Every year the World Bank compiles a Doing Business index for 190 countries and ranks them on a set of 10 indicators that cover different aspects of the business cycle. In India, firms and businesses in Mumbai and Delhi are surveyed on these indicators before arriving at the rankings.
Frequently Asked Questions
REFORMS
1. What are the top reforms this year which DB 2018 has recognized India for? What in your view was the biggest achievement for India this year?
This year India made impressive strides and joined the 10 top ten most improved economies for the first time. Doing Business 2018 records 8 reforms in India making it easier to do business. It is also the only economy in South Asia to be part of the global list of the 10 top improvers this year.
More specifically, India implemented substantive changes in the following areas in 2016/17:
· Starting a business: India made starting a business faster by merging the applications for the Permanent Account Number (PAN) and the Tax Account Number (TAN) and by improving the online application system. Mumbai also made starting a business faster by merging the applications for value added tax and the Profession Tax (PT).
· Dealing with construction permits: India reduced the number of procedures and time required to obtain a building permit by implementing an online system that has streamlined the process at the Municipality of New Delhi and Municipality of Greater Mumbai.
- Getting credit: India strengthened access to credit by amending the rules on priority of secured creditors outside reorganization proceedings and by adopting a new law on insolvency that provides a time limit and clear grounds for relief to the automatic stay for secured creditors during reorganization procedures. This reform impacts the data for both Mumbai and Delhi.
· Protecting minority investors: Protections for minority investors were strengthened by increasing the remedies available in cases of prejudicial transactions between interested parties. This reform applies to both Delhi and Mumbai.
· Paying taxes: In both Delhi and Mumbai, paying taxes was made easier by requiring payments to the Employees Provident Fund to be made electronically, and introducing administrative measures that make it easier to comply with corporate income tax regulations.
· Trading across borders: In Mumbai, reducing the time taken to comply with import regulations at Nhava Sheva port made it much quicker to trade across borders. In Delhi and Mumbai, the elimination of merchant overtime fees and the increased use of electronic and mobile platforms reduced the time taken to comply with both export and import regulations.
· Enforcing contracts: In both Delhi and Mumbai, the introduction of the National Judicial Data Grid made it possible to generate case management reports on local courts, thereby making it easier to enforce contracts.
· Resolving insolvency: India made resolving insolvency easier by adopting a new insolvency and bankruptcy code that introduced a reorganization procedure for corporate debtors and facilitated continuation of the debtor’s business during insolvency proceedings. This reform applies to both Delhi and Mumbai.
2. What were the reasons for India increasing its rank by this margin?
- Persistence pays; the sustained efforts and commitment of the Govt of India have paid off and India this year became one of the top 10 ‘improvers’. Also important to remember is that this year’s improvement is not just due to the efforts of the past year, but the cumulative impact of efforts over the past three years.
- Improving on the Doing Business rankings is not an easy task, especially for an economy that is as large and complex as India’s. It requires not just new laws or new online systems; it also requires significant business process reengineering and changing the perceptions of the users of these systems. This is perhaps the most difficult task, as it requires changing mindsets, both within state institutions as well as that of the private sector.
- This year, we have also seen the Government of India accommodate user feedback to guide the design of the reforms. The Government introduced feedback surveys to understand user experience with reforms, and also tried innovations that can be applied globally. The Municipal Corporation of Delhi has, for example, created a WhatsApp group for its users to raise issues and seek resolution. This exercise has allowed the government to react quickly to issues faced by its users, as well as demonstrate their willingness to improve to its users. Both these factors are critical in changing the mindsets of both public and private officials.
3. Is the improvement in rank due to the introduction of Goods and Services Tax (GST)?
The introduction of GST on July 1, 2017 brought important changes to India’s tax regime. However, since data for Paying Taxes indicator in Doing Business 2018 was collected from January-December 2016, the impact of GST is yet to be measured.
Having said that, Doing Business 2018 did record a substantive improvement in paying taxes. For instance, while the system for electronic payments to the Employees Provident Fund and state insurance schemes was available from April 2015, most taxpayers began making payments online only in 2016.
In addition, a set of administrative reforms that reduced the time taken to prepare and pay corporate income tax came into effect on January 1, 2016. The impact of this reform is therefore still to be measured.
4. Examples of other countries who have jumped like India as a reward for consistency?
This year, India made impressive strides and joined the 10 top improvers for the first time. So did El Salvador, Malawi, Nigeria and Thailand.
Of the 10 economies showing the most improvement in performance on the Doing Business indicators, Brunei Darussalam showed the largest advance toward the global good practice frontier (see table below).
Note: Economies are selected based on the number of reforms and ranked on how much their distance to frontier (DTF) score improved. The choice of the most improved economies is determined by the largest improvements in the distance to frontier score among those with at least three reforms.
ECONOMIC SITUATION AND ROLE OF GOVERNMENT
5. Can you explain why India’s rankings show such a remarkable jump even as the economy is going through a slowdown?
- It is important to remember what Doing Business measures and what it does not. Doing Business measures business regulations and their enforcements for local firms.
- It does not measure the full range of factors, policies and institutions that could affect the quality of an economy’s competitiveness. It does not, for example, capture aspects of macroeconomic stability, development of the financial system, market size, or the quality of the labor force.
- The focus is deliberately narrow to allow the comparability of 190 economies. Ensuring comparability of the data across a global set of economies is a central consideration for the Doing Business indicators.
- However, the essential fact remains that this performance can signal to the business community that India is increasingly improving its standing as an attractive business destination.
6. Doing Business 2018 has recognized India for the Insolvency and Bankruptcy Code 2016. Can you elaborate what are the changes that businesses have felt as a result of this code?
Following the adoption of a new law, it is common to see practical results after several years, as it takes time for judges, lawyers and insolvency practitioners to become accustomed to it. Nonetheless, the Insolvency and Bankruptcy Code and the regulations implementing it have introduced several positive changes to the insolvency framework in India which will bear fruit over time. These changes include:
· Giving commercial entities the option to reorganize as an alternative to liquidation.
· Introducing time limits for the corporate insolvency process to be completed.
· Allowing the debtor to receive new financing after the commencement of insolvency proceedings. And, granting creditors who provide financing after the commencement of insolvency proceedings priority over existing creditors.
· Clarifying and streamlining all provisions related to liquidation.
· Creating a new institutional framework to register and regulate entities dealing with insolvency and bankruptcy.
For Doing Business 2018, data for resolving insolvency refer to June 2, 2016-June 1, 2017. During this period, no cases were completed before the National Company Law Tribunal under the new Insolvency and Bankruptcy Code.
CHALLENGES AHEAD
7. Does this improvement mean that India is on track to achieve a rank of top 50 by next year? What can India do to maintain this momentum of reform?
· India has an overall distance-to-frontier score of 60.76, meaning that it is about two-third of the way towards global good practice. There is therefore room for further improvement in the years to come. Distance-to-frontier score is the absolute measure of a country’s progress towards best practice in business regulation. A higher score indicates a more efficient business environment and stronger legal institutions.
- Reforms in indicators like Enforcing Contracts and Registering Property entail significant and sustained efforts, because these reforms require concerted efforts by a host of public and private entities, besides legal amendments of course. It is therefore critical for India to begin planning for and implementing reforms in these complex indicators to ensure that the momentum of reform can be sustained.
- We have noted that complex federal countries like India benefit in the DB rankings from high-level ownership and coordination of the reform agenda. Like Prime Minister Modi’s leadership and guidance for the Doing Business agenda in India, Russia’s Agency for Special Initiatives and Mexico’s COFEMER both feature direct ownership by the highest levels of government, which has been instrumental in implementing reforms that led to significant improvements in their rankings. An empowered reform coordination mechanism could help India make longer strides towards the frontier of good practice. We at the World Bank Group stand ready to help India in this endeavor.
METHODOLOGY
8. World Bank surveys only Mumbai and Delhi to give its ranking. Is this methodology likely to change in the near future?
Since its inception, Doing Business has focused on the largest business city of each economy, taking it as a proxy for the entire national territory. In Doing Business 2015, the team expanded the sample of cities in large economies, defined as those with a population of more than 100 million as of 2013: Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation and the United States. For each of these economies the sample now includes the second largest business city.
As of now, there is no definite plan to further expand the cities included in the global Doing Business report, but India may want the World Bank to conduct a subnational study to capture and review the differences in business regulations and their enforcement across locations within the country.