Ease of Doing Business = Ease of Commoners?

India has made a considerable progress in the World Bank’s Ease of Doing Business (EoDB) ranking, having jumped to 63 in 2019 from 77 in 2018. Under National Democratic Alliance (NDA), India has recorded constant improvements in this particular index.

According to The Wire, the index  is an indicator which ranks 190 nations according to how ‘business-friendly’ their regulations are. This includes measuring things like how easy it is to start a business, get credit, register property, trade across borders, pay taxes, and enforce contracts. 

But what baffles a common man is how the ‘Ease of Doing Business’ rank benefiting them?

While the improvements are impressive and the rise in overall rankings in the last few years is noteworthy, the fact is that India is still below its competitors for global capital, particularly China, which at rank 31 is one level above France. The country lags in key metrics such as “Starting a business’, “Enforcing contracts” and “Registering property”. It should also be borne in mind that the rankings are based on samples and audits done in Mumbai and Delhi only (the World Bank has said it would be covering Bengaluru and Kolkata too from next year).

The also report ignores infrastructure, skills and other things, it is not really a summary measure of the ease of doing business, but of the cost of complying with formal regulations.

Given the Economic Slowdown that surrounds India, the improvement in the ranks aren’t considerable. The troubling domestic indicators—such as this year’s sudden plunge in car sales, lingering debts in banking, property and power-distribution companies, and long-term declines in consumer spending, household saving and industrial investment—could soon meet strengthening global headwinds to create a nasty storm.

Economic Reforms

The Economist reports that, Mr Modi’s government is struggling to cope with an alarmingly sharp slowdown. In the first half of 2019 new banking credit to businesses crashed by a shocking 88%, and growth fell from 8% in 2018 to just 5% this year. For a large and diverse economy, this remains a respectable figure. But demographic pressures mean that India must sustain growth of 7.5% just to keep unemployment in check—and needs to do even better if it hopes ever to catch up with China.

Business Standard in one of their columns suggest, the first thing that any government that wished to revive investment and growth would do is dismantle the state sector. Instead, the Modi government has backed the companies it owns with renewed fervor.

Similarly, you can’t expect investors to flock to India when they’re worried about regulatory and administrative uncertainty. Yet, earlier this year, those who had invested billions in e-commerce discovered the rules of the game were being changed to protect local players. Last week, two big telecom majors — already debt-ridden because of exorbitant spectrum fees — were ordered by the Supreme Court to pay $13 billion in dues to the government. The markets suspect this will drive at least one of them out of business.

Amitabh Kant, chief executive of Niti Aayog, a government think-tank, says privatisation of state enterprises, and major reforms in sectors like agriculture and mining, are on the agenda. He also insists recent painful disruptions will bear fruit with the emergence of a healthier business sector.

Abhijeet Banerjee’s take on Indian Economic Slump

In an interview to India Today, the Nobel laureate, said, “It looks very much like we are in a Keynesian downspin. Meaning, there’s not enough demand. People aren’t buying food. So, if I had to pick one thing the government should do is put cash in the hands of the poor. Through higher support prices for crops, through NREGS (National Rural Employment Guarantee Scheme)…”

“I think a bunch of money in the hands of lower income people will start up a demand. So the biscuit companies won’t start closing. The biscuit companies closing is a really bad sign,” he said.

Tax Cuts 

David Malpass, the President of the World Bank group, said that India has taken a good step with the recent cut in the corporate tax rate that will help to add to the growth.

Though Committee for a Responsible Federal Budget in a study in 2010 found, any unpaid-for tax cut extensions are bad not only for the long-term fiscal outlook, but also the long-term economic outlook. The billions (and in some cases, trillions) of dollars of additional debt even in just the next decade will outweigh the supply-side benefits of lower marginal tax rates from these extensions. CBO argues that these tax cut scenarios would lead to a smaller domestically-owned stock of capital as a result of higher budget deficits and required interest payments.

Ground Reality

According to The Wire, to counter that pro-wealthy agenda, a new way of measuring progress which can put everyday people’s well-being at the centre of economic platforms is needed. Oxfam’s Commitment to Reducing Inequality Index is a good start: it uses social spending, progressive taxation, and labour rights to measure a country’s commitment to reducing inequality.

On this index, India ranks 147th out of 157 countries. This ranking offers no room for mindless celebration. Instead, it offers what is much more urgently needed: a sobering glimpse of a grim reality which is our moral, political, and indeed economic imperative to face.

Sayantan Guha and Rizvi Saif