IAS Target

Ease of Doing Business Index

The ease of doing business index is an index created jointly by Simeon Djankov and Gerhard Pohl, two leading economists at the Central and Eastern Europe sector of the World Bank Group. The academic research for the report was done jointly with professors Oliver Hart and Andrei Shleifer.
  • Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights. Empirical research funded by the World Bank to justify their work show that the economic growth impact of improving these regulations is strong.
  • "Empirical research is needed to establish the optimal level of business regulation—for example, what the duration of court procedures should be and what the optimal degree of social protection is. The indicators compiled in the Doing Business project allow such research to takeplace. Since the start of the project in November 2001, more than 3,000 academic papers have used one or more indicators constructed in Doing Business and the related background papers by its authors.

Methodology

A nation's ranking on the index is based on the average of 10 sub-indices:

Starting a business Procedures, time, cost, and minimum capital to open a new business
Dealing with construction permits Procedures, time, and cost to build a warehouse
Getting electricity procedures, time, and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
Registering property Procedures, time, and cost to register commercial real estate
Getting credit Strength of legal rights index, depth of credit information index
Protecting investors Indices on the extent of disclosure, extent of director liability, and ease of shareholder suits
Paying taxes Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as share of gross profit
Trading across borders Number of documents, cost, and time necessary to export and import
Enforcing contracts Procedures, time, and cost to enforce a debt contract
Resolving insolvency The time, cost, and recovery rate (%) under bankruptcy proceeding
It ranks countries on the basis of Distance to Frontier (DTF), a score that shows the gap of an economy to the global best practice. For example, a score of 75 means an economy was 25 percentage points away from the frontier constructed from the best performances across all economies and across time. This year, India’s DTF score improved to 67.23 from 60.76 in the previous year (2018).

India and Ease of Doing Business report

In last six years, India’s ranking improved 79 places from 142nd in 2014 to 63th in 2019, a record for a major economy India climbed 14 rungs in the World Bank’s Ease of Doing Business 2020 survey to stand at 63, among 190 countries, making it the one of world’s top 10 most improved countries for the third consecutive time.
The sharp rise in the ranking underscores the reformist credentials of the Indian government and may help the country lure multinational companies, looking at alternatives to China for investment amid Beijing’s trade war with the US.
The World Bank said India conducted four reforms in the 12-month period to May 1. “Among other improvements, India made the process of obtaining a building permit more efficient. In addition, authorities enhanced building quality control in Delhi by strengthening professional certification requirements. Importing and exporting also became easier for companies with the creation of a single electronic platform for trade stakeholders, upgrades to port infrastructure and improvements to electronic submission of documents," it added.
India saw the biggest jump in ranking in “resolving insolvency" category, to 52nd rank from 108th, on the back of implementation of the Insolvency and Bankruptcy Code, while its ranking improved substantially in Dealing with Construction Permits (to 27th from 52nd) and “Trading across Borders" (to 68th from 80th).
“Despite some challenges in the implementation of the reform—particularly regarding court operations and the application of the law by multiple stakeholders—the number of reorganizations in India has been gradually increasing. As a result, reorganization has become the most likely procedure for viable companies as measured by Doing Business, increasing the overall recovery rate from 27 to 72 cents on the dollar," the World Bank said.

Compared with last year, India’s ranking deteriorated on two parameters -

  • “protecting minority investors" (from 7th to 13th position)
  • “getting electricity" (from 22nd to 25th)
  • remained unchanged in “enforcing contracts" at 163rd.
In all the three parameters, India’s score remained unchanged indicating no reforms were recorded by the World Bank. India’s ranking improved in “Registering Property" to 154th rank from 166th despite a drop in score.
The Global Competitiveness Index, 2019, released by the World Economic Forum (WEF) earlier this month showed that India slipped a sharp 10 notches to 68. India’s score fell in eight of 12 parameters while other countries improved their domestic business environment faster than India. Iran (99) was the only other country of the 141 countries surveyed whose ranking also fell by 10 positions.