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Ease of doing business: Niti Aayog presents an alternative view to investors

Catch Team | Updated on: 29 August 2017, 20:27 IST
(Udit Kulshrestha/Bloomberg/Getty Images)

To counter India's ranking in World Bank’s ease of doing business report that rates India at 130 out of 190 economies, Niti Aayog has prepared its own report to push for an alternative ranking on India's business environment.

Ever since coming to power, the Narendra Modi government has aggressively pushed ease of doing business in India, and promised to take India to the 50th spot in the World Bank's ranking within three years.

The many differences

Even as that target seems like a far cry, an indigenous survey - much larger in scope - reveals a lot of things about the Indian economy that the World Bank survey misses.

For example, the Niti Aayog survey suggests that it takes 118 days on an average to set up a business in India, whereas the World Bank report, released in 2016 showed that the time take to set up a business in India is just 26 days.

Similarly, according to the Niti Aayog report dealing with construction permits took 75.5 days for non-start up companies as compared to World Bank's data that reports it at 164 days.

When it comes to getting an electricity connection, the Niti Aayog suggests companies in India take a duration of 52 days, which is longer than the World Bank data that keeps it at 47 days.

A nuanced analysis

On many parameters, the Niti Aayog report deviates from World Bank's procedure and has presented a more nuanced analysis.

For example, World Bank has a category called 'getting credit' that ranks India at the 44th position in the world. However in the report, Niti Aayog has presented the data in terms of how many companies in India access government financial institutions to get credit.

“According to the survey, about 54% firms had taken a loan from a financial institution. Around 23% enterprises said that they had approached a government institution for finance. There appears to be scope for increasing the share of financial institutions in finance,” the report says.

Another feature added by Niti Aayog in its report is bifurcating enterprises on the basis of their operations in high-growth and low growth states. The data helps understand where the new enterprises are willing to set up their businesses.

“26% of all enterprises in high-growth states are below the age of 10 whereas 22% of all enterprises in low-growth states are below this age. While the share of enterprises in high-growth states in the overall sample is 59%, among enterprises less than two years and those between ages two and five years, the share is 77% and 69%, respectively,” the survey says.

The report goes on to establish that “firms reporting that they did not face any obstacles for starting a business, getting land and construction permits, environmental approvals, labour related approvals, infrastructure, and for tax related processes was much higher in high-growth states compared to low growth states.”

In the end, the survey points out the troubles of large companies in the country, that face more regulatory hurdles compared to smaller firms. “The survey has shown that in several instances larger firms perceive greater regulatory obstacles compared to smaller firms despite them likely to have greater capacity to absorb the compliance costs. This state of affairs discourages smaller firms from growing larger,” the report adds.

The report prepared by the Niti Aayog is extensive and looks at more parameters than the World Bank report. However, it will require a few years before global investors begin to trust the Indian perspective before taking investment decisions.

First published: 29 August 2017, 20:27 IST
 
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