Ease of Doing Business India UPSC Notes: Calculation, Significance & More

Ease of Doing Business was a report published by the World Bank Group to provide a ranking of countries based on fixed parameters. It ranks economies from 1 to 190, with 1 being the best. The aggregate ease of doing business scores are sorted to determine the order of the economies. If a country receives the first rank, then the environment for doing business in that country is favourable.

Ease of Doing Business India is one of the important topics for the UPSC IAS Exam. It also covers a significant part of the Economy subject in the General Studies paper-3 syllabus. 

In this article on the Ease of Doing Business UPSC, we shall cover in detail an introduction to the EoDB index, its parameters, the countries' ranking, and its relevance for UPSC.

What is the Ease of Doing Business Rank?

The Ease of Doing Business rank is a global index that measures the relative ease of starting and operating a business within a country. It is part of the Ease of Doing Business Index developed by the World Bank. The ranking evaluates various regulatory and procedural factors that impact business operations. It provides a comprehensive assessment of the business environment in different countries. This rank serves as an indicator of how conducive a country’s regulatory environment is for starting and conducting business activities.

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Parameters Used for Calculating the Ease of Doing Business Ranking

The Ease of Doing Business ranking is based on several key parameters that reflect the ease of business operations in a country:

• Starting a Business: This includes the number of procedures, time, cost, and minimum capital required to start a new business.
• Dealing with Construction Permits: Evaluates the procedures, time, and cost involved in obtaining construction permits.
• Getting Electricity: Measures the procedures, time, and cost required for a business to obtain a permanent electricity connection.
• Registering Property: Assesses the procedures, time, and cost to register commercial real estate.
• Getting Credit: Examines the strength of legal rights and the depth of credit information systems.
• Protecting Minority Investors: Evaluates the protections for minority investors against misuse by directors.
• Paying Taxes: Considers the number of taxes paid, hours per year spent preparing tax returns, and total tax payable as a share of gross profit.
• Trading Across Borders: Looks at the number of documents, cost, and time necessary to export and import goods.
• Enforcing Contracts: Measures the time and cost to resolve a commercial dispute and the quality of judicial processes.
• Resolving Insolvency: Assesses the time, cost, outcome, and recovery rate for a commercial insolvency and the strength of the legal framework for insolvency.

Process of Calculating the Ease of Doing Business Ranking

The process of calculating the Ease of Doing Business ranking involves several steps:

• Data Collection: Data is collected through surveys and interactions with private sector representatives, government officials, lawyers, accountants, and other professionals who deal with business regulations on a daily basis.
• Data Verification: The collected data is then verified and cross-checked for accuracy to ensure the reliability of the information.
• Scoring: Each country is scored on the various parameters based on the data collected. The scores reflect the country's performance in each area.
• Ranking: The individual scores for each parameter are aggregated to compute the overall Ease of Doing Business Index. Countries are then ranked according to their total scores. A higher score indicates a more conducive business environment.

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Ease of Doing Business India Rank 2020

India's performance in the Ease of Doing Business rankings for 2020 marked a significant milestone in the country's ongoing efforts to improve its business environment. Ranked 63rd out of 190 countries, India moved up 14 spots from its 2019 position of 77th. This continued upward trajectory highlights India's commitment to regulatory reforms and its focus on creating a more conducive environment for business operations.

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Key Improvements and Reforms of India in the Ease of Doing Business Report 2020

The significant improvements in India's business environment have been reflected in the World Bank's Ease of Doing Business Report, 2020. The ranking of the Country moved up to 63rd from 77th position out of 190 countries.

• Construction Permits: In ease of getting construction permits, India improved its rank from 184 to 27. In getting a construction permit in Mumbai, the number of procedures went down from 37 in 2016 to 20 in 2018. The time taken to complete the procedures came down from 128.5 days to 99 days.
• Trading Across Borders: The country improved considerably in trading across borders, rising from 80 to 68. Much of this was contributed by the reduction of time and cost for border compliance both for exporting and importing. Border compliance time for exports reduced from 84 hours to 55 hours, the cost to export dropped $543 to $474.
• Getting Electricity: The position of India in getting electricity has improved from 137 to 22. The steps taken for this included cutting down the number of procedures required to get an electricity connection for any commercial establishment from seven to just three in Delhi; reducing the average time taken from 105 days to 53 days.
• Resolving Insolvency: The introduction of IBC, 2016, significantly improved the ease of resolving insolvency. The recovery rate under the IBC increased from 26.5 cents to 71.6 cents on the dollar, and the time taken for the resolution of insolvency decreased from 4.3 years to 1.6 years.

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Areas to Improve

• There are some key areas that, despite all its development, India has to work on to further improve its business environment.
• Starting a Business: India stands at the 136th position in terms of starting a business. It requires 10 procedures and, on average, takes approximately 18 days, while for OECD high-income countries, it normally takes 5 procedures and 9 days. There is a need for a reduction in complexities of the registration processes and regulatory burdens.
• Enforcing Contracts: India stands 163rd in enforcing contracts; the average time it takes to resolve a commercial dispute through a local first-instance court is 1,445 days—nearly four years. There is a growing need to bring about improvements in judicial efficiency and to set up alternative dispute redressal mechanisms.
• Registering property: In India, the registering property indicator is at the 154th position. It takes 58 days and involves 9 procedures. The process of registration of property is to be smoothened, and transparency in land records is to be implemented.
• Paying Taxes: In paying taxes, though India has progressed somewhat, it has secured the 115th position. Companies on an average pay 12 tax payments in a year and spend about 252 hours in compliance. The simplification of the tax system and reducing the burden of compliance may further improve this ranking.

Significance of the Ease of Doing Business Rank

The Ease of Doing Business rank holds significant importance for countries for several reasons:

• A higher rank signals a conducive business environment, attracting more foreign direct investment.
• Helps governments identify areas needing regulatory reform and improve business conditions.
• Enhances a country’s global competitiveness by showcasing improvements in business regulations.
• Facilitates economic growth by improving the ease of conducting business operations, leading to higher productivity and job creation.

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Shortcomings of the Ease of Doing Business Report

Though the Ease of Doing Business Report highlights some excellent insights, it has many limitations.

• Urban bias: The general evaluation made in the report is mainly based on two large cities (Mumbai and Delhi for India). It therefore may not best capture the situation in other parts of the country, especially rural areas. Such a concern might give a less realistic perception of the business environment as a whole.
• Informal Sector: The report tends to focus on formal businesses and perhaps overlooks the challenges that the large informal sector of India faces, which is part of the lion's share of its economy. Many small enterprises are informal; hence, their regulatory problems may not be captured in this report.
• Legislation vs. Implementation: Very often, the report focuses on legislative changes and not so much on their practical implementation. In terms of paper alone, laws and regulations look very encouraging, but their effective enforcement and the real experience of businesses are completely different.
• Narrow scope: It covers starting a business, dealing with construction permits, getting electricity, registering property, and paying taxes; other principal factors affecting the business environment, such as macroeconomic stability, infrastructure quality, workforce skills, and innovative capacity, are not involved.

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Why did the World Bank Halt the Ease of Doing Business Report?

The World Bank decided to discontinue the Ease of Doing Business report in 2021 following data irregularities and allegations of manipulation. An internal audit revealed that data for certain countries had been manipulated to improve their rankings. These findings compromised the credibility and integrity of the report. This led to the decision to halt its publication.

We hope all your doubts regarding the Ease of Doing Business are addressed after going through this article. Testbook provides comprehensive notes for different competitive examinations. It has always assured the quality of its product like content pages, live tests, Gk and current affairs, mocks and so on.Ace your UPSC preparation with the Testbook App!