The answer seems to be yes. India has achieved the feat of being among the Top 100 countries for Ease of Doing Business (EODB), according to the World Bank’s study this year. What needs more attention is the issue of “Cost of Doing Business”.
India ranks 100 in EODB, while China is at 78. If we deconstruct these numbers, we find that for Starting a Business, China ranks 93, and India is at 156 out of 190 countries. In the area of Registering Property, China is at 41 and India at 154, and in Enforcing Contracts, the respective positions are 5 and 164. These ranks crudely but clearly, show that India lags behind China in these parameters by an enormous margin. Here is a simple analysis of the same.
Table 1: Starting a Business
|Cost (% of per capita income)||0.6||17.6|
Even though the time taken to start a business in the largest business cities of China and India respectively is comparable, the number of procedures involved and the official cost of obtaining all the necessary clearances are not. Interestingly, six out of seven procedures required to set up a business in Shanghai are free of charge whereas, the same can be said for only five of the procedures in Mumbai. Moreover, since the per capita income of Shanghai is higher than in Mumbai, the actual official cost of starting a business is much higher in Mumbai, in absolute terms.
Next, let us look at Registering Property. Apart from the already high apparent official cost to register property in Mumbai, there seem to be inherent hidden costs as well. These costs are systematic in nature, and can be associated with a greater time taken for completing the procedures, double the number of mandatory procedures, and poor quality of land administration in Mumbai, as compared to Shanghai. Higher cost of obtaining land, including both official and hidden costs, tends to drive away business interests.
Table 2: Registering Property
|Cost (% of property value)||3.6||7.6|
|Quality of land administration index (QLA) (0-30)||19||9|
Another significant determinant of ease of doing business in a country is the framework for enforcing contracts. A laborious judicial system can often hamper business relations. In spite of a judicial structure that can be considered among the best-followed practices in the world, at 164, India needs to adjust its approach in order to overcome the challenges in this area, on a priority basis.
Table 3: Enforcing Contracts
|Cost (% of claim value)||15.1||31|
|Quality of Judicial Process index (QJP) (0-18)||15.5||10|
As India aims for another leap in the World Bank EODB rankings to reach the Top 50, it is imperative to urge policy reform in key areas that have immense scope for improvement and in turn, stimulate investment. According to the Global Competitiveness Report 2018, the legal and business environment of a country is one of the critical factors driving investor perspectives and their decision to invest.