The Ease of Doing Business is an index that is published by the World Bank that measures aggregate figures that include different parameters which define the ease of doing business in a country. India has emerged as one of the most appealing countries, not only for investments but also for doing business. In the 'World Bank's Ease of Doing Business Ranking 2020,' India leaped from 142nd (2014) to 63rd (2019). Following an examination into "data inconsistencies" in its 2018 and 2020 editions (published in 2017 and 2019, respectively) and suspected "ethical problems" involving bank staff, the World Bank announced it will stop publishing the "Doing Business report." This article discusses the topic of ease of doing business which is important for UPSC examination.

What is Ease of Doing Business?

• It is a parameter that is ascertained by the distance to frontier scores of different economies.
• The regulatory test practice is used by the distance to frontier score for doing business as the parameter and benchmark economies according to that parameter.
• The various indicators involved in the formation of the statistic ‘Ease of doing business,’ a distance to frontier score is computed and all the scores are compiled together.
• This compiled score becomes the Ease of doing business index.
• The research presents data for 190 economies and aggregates information from 10 areas of business regulation:
  • Starting a Business of all
  • Dealing with Construction Permits
  • Getting Electricity
  • Registering Property
  • Getting Credit
  • Protecting Minority Investors
  • Paying Taxes
  • Trading across Borders
  • Enforcing Contracts
  • Resolving Insolvency
• Rankings and weights on each of the mentioned parameters are used to develop an overall EoDB ranking. A high EoDB ranking means the regulatory environment is more conducive for starting and operating businesses.

Benefits of Ease of Doing Business

• The country's image in the international market improves. During the reference period, the Government of India adopted 37 changes and wishes to assess their performance.
• The government is working to liberalize the business environment, and these measures are paying off.
• It transforms the country's image in the eyes of the global market into a desirable place to do business.
• Investors are encouraged to use the rankings as a guide when making selections. As a result, the higher the report's ranking, the higher the favorability.
• The performance of the Government of India in terms of GST implementation will provide an answer to the question of how business-friendly this reform is (GST was not included in last year's ranking, and this year's ranking could not fully account for GST because the deadline for tax-related reforms was December 31st, and GST had only been in effect for six months).
• In the 1990s, industry growth averaged around 7%, and in the last decade, it grew to 7.4%. The global financial crisis put pressure on the manufacturing and export sectors at the conclusion of it. The administration hopes to encourage domestic and foreign investment into the industrial sector by improving the regulatory environment.

Parameters Used For Measuring Ease of Doing Business

• Starting a Business of all: Procedures, time, cost, and minimum capital to open a new business
• Dealing with Construction Permits: Procedures, time, and cost to build a warehouse to deal with construction permits
• Getting Electricity: Procedures, time, and cost required for an enterprise to obtain a permanent electricity connection for a newly constructed warehouse, etc.
• Registering Property: In order to register a property procedures, time, and cost are required.
• Getting Credit: Strengthening of legal rights index, depth of credit information index
• Protecting Minority Investors: Indices on the extent of disclosure, the extent of director liability, and ease of shareholder suits in order to ensure the protection of investors
• Paying Taxes: Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as a share of gross profit
• Trading across Borders: Number of documents, cost, and time necessary to export and import to ensure smooth trading across borders
• Enforcing Contracts: Procedures, time, and cost to enforce a debt contract
• Resolving Insolvency: The time, cost, and recovery rate (%) under a bankruptcy proceeding

Limitations

• Even though India has climbed to 63rd place, it still takes 17 days to start a firm, compared to only 12 days in the OECD.
• The IBC is undoubtedly a much-needed reform, although it is still in its early stages. It is currently experiencing some efficiency difficulties.
• The length of time it took to resolve the issue exceeded the time limit set forth in the code.
• Infrastructure support is lacking.
• The NCLT/NCLAT has become a stumbling block for dissenting financial and operational creditors.
• Many of the provisions of the law have been interpreted by the judiciary.
• Debt recovery is still on the low end of the scale.
• GST filing: the time it takes to file tax returns has increased from 214 to 275.4 hours. It is necessary to reduce this.
• Despite the fact that the government has passed legislation establishing commercial courts, the report states that the legal system is slow and that it takes more than four years to enforce a contract.
• To address concerns with contract enforcement, the government modified the Commercial Courts Act and made it easier to establish commercial courts in 250 districts. This could help the rankings increase even more in the future year.
• Due to the lack of a coordinated land purchase framework in India, land acquisition has become one of the most difficult challenges for corporations.
• India's logistics infrastructure must be improved in order to provide cost-effective and efficient logistics. It will contribute to the Make in India campaign's success.
• India is ranked 30th in the World Economic Forum's Global Manufacturing Index, with human capital and sustainable energy as two of the country's major challenges. In the aforementioned report, India was placed far lower than its competitors such as China, Thailand, and others.

Government initiatives to improve EoDB

• For company incorporation, the Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), and Director Identification Number (DIN) have all been integrated into a single form (SPICe).
• For corporations with an allowed capital of up to Rs. 15 lakh, the incorporation charge is waived.
• In Mumbai and Delhi, there is no obligation for inspection before registration under the Shops and Establishment Act.
• The necessity for a common company seal was removed from the Companies Act of 1911.
• Between the Doing Business 2018 and 2020 reports, the period for construction permits decreased from 128.5 to 98 days in Mumbai and from 157.5 to 113.5 days in Delhi.
• In Mumbai, the total number of procedures was cut to 19 while in Delhi, it was lowered to 11.
• The number of obligatory documentation required for customs purposes has been decreased to three for both import and export of products.
• Traders can file all paperwork electronically using e-Sanchit, an online application system.
• In Mumbai and Delhi, Commercial Courts and the Appellate Division of High Courts have been established.
• The National Judicial Data Grid (NJDG) offers case data from courts around the country, including case registration, cause lists, case status, and orders/judgments. Since 2015, the NJDG has been open to the public.
• If no Right of Way (RoW) is necessary, electricity is connected within 7 days; if RoW is required, it is connected within 15 days.
• In both Delhi and Mumbai, all sub-registrar offices have been computerized, and their data have been connected with the Land Records Department.
• The Insolvency and Bankruptcy Code of 2016 has given insolvency resolution in India new dimensions. It is India's first comprehensive corporate insolvency legislation.
• For mid-sized businesses, the corporate tax rate will be reduced from 30% to 25%.
• Domestic businesses can take advantage of a 22% tax rate (effective tax rate: 25.17% inclusive of surcharge and cess). This type of business is not eligible for any tax breaks or exemptions. These businesses are exempt from paying the Minimum Alternate Tax (MAT).
• For new domestic manufacturing enterprises, the tax rate is now 15%. (17.01% inclusive of surcharge and cess).

Conclusion

The Ease of Doing Business (EoDB) index is a ranking system that indicates better, simpler, regulations for businesses and stronger protections of property rights. It removes red-tapism and other complex restrictions in doing business that ultimately leads to the growth of the economy.

FAQs

MCQs

1. What organization is responsible for publishing the 'Ease of Doing Business' index?

A) International Monetary Fund (IMF)
B) World Bank
C) World Economic Forum
D) United Nations

2. Which area of business operations is evaluated in the Ease of Doing Business index?

A) Tourism
B) Starting a business
C) Agricultural subsidies
D) Cultural heritage

3. Which reform has contributed to India’s improvement in the Ease of Doing Business ranking?

A) Increasing import duties
B) Simplifying tax procedures
C) Restricting foreign investment
D) Imposing more permits for startups

4. What is the main purpose of the Ease of Doing Business index?

A) To assess a country’s GDP
B) To measure tourism potential
C) To evaluate business regulations
D) To rank cultural practices

5. Which of the following factors does NOT contribute to the Ease of Doing Business ranking?

A) Getting electricity
B) Registering property
C) National defense spending
D) Trading across borders

GS Mains Questions and Model Answers

Q1: Analyze the impact of India’s improvement in the Ease of Doing Business ranking on its economic growth.

Answer: India’s improvement in the Ease of Doing Business ranking has had a positive impact on its economic growth by enhancing the country’s attractiveness to foreign investors and boosting domestic entrepreneurial activity. Reforms such as simplifying the process of starting a business, digitizing tax payments, and streamlining construction permits have contributed to a more business-friendly environment. This progress has encouraged investment in key sectors, leading to job creation and increased economic output. However, challenges such as bureaucratic hurdles and regional disparities remain. Addressing these issues and ensuring that reforms reach all parts of the country will be essential for sustaining economic growth and making further advancements in the index.

Q2: Discuss the challenges that India faces in further improving its position in the Ease of Doing Business index.

Answer: While India has made significant strides in improving its Ease of Doing Business ranking, several challenges persist. These include bureaucratic inefficiencies, complex regulatory frameworks, and uneven implementation of reforms across states. Additionally, issues such as delays in land acquisition, inadequate infrastructure, and difficulties in enforcing contracts pose significant barriers. To overcome these challenges, India needs to ensure that regulatory processes are uniformly implemented, reduce red tape, and enhance the efficiency of legal and administrative mechanisms. Strengthening digital infrastructure and providing adequate training for officials involved in business regulation can also facilitate further improvements.

Q3: Evaluate the role of digital reforms in enhancing India’s Ease of Doing Business environment.

Answer: Digital reforms have played a crucial role in enhancing India’s Ease of Doing Business environment by streamlining various processes and making them more transparent. Initiatives such as the digitization of tax systems, online business registration, and electronic payment systems have simplified procedures for businesses and reduced the time and cost involved in compliance. These reforms have helped improve India’s position in the global rankings and have facilitated a more predictable and efficient business environment. However, to maximize the impact of these digital reforms, it is essential to address issues such as digital literacy, internet connectivity in remote areas, and cybersecurity. Ensuring that these reforms are accessible and effectively implemented across all states will further strengthen India’s ease of doing business.

Previous Year Questions on Ease of Doing Business

1. UPSC CSE Prelims 2020:

Question: The 'Ease of Doing Business' index is published by which organization?

A) International Labour Organization
B) World Economic Forum
C) World Bank
D) United Nations Development Programme

Answer: (C)

Explanation: The 'Ease of Doing Business' index is published by the World Bank to assess the regulatory environment of countries and its conduciveness to business operations.

2. UPSC CSE Mains 2018 (GS Paper 3):

Question: "Critically examine the significance of the Ease of Doing Business ranking in influencing economic policies in India."

Answer: The Ease of Doing Business ranking significantly influences economic policies in India by highlighting the areas that require reform to create a more conducive business environment. Improved rankings can boost investor confidence and signal to the global community that India is committed to fostering economic growth through policy reforms. This has led to the government prioritizing ease of doing business initiatives, such as digitization of business processes and tax simplification. However, while the rankings provide a useful benchmark, they do not capture the entire business climate, especially informal sector challenges and regional disparities. Policymakers must balance reforms that cater to both global investors and domestic enterprises to achieve sustainable and inclusive growth.