Afterthought

It’s No More Business As Usual

It’s No More Business As Usual
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India has become an attractive destination for investors

EVER SINCE IT took charge, the Narendra Modi Government has tried very hard to woo investors and investment. From personal visits to the Gulf region to Silicon Valley, much effort has been expended on opening the world’s purse strings for India. It has worked, to an extent.

A big block in this mission has been the kind of signals investors receive. Most do not have the wherewithal to carry out specific research to figure out if India is a suitable destination for their money. Instead they rely on globally accepted indicators that demonstrate a country’s willingness to help businesses overcome red tape. One of the better known tools for this purpose is the World Bank’s Doing Business (DB) ranking, which assesses countries on 10 business-related parameters. Ranked every year, this indicator is watched by analysts in many countries, especially in the developing world. A better DB rank sends out a positive signal to prospective investors.

This year, India made a huge jump in DB rankings after years of rather indifferent performance. Historically, India’s ranking has been in the 130 to 140 range for a long time, out of the 190 countries ranked. This year, India suddenly jumped from 130 to 100, a huge gain. India was put in the top ten reformers by the index’s scorers this year. There could not be a clearer signal of India becoming a business-friendly destination.

In the days since the report was released, there has been plenty of nit-picking about some of the individual components of the ranking where India’s performance has been disappointing at best. The country has a long way to go on fixing issues like starting a business, dealing with construction permits, registering property and, importantly, enforcing contracts. There are, however, other, equally difficult areas where India has done better, for example on resolving insolvency.

The other issue with this criticism is its obsession with absolute ranks instead of the pace of improvement. This is measured by what is called the Distance to Frontier or DTF. This assigns scores on individual parameters from 0 to 100, where 100 is the ‘frontier’ or the maximum that a country can do. This year, India’s DTF has gone up in all 10 components that make up the DB chart, with its overall DTF score being 60.75 (out of 100), up by 4.71 over the last edition. India is on the march.