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Ease of business: Modi promised a red carpet but wound up with red tape

Ashok V Desai | Updated on: 15 June 2015, 1:11 IST
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The problem

  • In India, on average, it takes 46 steps spanning 3 years and 10 months to enforce a contract.
  • It takes 4.3 years to resolve an insolvency.
  • Creditors get only 25.7% of the loan back.
  • It takes 105 days to get an electricity connection.
  • It takes 25 procedures spanning 186 days to get a construction permit. To get it registered needs 7 procedures and 47 days more.

The promise

  • PM Modi had promised to improve \'ease of business\' in India.

The inaction

  • Doing business in India hasn\'t become any easier under the Modi government.
  • World Bank ranked India at 142 out of 189 countries in terms of business-friendliness.
  • The government has slammed the study saying that the sample used is limited.
  • But foreign investors are likely to take the report seriously which can impact the inflow of investment into India.

The solution

  • Instead of shooting the messenger, the Modi government should tackle the problems raised by the report.
  • It also needs to do more to improve economic governance in the country.
  • Modi has the right intent in wanting to reform the economy; he needs to know where to start.

If one has bad teeth, one should brush them. That, however, is not the way of the Indian government. When the World Bank relegated India last November to the 142nd rank in its list of 189 countries assessed for ease of doing business, the government immediately pointed to the limited evidence on which the assessment was based.

"India has been objecting to the findings of the World Bank's Doing Business Report for a number of reasons...Until Doing Business Report, 2014, the study was conducted only in Mumbai. In Doing Business Report, 2015, Delhi has been added as the second city ... a study conducted at two urban centres of India cannot be representative of a vast country like India," Commerce and Industry Minister Nirmala Sitharaman said.

Round 1: Nirmala Sitharaman vs the World Bank

She is right on that point. The World Bank is thrifty, since all its money comes from pennywise members like India. So to compile its reports, it goes and asks a few professionals in each country's biggest business city. After India's protest, it added a second city.

Sitharaman also said that the World Bank's findings were based on responses from professional firms which were not representative of India's boudoir: how could it ignore the panwallahs and roasted peanutwallahs and expect to get fair answers?

The minister is known for her quick, sharp repartees; she gave the World Bank a taste of her chilli sauce. To be fair, she was probably only reading out the notes placed before her by her civil servants.

They are good at taking action: as soon as they receive something from the Fund or the Bank, they clothe it in a file, cover it with a note on how to reply, and send it off per chuprassy to the minister.

Sitharaman is a quick learner: she learnt that her job as minister was to talk, not to act. The wisdom comes from the bottom of the bureaucratic well; it only finds a crisp and clear voice in her.

What the World Bank did and did not say

The World Bank could have asked her if she expected it to be easier to do business in Bhubaneswar or Thiruvananthapuram than in Delhi and Bombay. But it does not play the game of repartees; it prefers to maintain reasonably good relations with feisty ministers.

What did it say that got the goat of the honourable minister of state (independent charge) for industry and commerce? The World Bank is in the business of giving loans to governments of poor countries for development.

Unfortunately for it, more and more poor countries learnt to manage their balance of payments and ceased to borrow from it: the east Asian countries went off in the 1960s, oil-rich countries in the 1970s, and finally India after its 1991 reforms.

So World Bank had to develop new activities. One of them is the annual report on the ease of doing business, which it pioneered in 2004.

The government has criticised the World Bank report for being limited to Delhi and Mumbai

The 2014 report, which enraged the minister, was not all that uncomplimentary. It said, for example, that India had done 17 reforms between 2005 and 2013, and improved its position in the rankings by 10.6 points; but then, China had done 18 reforms and improved its position by 15.9 points.

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The government also seems to be getting over its hypersensitivity and beginning to see the point: that the Doing Business Report has information that foreign investors would take seriously, and that it can improve India's attractiveness as an investment destination by tackling the infirmities pointed out by the report.

Finance Minister Arun Jaitley gave a long list in Rajya Sabha of the steps taken by the government - which also suggested that he had not quite read the Doing Business Report.

The message, not the messenger

It is not the annual reports that matter; it is the issues they raise. They matter to India, and they are relevant to the prime minister's ambition of 'Making in India'.

The World Bank will gladly give the government its questionnaire; it should give it to all the chambers of commerce and industry associations and ask them to get replies from their members. It should make up its own reports for each industry and each region, and give them publicity.

The Prime Minister has great plans of reforming the state, but has no clue where to start. The World Bank has shown him where; now he should get on its horse and charge.

It would be even better if he redressed the weaknesses that World Bank has pointed out. India's rank is 186 in enforcing contracts: it takes 46 steps and three years, 10 months on the average. Does Sitharaman doubt this? Does she not know why legal processes take so long in India? Should not her government act on it?

World Bank says that it takes 4.3 years to resolve an insolvency, and that creditors get 25.7% on average: the bankrupt debtors have looted or otherwise lost the rest. It estimates that it takes 105 days on average to get an electricity connection, and costs 4.877 times the country's per capita income.

Registries are even worse than electricity companies: it involves 25 procedures and takes 186 days on average to get a construction permit, and once the building is ready, it takes 7 procedures and 47 days to get it registered.

The PM has great plans of reforming the state, but has no clue where to start

But we are not bad at everything. We are quite good at protecting minority shareholders; our credit institutions also work fairly well. The government should stop being so paranoid; it should use the page or less World Bank gives India in the Doing Business report, and use it to improve our economic governance. That may or may not attract some foreign investors; but it will make the life of Indian businessmen a lot easier.

The less time they have to waste in dealing with a dysfunctional government, the more time they will spend in doing business, producing things and exporting them. The prime minister has an ambition of making this country great; greatness is measured, not by the complexity and arbitrariness of a nation's government, but by the prosperity of its citizens.

The views expressed here are personal and do not reflect those of the organisation.

First published: 23 May 2015, 15:46 IST
 
Ashok V Desai @CatchNews

A senior economist and commentator on economic policy and a pioneer of economic liberalisation in India, Desai was also Chief Economic Adviser to the government. Known for his iconoclastic, bold and original views on the economy, he has taught, conducted research, and coordinated large research projects both in India and abroad.

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