Ease of Doing Business Index

DEFINITION:

Ease of doing business is an index published by the World Bank. It is an aggregate figure that includes different parameters which define the ease of doing business in a country.

DESCRIPTION:

It is computed by aggregating the distance to frontier scores of different economies. The distance to frontier score uses the ‘regulatory best practices’ for doing business as the parameter and benchmark economies according to that parameter.

For each of the indicators that form a part of the statistic ‘Ease of doing business,’ a distance to frontier score is computed and all the scores are aggregated. The aggregated score becomes the Ease of doing business index.

The report measures the performance of countries across 10 different parameters namely-Starting a Business,

• Dealing with Construction permits,
• Electricity availability,
• Property registration,
• Credit availability,
• Protecting minority Investors,
• Paying Taxes,
• Trading across borders,
• Contracts enforcement, and
• Resolving Insolvency.
• This time two more parameters were considered namely, employing workers and contracting with the government but these are not included in the score and rankings.

CURRENT SCENARIO:

The World Bank recently released its Ease of Doing Business Report, 2020. The indicator measures the performance of countries across 10 different dimensions in the 12-month period ending May 1, 2019.

• According to the report, New Zealand retained its 1^st position whereas Somalia was ranked at 190^th
• India was placed at 63^rdposition this time (2019) out of 190 countries marking an improvement of 14 places from its 77^th position in 2018.
  • India’s score improved from 67.23 in the previous year to 71.0 this year.
  • India for the third consecutive year was present in the list of 10 economies where the business climate has improved the most.
• India’s ranking improved basically on four parameters:
  • Starting a Business- India made starting a business easier by fully integrating multiple application forms into a general incorporation form,
  • Dealing with Construction Permits- For example, building a warehouse cost around 4% of the warehouse value as compared to 5.7% in the previous year,
  • Trading across Borders- with a single electronic platform- improved electronic submission methods for documents and upgrades to port infrastructure, import and export process became easier, and
  • Resolving Insolvency- Recovery rate under resolving insolvency has improved significantly from 26.5% to 71.6%. Also, the time taken for resolving insolvency has also come down significantly from 4.3 years to 1.6 years.

CENTRAL GOVERNMENT INITIATIVES:

STARTING A BUSINESS

1. Permanent Account Number (PAN), Tax Deduction & Collection Account Number (TAN), Director Identification Number (DIN), Opening of Bank Account, Applying for EPFO& ESIC, GSTIN have now been merged into a single web form based service by Ministry of Corporate Affairs (SPICe+ and Agile Pro) for Company incorporation.

2. Five-page form and other attachments for reserving the name of the Company with the Ministry of Corporate Affairs has been simplified into a simple web service.

3. No requirement of inspection for before registration under Shops & Establishment Act in Mumbai and Delhi.

4. Companies Act was amended to eliminate the requirement of a common company seal.

DEALING WITH CONSTRUCTION PERMITS

1. Municipal Corporations of Delhi, as well as Municipal Corporation of Mumbai, have introduced fast track approval system for issuing building permits with features such as Common Application Form (CAF), provision of using digital signature and online scrutiny of building plans.

2. Delhi has uniform building by-laws which allow for risk-based classification regimes for different building types. It has a provision of deemed approval of sanctioning building plans within 30 days.

3. For construction permits, the time reduced from 128.5 to 99 days in Mumbai and from 157.5 to 91 days in Delhi between Doing Business 2018 and 2019 reports.

4. Cost of obtaining construction permits reduced from 23.2% to 5.4% of the economy’s per capita income.

TRADING ACROSS BORDERS 

1. The Central Board of Excise and Customs (CBEC) has implemented ‘Indian Customs Single Window Project’ to facilitate trade. Importers and exporters can electronically lodge their customs clearance documents at a single point.

2. The number of mandatory documents required for customs purposes, for both import and export of goods, has been reduced to three.

3. e-Sanchit, an online application system, allows traders to file all documents electronically.

4. The electronic self-sealing of the container at the factory has reduced time and cost for exporting firms.

5. Central Board of Indirect Taxes and Customs has provided a facility for Advance Bill of Entry (Advance Import Declaration).

GETTING ELECTRICITY

1. Electricity connection is provided within 7 days if no Right of Way (RoW) is required and within 15 days where RoW is required.

2. Service line cum Development charges is now capped at US$ 357.6 in Delhi.

3. Number of documents required for getting electricity connection has been reduced to two and no physical documents are accepted.

REGISTERING PROPERTY

1. All sub-registrar offices have been digitized and its records have been integrated with the Land Records Department, in both Delhi and Mumbai.

2. In Mumbai, all property tax records have been digitized. Property is mutated at automatically after registration. The digitization of property records ensures transparency and allows citizens to ascertain the history of transactions in digital mode.

3. Online service for charges search at Registrar of Companies reduces the time taken for this procedure significantly.

RESOLVING INSOLVENCY

1. The Insolvency and Bankruptcy Code of 2016 has introduced new dimensions in resolving insolvency in India. It is India’s first comprehensive legislation of corporate insolvency.

2. Under Fast-track Corporate Insolvency Resolution Process (CIRP) for mid-sized companies, the process for insolvency shall be completed within 90 days with a maximum grace period of another 45 days.

 Comments:

With Modi Government coming to power things have changed for good and the ranking has been considerably going in India’s favour yet a lot of improvement has to come, particularly the rules and regulations.  

REGULATORY REFORMS TO SMOOTHEN BUSINESS DOING:

MINISTRY OF CORPORATE AFFAIRS:

1. Ministry of Corporate Affairs has amended the LLP Rules, 2009 through Limited Liability Partnership (Second Amendment) Rules, 2018 notified on 18.09.2018 and effective from 02.10.2018. The said amendment has introduced RUN-LLP Form in place of LLP Form 1 for reserving the name and FiLLiP Form in place of LLP Form 2 for incorporation, earlier LLP incorporations were done in respective ROCs. Now this process is made centralized to keep it at par with companies and as a part of Starting a business in India.

2. Ministry vide notification G.S.R. no. 180 (E) dated 06.03.2019 has amended the Rule 38(2) of the Companies (Incorporation) Rules, 2014. With the issue of this notification, zero fee is to be charged by MCA for all incorporations with authorized capital upto INR 15,00,000.

3. Launch of simple web based form i.e. Spice+ and Agile Pro for Incorporation of the Companies wherein the applicant shall get EPFO & ESIC, Bank Account Number, and GSTIN without knocking the doors of concerned authorities.

4. The Central Government in exercise of its power u/s 460 of the Companies Act, 2013 (extended to LLPs vide Gazette Notification No. G.S.R. 59(E) Dated 30^th January, 2020 u/s 67 (2) of the Limited Liability Partnership Act, 2008) has decided to introduce a scheme namely “LLP Settlement Scheme, 2020”, by allowing a One-time condonation of delay in filing statutorily required documents with the Registrar wherein the defaulting LLPs may file forms by making payment of additional fees of ₹ 10/- per day for each day during which the default continues (instead of ₹ 100/- for each day of such delay in addition to any fee as is payable as per section 69 of Limited Liability Partnership Act, 2008) subject to a maximum of ₹ 5,000/- per Form.

TAX REFORMS:

Back in 2014, India was ranked 142nd among 190 nations on the Doing Business Index. Five years of radical economic reforms and the introduction of a new indirect tax system have witnessed India steadily climbing up this index ladder. From 142nd in 2014 to 77th position last year and now to 63rd position as of October 2019 (as per World Bank’s ‘Doing Business’ 2020 report), India has come a long way. Therefore, here are a few key improvements in the Taxation to improve the ranking:

1. GST simplified

In a bid to curb errors in tax filing, the Government plans to introduce a new GST return filing mechanism in April 2020. The new return filing system will include simplified return forms for ease of filing across all categories of taxpayers registered under GST.

2. E-invoicing

A reform under GST 2.0, e-invoicing will be introduced in a phase wise manner starting January 2020. A standardised invoice template has already been designed and distributed by the Government and automated accounting softwares are required to use this standard format for generating invoices. The GST Network will electronically authenticate and issue identification to each invoice for ease of use at other portals for filing returns and generating e-way bills. This mechanism will streamline the way for efficient and error free filing of returns.

3. Strict measures to curb evasion

With over Rs.45000 crores being reported under fraudulent input tax credit since the implementation of GST, the Government is all set to enforce tough measures to curb tax evasion. While these measures are still being discussed, immediate measures are most likely to include identification of defaulters and distribution of mass-scale notices to non-filers of GSTR3B. Defaulters will be identified if they have failed to file returns for six or more return periods. Registered taxpayers will have to file returns either on a monthly or quarterly basis failing which they might face cancellation of GST registration.

LABOUR LAWS:

Legislative Initiatives

1. Under Payment of Bonus Amendment Act,2015 eligibility limit for payment of bonus enhanced from Rs 10000/- to Rs. 21000/- per month and the Calculation Ceiling from Rs. 3500/- to Rs. 7000/- or the minimum wages.
2. Child Labour (Prohibition and Regulation) Amendment Act, 2016 provides for complete ban on employment of children below 14 years in any occupation or process.
3. The Payment Of Gratuity (Amendment) Act, 2018, provides flexibility to the Central Government firstly to increase the ceiling limit of gratuity to such amount as may be notified from time to time and secondly to enhance the calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave to such period as may be notified from time to time. Vide Notification dated 29th March, 2018, the ceiling limit of gratuity has been increased from Rs. 10 Lakh to 20 Lakh and this period of maternity leave for calculation purpose has been enhanced from 12 weeks to 26 weeks.

Governance Reforms

1. Ministry has notified “Ease of Compliance to maintain Registers under various Labour Laws Rules, 2017”on 21^st February 2017 which has in effect replaced the 56 Registers/Forms under 9 Central Labour Laws and Rules made there under in to 5 common Registers/Forms. This will save efforts, costs and lessen the compliance burden by various establishments.

2. A Model Shops and Establishments (RE&CS) Bill, 2016has been circulated to all States/UTs for adoption with appropriate modification. The said Bill inter alia provides for freedom to operate an Establishment for 365 days in a year without any restriction on opening/closing time and enables employment of women during night shifts if adequate safety provisions exist.

3. Under Industrial Employment (Standing Orders) Act, 1946, the category i.e. Fixed Term Employment, with all Statutory Benefits, has been extended to all Sectors to impart flexibility to an establishment to employ people to meet the fluctuating demands, vide the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018.

4. Ministry has also notified Rationalization of Forms and Reports under Certain Labour Laws Rules, 2017on 28.03.2017 for reduction of number of Forms / Returns under 3 Central Acts / Rules from 36 to 12 by reviewing redundant and overlapping fields.

5. Unified Annual Return – “Unified Annual Return returns have been made mandatory in respect of the these Central Labour Acts [the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Maternity Benefit Act, 1961, the Payment of Bonus Act, 1965, the Industrial Disputes Act, 1947] on the Shram Suvidha Portal”.

CHALLENGES FOR EASE OF DOING BUSINESS:

• It takes approximately a month to start a business in India while the OECD average is 12 days. Though some states like Telangana have eased up the procedures for starting a business, this is yet to be achieved on a pan India basis.
• It only measures the policy side i.e. government efforts and ignores market forces and other factors like human resource. Thus, it should not be taken at face value for deciding which country is better to do business in.
• The procedures to secure permits are rather cumbersome and involve permissions to be sought from various departments.
• Though India has been a modest improvement in enforcing contracts, it now takes longer time than it did 15 years ago. The absence of effective means for enforcing contracts impedes growth and development and is a disincentive for the private sector.
• India s largest urban agglomerations, Mumbai and Delhi cannot host the kind of large factories to generate adequate employment. The procedural reforms have not yet reached the hinterland.
• There been a significant improvement in paying taxes, but India ranks 119 on this index. For the Ease of doing business index 2018, GST has not been taken into consideration.
• Legislative roadblocks still exist for Land Acquisition.
• On his visit, the Prime Minister of Singapore has cited land acquisition, over-regulation, and legal hassles as bottlenecks for ease of doing business in India. This signals the hurdles faced by investors in working with India.
• Difficulty in cutting the red tape erodes the trust of investors and impedes the prospects of small businesses.

CONCLUSION:

A high ranking in one year is not the end in itself. To reach the target of top 50 in the rankings, India needs to be more vigilant in its approach. It needs to demonstrate not only the regulatory, governance and economic reforms to investors but also political and macroeconomic stability, law and order maintenance and quality physical infrastructure. At the same time, reforms should not be restricted to Mumbai and Delhi as this would improve the ranking on Ease of Doing Business Index but doesn’t account for the actual ground picture of the whole country. To address this issue, State wise ranking of implementation of Business Reforms Action Plan needs to be continued.