New Delhi: India dropped two places to rank 142nd in the World Bank’s latest Ease of Doing Business report, illustrating the magnitude of the task the new government of Prime Minister Narendra Modi confronts in lifting the nation to the top 50 to attract investors.

India’s ranking slipped in the 2015 report that ranked 189 nations even though its score improved on various parameters. The reason: other nations performed even better.

The prime minister is aiming to replicate at the national level his success in wooing investments to Gujarat as the chief minister of the state by easing the country’s cumbersome labour laws and slashing red tape by reining in the bureaucracy, known for its obstructive approach to businesses.

India’s ranking has suffered because of the steps that were taken in the past and it should improve in the coming years because of a more focused approach by the Modi government, said R.C. Bhargava, chairman of Maruti Suzuki India Ltd, the nation’s largest car maker.

“The question is how quickly you can get the business going and I think a number of steps have been taken in that direction. The entire process is being eased out. So, all these things will help," Bhargava said.

India is still the lowest ranked country in South Asia with Sri Lanka (99), Nepal (108), the Maldives (116), Bhutan (125), and Pakistan (128) ranked higher. Singapore topped the list for a ninth straight year followed by New Zealand and Hong Kong.

This is one of the worst rankings that India has received and is a cause of concern, said Ajay Dua, former industry department secretary.

“The government need to take immediate remedial measures by showing political leadership if it wants its programmes such as ‘Make in India’ and import substitution to succeed," he said.

India’s performance in terms of the points scored has improved in six out of the 10 criteria; deteriorated on the ease of paying taxes criterion, and remained unchanged on three other parameters. The country’s overall score improved to 53.97 in 2015 from 52.78 a year ago, when it was ranked higher at 140.

In terms of global ranking, India has improved its performance only in the new category of protecting minority investors. It has dropped in all other cases except for enforcing contracts where its rank has remained the same.

Though India is carrying out reforms and improving its position on various indices, it needs to outperform its peers for a better place in the Doing Business rankings, Onno Ruhl, the World Bank’s country director for India, said on Monday.

India’s best performance was on the indicator of protecting minority investors in related-party transactions and in corporate governance with a global rank of 7, while it worst is in the field of enforcing contracts to resolve a commercial dispute with a rank of 188 and dealing with construction permits (184).

The World Bank said India follows the largest number of good practices for protecting minority investors.

“It strengthened minority investor protections by requiring greater disclosure by board members, increasing the remedies available in case of pre-judicial related-party transactions and introducing additional safeguards for shareholders of privately held companies," the report said.

Among the 11 large economies of the world, China, Mexico and Russia each implemented two reforms to make it easier to do business, while India and Indonesia implemented three such reforms each.

The World Bank said India made starting a business easier by considerably reducing registration fees, but also made it more difficult by introducing a requirement to file a declaration before the start of business operations. It also made obtaining a new electricity connection in Mumbai cheaper by reducing the security deposit.

The Doing Business rankings are based on consultations by the World Bank with legal and accounting professionals, government officials and business practitioners, among others, across countries.

For the first time this year, the multilateral institution collected data for two cities in large economies with population more than 100 million. From India, the cities are Mumbai and Delhi.

It also changed its ranking system from the percentile rank “to the distance to frontier" measure that tries to capture the actual distance each economy has to go to reach the frontier of “best performance."

The secret of success is to have the essential rules and regulations in place—but more importantly to have a good system of clearing decisions quickly and predictably, so that small and ordinary businesses do not feel harassed, according to Kaushik Basu, chief economist with the World Bank.

“The top-performing economies in the ease of doing business ranking are therefore not those with no regulation but those in which governments have managed to create rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector," he said.

The latest ranking, however, does not take into account the slew of measures taken by the Modi government as the deadline for inputs into the report was 31 May.

World Bank officials said that there was a very high likelihood of India significantly improving its rank in the next report. “There are many examples of countries who through focused efforts, through intelligently designed reforms have managed to make very substantial improvement," he said.

With the new initiatives taken by the government, India’s rank could improve to within the top 100 in next year’s ranking, according to Ajay Shankar, member secretary at the National Manufacturing Competitiveness Council.

Shankar said if the government comes out with a bankruptcy law as promised in the Budget, then its ranking under the parameter of “resolving insolvency" could sharply improve from its current ranking of 137. The government has recently extended the validity period of industrial licences to seven years from three years and has come out with a single-window labour compliance process for industries as well as a new inspection scheme that is expected to end the so-called Inspector Raj--measures that are expected to help increase its ranking.

Sushil Maroo, chief executive officer of Essar Power Ltd, said that the drop in ranking is not raising any concern as the initiatives by the new government are yet to take effect. “It will take some time for the new initiatives to filter into the system," Maroo said. “I am sure that there is going to be a definite and positive impact on the next year’s index."

P.R. Sanjai in Mumbai and Amrit Raj in New Delhi contributed to this story.

asit.m@livemint.com

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