In the recent issue of World
Bank’s Doing Business Report 2018, India’s ranking jumps 30 positions from
130th in 2016 to the 100th spot in 2017 in the World Bank’s – Ease of Doing
Business Index 2018. India has seen the improvement in 6 out of 10 indicators
on the World Bank’s Doing Business Report 2018. This jump can be attributed to
major improvement in significant parameters such as starting a business,
dealing with construction permits, resolving insolvency, getting electricity and
getting credit, among other parameters.
This comes as a positive news
after 2016, when India moved up only by a single position from 131 to 130.5.
Additionally, India’s combined or Distance-to- Frontier (DTF) score also
witnessed a spike - from 56.05 in the previous year to 60.76 now, which
reflects the country has improved in absolute terms as well.
“Among the 190 countries surveyed in World Bank’s Doing Business
2018 report, India saw the biggest rise in its ranking. While the rise in India’s
ease of doing business rank from 130th in 2017 to 100th in 2018 is welcome
move. This jump can be attributed to major improvement in significant
parameters such as starting a business, dealing with construction permits,
resolving insolvency, getting electricity and getting credit, among other
The main area of
parameters/reforms that helped India jump up 30 places in World Bank’s Doing
Business Report 2018 :
Dealing with Construction Permits:
The introduction of online single window has
reduced the number of procedures as well as the time required to obtain a
construction permit. This streamlined process has contributed significantly to
this unprecedented jump in overall rankings
The Insolvency and Bankruptcy Code, 2016 – the
landmark reform that helps dissolve businesses without much complication – has
been an instrumental contribution in building a conducive business climate.
India has moved up 33 places from the previous
year with regard to resolving insolvency in this year’s Doing Business Index.
This drastic jump can be credited to the enactment of the landmark Insolvency
and Bankruptcy Code that was approved by Parliament in May 2016, with certain
provisions imposed in August 2016 to bring India’s legal and institutional
machinery in line with the global standards for dealing with the issue of debt
default. With the enactment of the IBC, there has been renewed interest in
entrepreneurship and a positive shift in the access to credit. All the laws
related to reorganisation and insolvency Resolution of various entities, such
as, companies and limited liability entities, unlimited liability partnerships
and individuals have been consolidated to ensure a clear, coherent and speedy
This is one of the three indicators in which
India figures among the top 50 economies, registering a rank of 29. This is
primarily due to strengthening of legal rights of borrowers and lenders with
respect to secured transactions.
India has strengthened access to credit by
amending the rules on priority of secured creditors outside reorganization
proceedings and adoption of a new insolvency and bankruptcy code that
introduced a reorganization procedure for corporate debtors. Secured creditors,
such as banks and financial institutions, are given powers to enforce
securities without the intervention of courts. This is a productive move to
create wealth, generate employment as well as promote entrepreneurship.
Protecting Minority Investors:
Now the 4th best country in the
world in terms of protecting minority investors, India registered a jump of 9
places from 13th in 2016. The initiatives taken by SEBI include
rationalization of knowing your customer (KYC) norms, increasing the number of
arbitration centers and simplifying foreign portfolio investor (FPI) norms for
investing in the debt market.
The government’s thrust on pro-investor
reforms including the enactment of Insolvency and Bankruptcy Code (IBC) has
helped India reach the 4th position. This also comes in the wake of several
steps taken by Securities Exchange Board of India (SEBI) to increase investor
protection and market integrity.
With regard to investor protection, SEBI has
launched reforms especially in the area of governance and has also mandated
companies to formulate and disclose a dividend distribution policy. The
Securities market regulator has also extended the concept of Business Responsibility
Reporting (BRR) to the top 500 listed companies, under which companies have to
disclose their performance in areas such as social, environmental and economic
responsibilities. Further to safeguard minority investors, SEBI has also
imposed restrictions on fundraising by defaulters.
The time required for obtaining an electricity
connection has been reduced from 106 days to 46 days. The improved ranking can
also be attributed to a reduction in number and duration of power outages.
Most tax-related processes have been
simplified as well as digitized. India registered the highest improvement
across all World Bank Doing Business parameters in Paying Taxes, registering a
53 spot jump from rank 172 to 119.
In the year 2016, India introduced the Income
Computation and Disclosure Standards (ICDS) to standardize the procedure of
computing taxable income and other tax accounting standards. In a positive
move, this has helped India move over 50 notches in this particular parameter.
Earlier, tax accounting was done through a
traditional method, so that one could recognize income as and when it arose.
However, this method led to many companies having discrepancies and their books
to show a lower income. To address this issue, the Central Board of Direct
Taxes (CBDT) came out with its own accounting standard – ICDS, which came into
effect from 1 April 2016. Under this method, profits have to be mandatorily
recognized once 25% of the completion stage has been achieved in construction
Also, as opposed to the earlier method where
interest payment by companies was allowed full deduction from income tax, ICDS
does not permit this. A certain part of the borrowing taken for acquisition,
construction or production of an asset is considered as the capital amount,
which is not applicable for deduction.
Secondly, India has also relaxed rules on tax
compliance for businesses through the introduction of an online platform for
the electronic payment of the Employees’ Provident Fund.
Apart from the above mentioned parameters,
India has also improved in the sphere of starting a business, the scenario has
drastically improved by merging the applications for the Permanent Account
Number (PAN) and Tax Account Number (TAN) through an online system.
Lastly, the government has reduced the number
of procedures as well as the time required to obtain a construction permit
through an online system.
Going forward, it is likely that the
implementation of the biggest economic reform, Goods and Services Tax (GST) in
India will further aid India to move up the ladder in the future. Apart from
this, there have been consistent efforts by the government to simplify
licensing and tax structures, thereby helping India to become the preferred
destination for investors and also a global manufacturing hub envisioned by the
‘Make in India’ campaign. With these ongoing structural reforms, it is not long
enough before the Modi’s vision for India to reach the top 50 in Ease of Doing
Business is realised.
Read more at:
Acquisory News Chronicle - November 2017