It is still not easy doing business in India

K. Ram Kumar Updated - January 17, 2012 at 09:42 PM.

The Congress-led UPA Government needs to get its act together on economic reforms as even smaller countries in the South Asian region — Maldives, Sri Lanka, Pakistan, Nepal, and Bangladesh — have been ranked higher than India in the World Bank's latest ‘Ease of Doing Business' rankings.

Only Bhutan and Afghanistan trail India in the South Asian region rankings.

Though India has moved up seven places to 132 this year, from 139 last year in the overall ease of doing business rankings, which is based on 10 parameters, it brings little solace as the country needs to attract almost $1 trillion of foreign capital in the next five years to build up infrastructure such as roads, ports, airports, power projects, irrigation, water supply and sewerage projects.

Out of the 183 economies that have been ranked for ease of doing business, the top ten are – Singapore, Hong Kong, New Zealand, the US, Denmark, Norway, the UK, South Korea, Iceland and Ireland.

Asian economic power house China's ranking has dropped from 87 last year to 91 this year.

India's overall ranking has improved solely due to improvement in rankings in three parameters — getting electricity (ranked 109 last year to 98 this year), paying taxes (165 to 147), and resolving insolvency (140 to 128).

However, rankings in the case of three parameters have dipped — registering property (96 to 97), getting credit (37 to 40), protecting investors (44 to 46), and trading across borders (107 to 109).

There is no change in rankings when it comes to starting a business (166), dealing with construction permits (181), and enforcing contracts (182).

“The Government has to act fast. It has to shrug off the current perception of policy paralysis and take all stakeholders – allies as well as opposition parties — into confidence to push through key economic reforms.

“That even Pakistan, Bangladesh and Nepal fare better than India in the ease of doing business ranking is a telling commentary that policy making leaves a lot to be desired,” said an economist with a public sector bank.

Paying Taxes

The total tax rate (as a percentage of profit) at 61.8 per cent is high in India compared with 44.4 per cent in South Asia and 42.7 per cent in OECD countries. The total tax rate measures the amount of taxes and mandatory contributions payable by the business in the second year of operation, expressed as a share of commercial profits.

Protecting investors

When it comes to the Strength of Investor Protection Index (this index is an average of the Extent of Disclosure index, the Extent of Director Liability index, and the Ease of Shareholder suit index), on a 0-10 scale,

India has a score of 6, the same as that of OECD. In the case of South Asia, the score is 5.

Starting a business

The total number of procedures required to register a firm in India is 12, South Asia: 7 and OECD: 5.

The total number of days required to register a firm in India is 29, South Asia 23, and OECD 13.

The cost (recorded as a percentage of the economy's income per capita) incurred for starting a business in India is 46.8 per cent, South Asia: 21.6 per cent, and OECD: 4.7 per cent.

The paid-in minimum capital requirement, which reflects the amount that the entrepreneur needs to deposit in a bank or with a notary before registration and up to three months following incorporation and is recorded as a percentage of the economy's income per capita, in India is 149.6 per cent; South Asia 19.1 per cent and OECD 14.1 per cent.

kram@thehindu.co.in

Published on January 17, 2012 15:57