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 parameters”

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

Resolving Insolvency:

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 process.

Getting credit:

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.

 Getting Electricity:

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.

Paying Taxes:

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 contracts.

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.

Other Parameters:

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.

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Acquisory News Chronicle - November 2017