Thursday, September 17, 2009

Doing Business - World Bank Report 2009 and India

World Bank have some habits, like publishing different reports in every year. This year too they published many reports, and one of such project is "Doing Business : Reforming through Difficult Times". According to World Bank,
"Doing Business 2010: Reforming through Difficult Times recorded 287 reforms between June 2008 and May 2009, up 20 percent from the previous year. Reformers around the world focused on making it easier to start and operate businesses, strengthening property rights, and improving commercial dispute resolution and bankruptcy procedures.
Business regulation can affect how well small and midsize firms cope with the crisis and seize opportunities when recovery begins,” said Penelope Brook, Acting Vice President for Financial and Private Sector Development for the World Bank Group. “The quality of business regulation helps determine how easy it is to reorganize troubled firms to help them survive difficult times, to rebuild when demand rebounds, and to get new businesses started.”

Singapore, a consistent reformer, is the top-ranked economy on the ease of doing business for the fourth year in a row, with New Zealand as runner-up. But most of the action occurred in developing economies. Two-thirds of the reforms recorded in the report were in low- and lower-middle-income economies. For the first time a Sub-Saharan African economy, Rwanda, is the world’s top reformer of business regulation, making it easier to start businesses, register property, protect investors, trade across borders, and access credit."

Let us check India's rankings, remember that the total number of countries studied is 183.

Ease of
Doing Business : Rank 133(132)
Starting a business : Rank 169(166)
Dealing with construction permit : Rank 175(173)
Employing workers : Rank 104(102)
registering property : Rank 93(92)
Getting Credit : Rank 30(27)
Protecting Investors : Rank 41(38)
Paying Taxes : Rank 169(171)
Trading across borders : Rank 94(97)
Enforcing Contracts : Rank 182(182)
Closing a business : Rank 138(142)

Rank: 2010 rank(2009 Rank)

One of the intersting thing to notice is that we ranked 27 in getting credit, but 169 in starting a business. What it means? even if we have credit its difficult to start a business? In employing workers it is 102. How this figure become so high? In India which is so famous for cheap labour and talent pool is it difficult to employee them? About paying taxes the less say the better. In 'doing business rankings' Pakistan's rank is 85 China comes in 89.

For starting a busines in India we have to follow 13 procedures, in South Asia it is 7.3 and OECD average is 5.7, the time taken for this process is 30 days in India where as the OECD average is just 13 days.

To build a warehouse there are 37 procedures to follow in India whereas it is 15.1 in OECD countries. Time taken is 195 in India and 157 in OECD countries.

The total tax rate as percentage of profit is a mindblowing 64.7% in India but its only 44.5% in OECD countries. Time taken for payment of various taxes is 271 hours in India; but its only 194.1 in OECD countries. As we are going fast on ecommerce segmant this may soon drop sharply.

Another interesting thing is that the Rigidity of hiring Index in India is 0, where us it is 26.5% in OECD countries!!!

Cost of Import and export in india is low compared to OECD counries but the required documets and time are high.

The number of procedures for enfocing the contract is 46 this results in 1420 days and a cost of 39.6% of the claim. Whereas in OECD countries it is 30, 462.4 and 19.2% only.

What we have to learn from this report? Primary thing to learn is to reduce the number of procedures, why so many procedures? If OECD countries can go on with less number of procedures, why cant we? This high number of procedures results in delay and huge costs. Another thing is that we have to reduce the tax rate but at the same time make it sure that companies are paying the taxes.

In the case of dealing with construction permits, government have to completly rewrite the policy. Also reducing the minimum capital required to start the business is necessary for the entry of many new entrepreneurs.


[OECD: Organisation for Economic Cooperation and Developmnt - International group of 30 high incom countries which accepts th principle of representative democracy and free market economy]

1 comment:

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