The Pulse

India Rises in Ease of Doing Business Rankings, But Reforms Still Pending

India continues to lag in several factors, underscoring the need for further reforms.

India Rises in Ease of Doing Business Rankings, But Reforms Still Pending
Credit: CC0 image via Pixabay

When the World Bank unveiled the 2019 edition of its “Ease of Doing Business” (EODB) rankings, the government of India paid particular attention. Indeed, Indian Prime Minister Narendra Modi stated days before the new rankings were released that “I have always kept ease of doing business as my priority.” While India’s 23-rank jump in the index highlights the impact of reforms already completed by Modi, a look at India’s performance in the specific factors within the EODB index, particularly “Starting a Business,” and “Resolving Insolvency,” underscores the need for progress on incomplete reforms on the government’s agenda.

When the Modi-led government came to power in 2014, India was ranked as the 142nd-most competitive economy in the world by the World Bank. However, reforms such as the extending the validity of industrial licenses, as well as enacting the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), helped India’s ranking rise 65 places over the last four years. Today, India ranks as the easiest place to do business in South Asia and remains only behind China among the five BRICS nations.

India’s rise in the rankings in the 2019 edition can mostly be attributed to the passage of the GST and key improvements in “Dealing with Construction Permits,” where India rose from 181st last year to 52nd this year. However, a deeper look at the 10 factors that make up the EODB ranking highlights that India’s performance in other key sectors remains subpar. India ranks 108th in “Resolving Insolvency,” 137th in “Starting a Business,” and 163rd in “Enforcing Contracts.” Lack of progress on these factors are directly tied to reforms left incomplete by the government of India.

At the Wadhwani Chair in U.S.-India Policy Studies at CSIS, we track 30 key reforms on the Modi government’s agenda. According to the Modi Reform Scorecard, nine reforms have been completed while 21 remain incomplete. While the completion of nine reforms is indeed commendable and has contributed to India’s rapid rise in the EODB rankings, the lack of progress on most of these reforms has left India struggling on improving its business environment on “Starting a Business” and “Resolving Insolvency” in particular.

On “Starting a Business,” two key reforms on the Reform Scorecard remain incomplete. The 2017 report on the EODB noted that “it required 12.9 procedures in India to start a business.” Creating a one-stop shop for business clearances in India would be immensely beneficial to new businesses and would improve India’s rankings in this regard. However, this reform remains incomplete. The 2017 report also noted that it takes an average of 26 days for business owners to start a business in India. As such, the scorecard also highlights ensuring that business owners receive permits in 10 days or less is a key reform for improving India’s business environment. While there has been limited movement, such as the launch of a new online portal to incorporate Limited Liability Partnerships within this time, this reform, too, remains incomplete.

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On “Resolving Insolvency,” the government has fared better. One of the centerpieces of the Modi government’s accomplishments has been the passage of a new Insolvency and Bankruptcy Code, which mandates that insolvency proceedings must be resolved in 180 days, extendable by 90 days in some cases. However, bankruptcy courts have already extended the process beyond the 270 day deadline in several cases, undermining a key tenet of the reform. Moreover, financial services firms fall outside the ambit of the IBC, and so a separate mechanism remains to be created for bankruptcy procedures involving banks, in particular.

India’s 23-rank jump in the EODB index is both laudable and real. However, progress is mid-stream at best. A deeper look at the key factors that comprise the EODB rankings highlights how lack of progress on key reforms has left India struggling on key factors such as “Starting a Business” and “Resolving Insolvency.” As the government looks to continue improving its rankings in the EODB index, it should consider these crucial, incomplete reforms and ensure their implementation.

Aman Thakker is a Research Associate at the Wadhwani Chair in U.S.-India Policy Studies at CSIS.