India has recently moved 14 places to secure the 63rd position on the World Bank’s Ease of Doing Business (EoDB) ranking. While it has been an impressive move, the report does state that “India is not a place for starting a business.”
The recent Ease of Doing Business (EoDB) report by World Bank may show an improvement in India’s position, it still leaves to be said that the country is going through the worst economic slowdown in the last six years. Even higher government officials have admitted that there are still parameters on which work needs to be done. In four out of 10 parameters- starting a business, registering property, enforcing contracts and paying taxes- India has ranked below 100 among 190 countries.
The ranking on this Doing Business list is based on factors like how easy it is to start a new business, how business-friendly are the regulations, focus on the ease of getting construction permits along with access to credit and electricity. “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,” the report said.
One of the main reasons for improvement in India’s ranking this year goes to the successful implementation of the Insolvency and Bankruptcy Code. “Before the implementation of the reform, it was very burdensome for secured creditors to seize companies in default of their loans,” the report said.
“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 reorganisation plans, with the remaining cases still pending,” it added. The sharp drop in corporate income tax rate announced recently will also help improve India’s rank further.
However, this improvement in ranking is not indicative or representative of the ease of doing business in all of India as it just covers Mumbai and Delhi and is likely to include Kolkata and Chennai in the 2020 list. Even then it would just be the four metropolitan cities and would leave out a dozen cities and towns in India. The index wouldn’t be truly representative as the ease of doing business in India varies from city to city, from state to state as the laws implemented by the local, state and central administration vary.
Over the past few years, most economic indicators have been on a downward slide- GDP growth slumped to a six-year low of five percent and private consumption decelerated to an 18-quarter low of 3.1 pc in the June quarter. To boost the economy, finance minister Nirmala Sitharaman announced a series of measures, including cutting the corporate tax rate to 22 pc but it is still weak in follow up and the private investment has also slowed considerably along with exports. In the first half of 2019-20, exports at USD 159.6 billion were 2.4 pc below the USD 163.5 billion achieved in the first half of 2018-19.
The complexities in regulations for small companies and start-ups in particular are more complex in India as they have to obtain registrations from at least seven regulators and file some 18 to 69 returns depending on business type. The report also showed that an Indian business spends 252 hours paying taxes, an improvement from last year’s 275. But Chinese firms spend 138 hours paying taxes while a business in the best performing country Singapore spends 49 hours. This somewhat may explain why the euphoria over the corporate tax rate cut announced recently has died down so fast.
With most of India’s businesses being micro-enterprises, like the neighbouring grocer’s store or small garments factory- they are clearly not target of the EODB provisions. Few tax rebates are enjoyed by them and they also do benefit from the diluted labour or environmental laws. “While it is great news for India this reports doesn’t really affect small or micro businesses like ours. I run a small business of garments from home, so the land, electricity and loan from government schemes do not apply to us. But when demonetisation took place, it was us- the small businesses that were affected the most,” says Debashis Paul, a garment trader from Kolkata.
“With demonetisation, business was affected that year due to the stipulations on cash. And even before we recovered from that GST was introduced. While customers did come back, but they are now buying less and also not opting for the costly items as it will incur more tax which affects our revenue,” he added.
Similar thoughts were iterated by Kalyan, who has a business of leather bags and accessories. “This year’s economic slowdown has also affected the market. We have the best sale of the year during Durga Puja but it was a bit low this year compared to the earlier ones,” he said. Another trader of sari from Esplanade, the market hub of Kolkata, had also mentioned that demonetisation led to people moving on to online shopping which affected the standalone businesses like his and made them to opt for different ways to meet up the challenges
Even though with such challenges still affecting the small traders in the country, India is now targeting to break into the top 25 in the next five years. While this may seem like a great target but it needs to be highlighted that who is actually benefiting from it as the vast majority of the Indian business who are small or micro don’t seem to be on the list.