India remains one of the most difficult places to do business in the world. The nation has once again been ranked 132nd of the 185 countries in Doing Business 2013, a study conducted by the International Finance Corporation. India ranks below Bangladesh (129) and Sri Lanka (81). Though India’s position remains unchanged from the last year, it still is a bad news for a country that aspires to return to 8%-plus growth rate in the medium term in order to create jobs and lift a huge mass of its citizens out of poverty.
Among the 10 indicators that countries are ranked on, such as starting a business, investor protection, getting electricity and contract enforcement, India’s ranking slipped on six parameters, while its ranking improved marginally on two parameters; on two parameters, it remained unchanged. For an economy of its size and aspirations, this can only be called a poor performance.
It remains undisputed that businesses create jobs, leading to higher incomes, higher taxes and high growth. This is a self-fulfilling cycle which can take an economy from strength to strength. However, if the conditions for doing businesses are not conducive, it is hard for an economy to move forward. In such conditions, inherent strengths such as a large and growing working age population and higher savings can’t be used optimally.
For those, both in and outside the government, looking for ideas for real economic reforms, the study has plenty to offer. For example, India is ranked second from last in the world in contract enforcement, the very basis of a functioning market economy. It is virtually impossible for an economy to move to a sustained growth path without having an efficient contract enforcement mechanism in place. The time taken to fight a dispute in Indian courts is roughly three times more than that in OECD countries. Similarly, India has been ranked 173 on starting a business, a slippage of four places, while on the issue of resolving insolvency, its rank is 116, a slippage of seven positions. The study suggests that both starting and liquidating business is rather more difficult here when compared with the rest of the world. And things have gotten worse in the past year.
These numbers will have to change dramatically in the future if India has to return to high growth and if it is to generate jobs. Just opening a few sectors to foreign investment in the name of reforms will not do the trick. Forget grand ideas such as reforming labour laws and the like, India needs to undertake far more basic tasks to become a good place for doing business.