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Returns on business matter, not just ranking

opinionReturns on business matter, not just ranking

Last month, Prime Minister Narendra Modi, while chairing his sixteenth meeting of Pragati, asked all Secretaries and Chief Secretaries to study the latest World Bank’s “Ease of Doing Business” report and submit suggestions within a month on areas that can be improved. Never had the ranking perhaps invited such serious concern at the highest level. After all, having done so much in the last few months it was distressing to see India advance by only one rank. This just did not match the data of India receiving the highest ever foreign direct investment. We have seen some unprecedented growth in FDI equity inflows of 46% in the last few months. As compared to US$39 billion FDI equity inflows from February 2013 to September 2014, India received US$56 billion of FDI equity inflows for the period October 2014-May 2016.

Immediately after coming to power, the Prime Minister had set up an expert committee to repeal obsolete laws. The committee submitted its report and many identified laws were repealed. Countries like South Korea in the past have also taken hard measures to reduce the number of regulations by as much as 35% so as to make it easier for business to operate. This should work for India too.

The two World Bank reports, one on national and the other on the sub-national level were somewhat baffling. While the country report had seen an improvement by one position, the sub-national report (which deals with and compares the states), witnessed a dip in the ranking of Maharashtra and Delhi in 2016 vis-à-vis 2015. These are the states/cities (Mumbai and Delhi) sampled for the Ease of Doing Business ranking at country-to-country level and also the focus of much of the reforms in the last two years. On the other hand, in the sub-national report, it was heartening to see that the overall national implementation average for reforms at the state level stood at 48.93%, as compared to last year’s average of 32%. A remarkable improvement. 

The methodology of the report apart, ground reality in India is perhaps more complicated. The World Bank ranking is a country to country comparison, which requires a lot of assumptions to make comparisons possible. For instance, under Construction Permit, setting up of warehousing is considered across the world, but that too a warehouse that is used for general storage of books or stationery and not for any goods requiring any special conditions such as food or pharmaceuticals or any chemical. This means, the need is for more deep seated and broad based reforms than just those indicated in the Ease of Doing Business report.

The timing of the reforms is important, but proof of the pudding is in the eating. Some of the areas like paying taxes and trading across border were the subjects most dealt with in the last few months, even then India’s ranking didn’t change much this year on these fronts. We need to have a regular feedback mechanism from the industry/user to understand the real issues and for any new reform introduced as is suggested by the government. A case in point is the single window interface for trade (ICEGATE) introduced by the government, that integrates approvals and risk based frameworks of customs and nine departments to provide traders with a single online interface for imports. This measure has been well recognised in the World Bank report too. However, when FICCI was asked by the government to share industry’s experience on the same, we received a number of issues on what plagues the system. The integration is not complete and as a result despite being online a lot of human intervention is still required, leading to delays. Data transmission related to advance licence also leads to delays on the DGFT portal and in some cases the transmission fails, thereby forcing traders to apply again for the licence. (The detailed suggestion on this feedback has been submitted to Ministry of Commerce and Industry by FICCI). Similarly, despite the introduction of online system of NOC for the height of buildings/chimneys etc (NOCAS) by Ministry of Civil Aviation, pendency of applications is a major issue which can be resolved if there is a regular feedback mechanism. There are many other such cases.

The cost of doing business is also a major factor for investors. Our logistics cost continues to be one of the highest in the world. Lack of infrastructure at ports are resulting in delays and cost escalation, impacting the competitiveness of exports. For example, due to the lack of dedicated lanes for export of vehicles at ports, it takes six to eight hours to travel a distance of just half a kilometre. In road logistics, a lot has been done, but it can be made easier for industry by introducing an integrated system of permission for moving inter-state cargo, with a national grid for load chart of bridges and prior permission mapping. Permitting regional authorities to grant permissions for movement of cargo on national highways and many such measures would go a long way in providing “ease” for business.

This year’s report included a pilot indicator on public procurement regulations in which the report studied procurement in 78 countries in terms of accessibility, transparency, payment delays, bid security, etc. In the future, it may be more challenging for India to improve its ranking in case such areas are also looked at by the World Bank for India. The delays in the payments in our public procurement system are well known. More importantly, there are a host of other issues related to submission of voluminous tender documents every time, unilateral termination of contracts, guarantee/warranty and defect liability period, etc., that need separate discussions.

Having commented on the “ease of doing business” factors, it’s important to note that more important than and in addition to “ease”, it’s actually the overall business environment that matters even more. Business looks at returns on business, not just “ease”. In fact there are many countries in the World Bank report that score high on the “ease of doing business” index, but get hardly any investment. India, on the other hand, records one of the highest foreign direct investments and has been ranked third on the list of top prospective host economies for 2016-17 in the World Investment Report (WIR). Today, each of the 29 states vie for that pie of investment and it is this that drives their desire to improve on the “ease of doing business” in their state. This competitive spirit is very much desired, but needs to be accelerated, with more deep rooted reforms both at the state and Central levels.

A. Didar Singh is Secretary General, FICCI

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