India has successively scaled greater heights in the World Bank’s Ease of Doing Business ranking jumping from 142 in the year 2014 to 63 in the year 2019. As per the latest report, we are one of the top 10 improvers in the world. Under the leadership of PM Modi, the journey of India is moving closer to the global best practices. Here, we take a look at some of the transformative reforms by the Modi government that impact EoDB.
Ease of Starting a Business
The cost taken to get a business up and running has been reduced to just 18 days as of 2019. In 2014, it was 30 days.
Some of the measures include simplifying the process of starting a business. The Modi government has eliminated the minimum capital requirement for public and private companies under the Companies (Amendment) Act, 2015.
Further simplifying the process of starting a business, the government introduced a single form SPICe (Simplified Proforma for Incorporating Company electronically) by integrating various other registration forms.
Ease of Dealing with Construction Permits
With the introduction of the risk-based classification of the building, the Modi government has fast-tracked building plan approval, inspection, and grant of occupancy-cum-completion certificate. Reducing the bureaucratic hurdles, multiple inspections at completion stage have been replaced by single joint inspection.
Road cutting and restoration for water and sewer connections have been simplified making it easy to obtain basic necessities for the smooth functioning of businesses. Thus, the cost (% of warehouse value) of obtaining construction permits has reduced from over 28 % in 2014 to 4% in 2019. Consequent to the steps taken by the Modi government over the past 5 years have leaped India’s subindices rank from 184 in 2014 to 27 in 2019.
Ease of Trading Across Borders
Several steps have been taken by the Modi government such as the implementation of electronic sealing of containers, up-gradation of port infrastructure and allowing electronic submission of supporting documents with digital signatures which have a positive bearing on the ease of trading across borders. Only about 5% of goods are physically inspected by enhancement of risk-based inspections for both imports and exports. Advance Bill of Entry has been adopted which allows importers to start the process of customs clearance before the arrival of the vessel consequently reducing the clearance time. e-Sanchit, an online application system allows traders to submit all supporting documents electronically with digital signatures.
With these steps, India has made a remarkable improvement in the subindices from rank 126 in 2014 to 68 in 2019.
Ease of Resolving Insolvency
The Modi government adopted Insolvency and Bankruptcy Code 2016 (IBC). It introduced a reorganization procedure for corporate debtors and facilitated the continuation of the debtors’ business during insolvency proceedings. Keeping liquidation as a last resort, the law seeks a time-bound resolution process. For effective handling of restructuring and insolvency proceedings, professional institutions have been established. The IBC has done away with lengthy and burdensome procedures that lasted for almost 4.3 years earlier, providing an effective tool to restore the financial viability of businesses.
The EoDB 2020 report points out, “since its implementation, more than 2,000 companies have used the new law. Of these, about 470 have commenced liquidation and more than 120 have approved reorganization plans.” Moreover, “reorganization has become the most likely procedure for viable companies as measured by Doing Business, increasing the overall recovery rate from 27 to 72 cents on the dollar.”
The importance of the reform gets strengthened given the fact that the subindices rank has improved from 137 in 2014 to 52 in 2019.
Apart from these major reforms, other reforms for getting electricity getting credit, paying taxes, enforcing contracts, registering property and protecting minority investors have a cumulative effect on improved Ease of Doing Bussiness in India. To quote from the EoDB 2020 report:
“As in other economies on the list of 10 top improvers, leaders of India and China adopted the Doing Business indicators as a core component of their reform strategies. Prime Minister Narendra Modi’s “Make in India” campaign focused on attracting foreign investment, boosting the private sector—manufacturing in particular—and enhancing the country’s overall competitiveness. The government turned to the Doing Business indicators to show investors India’s commitment to reform and to demonstrate tangible progress. In 2015 the government’s goal was to join the 50 top economies on the ease of doing business ranking by 2020. The administration’s reform efforts targeted all of the areas measured by Doing Business, with a focus on paying taxes, trading across borders, and resolving insolvency. The country has made a substantial leap upward, raising its ease of doing business ranking from 130 in Doing Business 2016 to 63 in Doing Business 2020.”