Easier to start business in India, difficult to get credit: World Bank report

India moves up nine spots in the starting a business category, slips six spots in terms of accessing credit

India slipped six spots in terms of accessing credit to 42, implying that it has become much more difficult to get loans in India. Photo: Mint
India slipped six spots in terms of accessing credit to 42, implying that it has become much more difficult to get loans in India. Photo: Mint

New Delhi: It has become more difficult for Indian businesses to access credit and pay taxes, but it is much easier to start a business, according to World Bank’s Doing Business Report 2016.

India improved its performance on three parameters—starting a business, getting construction permits and accessing electricity—in the World Bank Ease of Doing Business Index 2016, as compared with last year, but saw its performance deteriorate with regard to two parameters—getting loans and paying taxes.

India moved up nine spots in the starting a business category to 155 in 2016 from 164 last year. India also registered a substantial improvement in providing electricity to businesses, moving up 29 spots to 70. Its ranking for dealing with construction permits moved up one spot to 183. Although India has shown improvement on these criteria in the current round of rankings, the numbers indicate the extent of work still required to make India a business-friendly place.

India slipped six spots in terms of accessing credit to 42, implying that it has become much more difficult to get loans in India. To be sure, it is one of the two criteria where India is in the top 50. It also slipped one spot in the criterion of ease of paying taxes.

In other areas such as protecting minority investors, registering property, trading across borders, enforcing contracts and resolving insolvency, the rankings for India remained the same as last year.

In the area of protecting minority interests of shareholders, India is ranked eighth, its best across all parameters, while it is ranked in the bottom 15 in dealing with construction permits and enforcing contracts.

The Indian government is looking at ways to resolve insolvency issues and enforce contracts through legislations like the bankruptcy law and public contracts dispute resolution bill—criteria where it is faring badly in the ease of doing business rankings.

India is ranked 178 in enforcing contracts and 136 in resolving insolvency.

It takes more than 44 months to enforce a contract with the costs incurred in court charges and attorney fees are almost 40% of the claims value. Another criterion is resolving insolvency issues. According to data collected by the bank, creditors receive only 25% of their dues at the end of insolvency proceedings while spending more than 9% of the size of the asset in costs.

In the World Bank report released late on Tuesday, India saw its ranking improve by four spots to 130 from 134 last year. The ranking for both the years are part of a revised methodology adopted by the bank.

“In the past year, India eliminated the paid-in minimum capital requirement and streamlined the process for starting a business. More reforms are ongoing—in starting a business and other areas measured by Doing Business—though the full effects are yet to be felt,” the World Bank said.

India’s performance is likely to improve on other parameters as well next year when some of the steps taken by the government in the past few months gets reflected in the index, according to Onno Ruhl, country director, World Bank India. The rankings take into account only work done till 31 May.

“In the area of enforcing contracts, e-filing, e-payments and trading across borders, the Indian government is doing a lot of work and the progress will be seen in next year’s report,” he said.

Comparing the two states of Mumbai and Delhi, the report showed it takes 14 procedures to register a firm in around 29 days in Mumbai; 12 procedures in the same amount of time in Delhi.

The cost incurred to start a business in Delhi is much lower than the time taken for a business to start operations in Mumbai.

While the cost incurred (calculated as a percentage of economy’s income per capita) is 17% for businesses in Mumbai, it is 10.4% in Delhi. The cost includes all official fees and charges for legal or professional services if such services are required by law.

Getting construction permits can still be a nightmare for firms in both the states. It takes 147 days and 40 procedures to get a construction permit in Mumbai; in Delhi, it is 231 days and 28 procedures.

Getting an electricity connection takes a firm 123 days in Delhi, but only 53 days in Mumbai. Registering a property can take 47 days in both Mumbai and Delhi. When it comes to facilitating trade, it is easy for trading across borders if you are a firm based in Mumbai with both the cost and time taken much lower than those in Delhi.

“Various reforms have been taken for simplification of rules, procedures and compliances and many more are underway. The government is proactively working with the states in streamlining various processes and we are confident that much further improvement will be seen in years ahead,” Didar Singh, secretary general of lobby group Federation of Indian Chambers of Commerce and Industry (Ficci), said in a note.

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