction permits
  • Getting electricity
  • Registering property
  • Getting credit
  • Protecting minority investors
  • Paying taxes
  • Trading across borders
  • Enforcing contracts
  • Resolving insolvency

 

Rankings and weightings on each of the above mentioned parameters are used to develop an overall EODB ranking. A high EODB ranking suggests that the regulatory environment is more conducive for starting and operating businesses.

India's ranking in EODB out of 189 countries:

Financial Year

Ranking

2015

134

2018

100

2019

77

 

Reasons for such a sharp improvement in EODB ranking of India is on account of various initiatives taken by the Central Government. Following is a list of the initiatives completed:

Starting a business:

  • India's ranking on this parameter has improved from 164 in 2015 to 155 in 2016.
  • This improvement has been mainly due to the launch of the Simplified Proforma for Incorporating Company Electronically (SPICe) e-Form, on the occasion of Gandhi Jayanti, October 2 in 2016. SPICe is now a sole, simplified and versatile form available for incorporation of a company in India.
  • ESIC and EPFO are completely online with no physical touch point for registration or document submission.

 

PAN and TAN compliances:

  • The ministry has also integrated the MCA21 System with the CBDT for issue of PAN and first TAN to a company incorporated using SPICe.
  • The provision is in place for getting PAN and TAN in T+1 day using digital signatures. 

 

Construction Permits:

  • The Municipal Corporations of Delhi and Greater Mumbai have introduced fast track approval system for issuing building permits with features, such as common application form, provision of using digital signature and online scrutiny of building plans.
  • Delhi has a uniform building by law, 2016, which allows risk-based classification regimes for different building types. The uniform building by laws have provision of deemed approval of sanctioning building plans within 30 days.

 

Trading across borders:

  • The Central Board of Excise and Customs (CBEC) has implemented 'Indian Customs Single Window Project' to facilitate trade. Now, importers and exporters can electronically lodge their customs clearance documents at a single point only with the customs.
  • The number of mandatory documents required by customs for import and export of goods have been reduced to three i.e., Bill of lading, invoice cum packing list and import declaration.

 

Statutory fees:

  • Fees for filing SPICe, MoA and AoA has been reduced to zero for proposed companies where the authorized capital is up to INR 10 lacs in case of a company having share capital or where the number of members are up to 20 in case of a company not having share capital.

 

Getting electricity:

  • India's ranking on this parameter has improved from 99 in 2015 to 70 in 2016.
  • In both Delhi and Mumbai, the distribution companies have stipulated that electricity connections will be provided in 15 days and the number of documents required to obtain an electricity connection have been reduced to only two.
  • Online application for connections above 100 KVA have been made mandatory in Delhi and Mumbai. This will reduce procedures, cost and time taken to obtain an electricity connection significantly.
  • In Mumbai, Brihanmumbai Electric Supply and Transport (BEST) has improved its SAIDI by 3% in the period Jun 2015-Mar 2016, and SAIFI by 11% in the same period and Tata power has improved its SAIDI by 2.42 and SAIFI by 2.41.

 

Registering property:

  • In Delhi, all sub-registrar offices have been digitized and sub-registrar's records have been integrated with the Land Records Department.
  • In Maharashtra, all property tax records have been digitized. The digitization of property records will overcome the cumbersome and time consuming paper work for registering properties.
  • It will ensure transparency and allow citizens to ascertain history of transactions in digital mode.

 

Paying taxes:

  • The ESIC has developed a fully online module for electronic return filing with online payment. This has greatly reduced the time to prepare and file returns.
  • With introduction of e-Verification system, there remains no physical touch point for document submission to Income tax authorities.

 

Online registration:

  • Registration of Delhi Shops and Establishment Act, 1954, Maharashtra Shops and Establishment Act, 1948, GST Registration has been made fully online.

 

Insolvency and Bankruptcy code:

  • One of the major accomplishments have been the passage of a new Insolvency and Bankruptcy code.

 

Crux of improvements:

  • Incorporation of a company reduced to 1 day from 10 days
  • Power connection provided within a mandated time frame of 15 days instead of earlier time frame of 180 days
  • Number of documents for exports and imports reduced from 11 to 3
  • Validity of industrial license extended to 7 years from 3 years
  • Bankruptcy Code 2015 - New bankruptcy law, providing for simple and time-bound insolvency process operationalized in 2016
  • Goods and Services Tax - Single tax framework implemented
  • Permanent residency status for foreign investors for 10 years

 

Why India for business?

Advantages in India

  • Population of 1.31 billion out of which 767 million falls in the age group of 15-64 age group, and also set to become the youngest country with average age of 29 years by 2025.
  • 2nd largest Internet users base with 462 million Internet users.
  • 3rd largest economy in the world with size of USD 8.6 trillion by purchasing power parity (PPP) and is expected to rise to USD 20 trillion in size by 2025
  • 2nd largest railway network in the world, used by 23 million travelers every day
  • 2nd largest road network in the world, stretching 3.3 million km
  • 12 major ports, 200 notified minor and intermediate ports
  • 3rd largest tech driven start-up ecosystem globally and tech startups in India expected to reach 11,500 in 2020 from 4,300 in 2015

 

FDI and ease of doing business

"FDI is like water. It seeks the path of least resistance. So the more you do to lower resistance, the easier and faster the FDI will flow."

Major FDI reforms

FDI stimulates the country's economic development and creates more conducive environment for the industry to grow. Some of the major reforms are as follows:

  • Defence: Up to 49% through automatic and above 49% through government route.
  • Civil aviation: 100% FDI through automatic route, except in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and Regional Air Transport Service where only 49% FDI is allowed through automatic route; whereas for NRIs and OCIs, 100% FDI is allowed.
  • Broadcasting: New sectoral caps and entry routes are as under:
    • Broadcasting Carriage Services & down-linking of news channels: 100% FDI
    • Cable Networks: 100% FDI
    • News channels: 49% FDI
  • Banking- Private Sector: FDI up to 74% with 49% under automatic route rest through government route
  • Railways: 100% FDI under automatic route permitted in construction, operation and maintenance of rail infrastructure projects
  • Construction: 100% FDI through automatic route and removal of minimum floor area & minimum capital requirement
  • Pharmaceuticals: The extant FDI policy on pharmaceutical sector provides for 100% FDI under automatic route in Greenfield pharma and FDI up to 74% under automatic route and 100% under government approval in Brownfield pharma
  • Plantation: Certain plantation activities, namely coffee, rubber, cardamom, palm oil tree and olive oil tree plantations, have opened for 100% foreign investment under automatic route
  • Telecom: FDI up to 100% with 49% under automatic route
  • Insurance and pension: FDI Policy has been reviewed to increase the sectoral cap of foreign investment from 26% to 49% under automatic route
  • Medical devices: 100% FDI under automatic route for manufacturing of medical devices has been permitted
  • E-Commerce: 100% FDI in B2B e-commerce, single brand retail trading entity permitted for B2C e-commerce and e-commerce food retailing
  • Retail:
    • 100% FDI and 49% under automatic route is allowed in single brand product retail trading. In case of 'state-of-art' and 'cutting-edge technology', sourcing norms can be relaxed subject to government approval
    • 100% FDI is now permitted under automatic route in duty free shops, located and operated in the customs bonded areas

 

As per research, ease of doing business indicators 'Enforcing Contracts' have a positive significant impact on inward FDI. However, 'Starting a Business' and 'Paying Taxes' has no significant impact on inward FDI. The research reveals that the ease of doing business enables inward FDI through better contract enforcement, getting credit and registering property.

Parameters to be improved in India:

While India managed a lot of changes in many indicators, but there are some other sectors where its scores have barely changed.

Its score remains dismal on registering property, where it ranks 166. It takes 69 days to register a piece of property and costs about 8% of its value in India, the norm for OECD countries are just 20 days at half that cost. New Zealand gets this done in a single day.

The other main hindrance is payment of taxes. Despite the advent of GST, India has remained a back-bencher on this at a rank of 121.

The ease of doing business index ranks countries against each other, based on how the regulatory environment is conducive to business operations. Economies with a high rank (1 to 20) have simpler and friendlier regulations for businesses.

What should the government do?

To generate a similar business confidence, India will have to focus on parameters where it is stagnating or even falling behind. To improve on these parameters, India will have to consider bolder operational measures like complete and accurate digitization of land records.

In terms of economic presence, India has already jumped places to become the world’s sixth largest in 2017 at USD 2.6 trillion. If the pace of reforms being implemented remains on track, and the business environment is further eased, we will be able to surpass the United Kingdom to become the fifth largest economy in the near future.

The country has, in fact, been one of the biggest “improvers” in the 2019 study, with its rank shooting up from 100 to 77, among 190 countries. This is quite a big jump, given that its rank crept up from 142 to 100 in the four years from 2015 to 2018.

India's today position in EODB Index:

As per DIPP report, India ranks in the top 25 in the world on three indicators:

  • Getting electricity,
  • Getting credit and
  • Protecting minority investors.

 

Online payments to Employee Provident Fund and administrative measures to simplify corporate income tax regulations led India to jump 53 places from 172 to 119 on the 'paying tax' parameter. India's DTF score improved to 67.23 from 60.76 last year.

The World Bank has recognized India as one of the top improvers for the year. India is the one of only nine countries around the world and only one in BRICS to feature in this list. India has become the highest ranked economy in South Asia and leaves Bhutan behind this year.