India is showing progress in every dimension of economic reforms. Its commitment to do so is evident from the scale undertaken at the pan-India level since 2014. Policies and schemes developed with the aim of Ease of Doing Business (EoDB) are underpinning India’s “development with all, and for all,” motto.
Various reforms spanning across the business lifecycle have been implemented by Ministries and States. However, most of them focused on simplification of processes, or rationalisation, digitisation and elimination of compliances. There has been limited focus on implementation of reforms from the purview of reducing Cost of Doing Business (CoDB).
India needs to sharpen its focus on CoDB. Reducing the cost is critical to not only attract Foreign Direct Investment (FDI) but also to accelerate domestic manufacturing activity. The efforts under EoDB exercise resulted in India jumping 79 places i.e., from 142nd rank in 2014 to 63rd rank in 2019 in the World Bank’s Doing Business Report (DBR). However, as per DBR 2020 India cost for Starting a Business stands at @7.2% of income per capita, highest among BRICS nations as well as higher compared to nations like Vietnam (5.6%) and Indonesia (5.7%). Dealing with a construction permit is nearly 4% of warehouse value in India whereas it is 2.8% in China, 0.5% in Vietnam and 1.3% in Malaysia.
Developing an approach to lay efficient systems is an essential step towards reducing the cost of doing business in the country. Factor cost does affect cost of doing business, but they are mostly market driven, thus it is necessary to go beyond the set of factor costs and assess the expenses related to meeting compliance obligations, cost related to the certifications required from intermediaries, that associated with delays and the direct cost for businesses that goes to government.
A new approach
A bottom-up approach may be looked upon to reduce and monitor the cost in India. Study on the impact assessment of single window systems across States may be conducted to identify bottlenecks leading to physical interventions, a nodal department can be considered to ensure the predictability and standard timeline of policy changes, an accountability mechanism to reduce delays, and fiscal assessment to achieve reasonable standardisation in the statutory cost across States are few critical interventions.
Further, the national level framework shall be developed that spans across the business lifecycle to measure and monitor the CoDB. Such a framework should be adaptive and transparent to provide ground level inputs to states on the cost scenario in their respective states and should have a target driven approach where states thrive to drive reforms to achieve targeted outcomes.
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