It is released annually by World Bank. A higher ranking of country in this list means that its regulatory
environment is more conducive and favourable for undertaking business. Ranking of country is based
on 10 indicators, each having equal weightage. Distance to Frontier (DTF) score is calculated for each indicator that shows the gap of an economy to the global best practice. The overall DTF score is weighted average of scores for all the indicators.
The 10 indicators are as follows:
1.Starting a business
2. Dealing with construction permits
3. Getting electricity
4. Registering property
5. Getting credit
6. Protecting minority investors
7. Paying taxes
8. Trading across borders
9. Enforcing contracts
10. Resolving insolvency
Key Highlights of 2019 Ease of Doing Business (EODB) report
1. In comparison to other countries, India has made the biggest improvement in its business environment in the year 2018. It’s rank jumped from 100 to 77 (amongst 190 countries) in 2019 report. Every year the report releases previous year’s data. For example, 2019 report releases data for the year 2018.
2. New Zealand scored the first rank followed by Singapore. US has scored eighth rank.
3. BRICS nations: India has been ranked better than some of BRICS nations such as Brazil (109) and South Africa (82). However, it is still behind China (46).
Where India made improvements in doing business rankings and where it is lagging behind?
India’s performance on EODB indicators in 2018 and 2019 report
|1. Starting a business||137||156|
|2. Dealing with construction permits||52||181|
|3. Getting electricity||24||29|
|4. Registering property||166||154|
|5. Getting credit||22||29|
|6. Protecting minority investors||7||4|
|7. Paying taxes||121||119|
|8. Trading across borders||80||146|
|9. Enforcing contracts||163||164|
|10. Resolving insolvency||108||103|
India’s improvement in the 2019 rankings is mainly from significant improvement on two ‘doing business’ indicators — securing construction permits and trade across the borders.
The World Bank study found that through implementation of Single-window clearance and online system, India’s cities have drastically reduced the number of days required to issue construction permits- from 144 days last year to 95 days.
On indicator of cross-border trade, as compared to last year, India’s rank improved from 146 to 80. The improvement took place because of significant time savings by export and importers in complying with formalities. Such time savings are result of intiatives such as upgradation in port infrastructure, shift towards online documentation and facilities for exporters to seal their containers on their own.
Also, there are significant improvements on indicator of starting a business. As compared to the previous year, India’s rank on this indicator improved from 156 to 137. The time taken to start a new company has been reduced from 30 days to 17 days due to faster GST registration and the abolition of site inspections.
On which EODB indicators India lags behind?
India performed well on some indicators. However, it still lags behind others.
India has scored dismal rank of 166 on registering property. On an average, it takes 69 days to register a property in India and it costs about 8% of its value to register. In OECD countries, property is registered in 20 days on an average and at the cost of 4% of its value.
India has also performed poorly in paying taxes with a rank of 121. World Bank study found that a typical Mumbai-based firm makes 13 tax payments a year, spends 278 hours on this and coughs up 52% of its profits.
On enforcing contracts, India scored a dismal 163 rank. According to World Bank report, enforcement of a claim through the courts in Mumbai takes 1,445 days and costs 31% of claim value. On the other hand, enforcement of a claim in OECD nations takes 582 days at a cost of 21%.
How is the data gathered for EODB rankings?
The EODB study takes into account the time, costs and red tape faced by small and mid-sized companies in a country. To collect data, World Bank empanels experts in the largest business cities in each country. In India, study in conducted in Mumbai and Delhi.
Empaneled experts have rounds of interactions with lawyers, business consultants, accountants, freight forwarders, government officials — who can share experience of multiple businesses.
Over 13,800 people shared information in the 2019 study, from June 2, 2017 to May 1, 2018.
Why is the ranking significant?
The ease of doing business is considered as an important parameter to judge investment climate of a country.
What is the criticism of ranking?
1. The ranking is based on one or two major cities. For instance, India’s ranking is based on investment climate of Delhi and Mumbai only.
2. Governments may be altering their policies to fit the World Bank’s criteria, instead of adopting wider structural reforms.
3. World Bank measures country’s business environment based on written legal rules rather than the actual ground conditions in which businesses operate. Some surveys have found that there is significant variation between World Bank’s surveys and actual business conditions.
4. EODB study measures performance on few ‘doing business’ indicators, but it does not aim to obtain a comprehensive picture of business environment.
5. The EODB study captures experience of small and medium size companies. It ignores experience of partnership and proprietorship firms.
6. The ten indicators measured by the EODB study are well-known. Governments can specifically target reforms in these areas to improve their rankings.
The above criticism highlight the shortcomings of the EODB rankings. However, many investors rely on the report to judge the business climate of the country.