Proof of the pudding

Prime Minister Narendra Modi has termed this surge in rankings as a "historic jump" and as a testament to a multi-sectoral reform push

India's ranking in the latest edition of the World Bank's ease of doing business index has surged 30 places to 100 among 190 economies - marking a considerable improvement from 130 last year. Clearly, efforts mounted by the government over the last year or two have paid off, with India, one of the top 10 improvers this time, implementing 33 regulatory reforms that make it easier to do business. The World Bank's quantitative indicators seek to measure 11 areas of business which relate to reforms to create jobs - such as starting a business, registration of property, dealing with construction permits, getting electricity, protection of minority investors, paying taxes, enforcing contracts and resolving insolvency. Where India has made strides is in resolving insolvency through a new law, an improvement in the rules related to businesses paying tax and access to credit besides protection of minority investors.

Prime Minister Narendra Modi has termed this surge in rankings as a "historic jump" and as a testament to a multi-sectoral reform push, having set a target to take the country's rankings to the top 50 after the NDA came to power in May 2014. From the investors' perspective - especially those located overseas - these rankings may matter. What it also shows is that supply side reform is important. For the future, it would mean focussing on the micro regulatory regime - such as making it easy to start or close down business. It is here that India still has a lot of ground to cover, as local entrepreneurs would testify. The World Bank report flags the areas where the country lags - local entrepreneurs need to go through 12 procedures to start a business in India's commercial capital, which is way higher than many high-income economies, besides cumbersome procedures for construction permits, registration of property and enforcement of contracts. What has also to be kept in mind is the fact that this year's assessment does not cover either the impact of demonetisation or the GST - both have disrupted business and the roll-out of reform which, according to a World Bank official, will reflect in its assessment only in the next two to three years.

But, in the current context, what is important is the revival of demand. Businessmen and industry are not investing, not because of the micro regulatory regime or the business climate, but because demand is still weak. This is not to discount the continuing efforts of the government to make it easier to do business. But in this case, the proof of the pudding will be a revival of private investment.