Ease of Doing Business – ‘The Rank’ Explained

The Doing Business project by the World Bank provides objective measures of business regulations for local firms in 190 economies. India, recently, has been performing quite well of the Ease of Doing Business Rankings. India now ranks 77 among 190 economies (2019).

What is Ease of Doing Business Rank?

The Ease of Doing Business Rank (EODB) is a measure of an economy’s position to the best regulatory practices. Though World Bank used to publish the ‘Doing Business’ reports from 2003, the ranking of economies started only from 2006.

The EODB study tries to capture the experience of small and mid-sized companies in a country with their regulators, by measuring the time, costs and red tape they deal with.

The goal of the World Bank in coming up with Doing Business score every year is to provide an objective basis for understanding and improving the regulatory environment for business around the world.

The Ease of Doing Business Rank is based on 10 parameters relating to starting and doing business in a country

10 parameters used for calculating the Ease of Doing Busines Rank (Score)

1. Ease of starting a business.
2. Dealing with construction permits.
3. Getting electricity for the same.
4. Registering your property.
5. Getting credit for your business.
6. Protecting minority investors.
7. Paying taxes.
8. Trading across borders.
9. Enforcing contracts.
10. Resolving insolvency.

What is the Importance of the Doing Busines Rank?

Doing Business Rank attempts to quantitatively capture the regulation that small- and medium-sized firms encounter in 190 countries around the world.

EODB rankings are carefully evaluated by foreign investors when they look to start a firm in any country.

India’s performance in the 2019 Doing Business Study

India has been one of the biggest ‘improvers’ in the 2019 study, with its rank shooting up from 100 to 77 last year, among 190 countries. Its rank crept up from 142 to 77 in the five years from 2015 to 2019.

With a rank of 77/190, World Bank now deems India an easier place to do business in than BRICs peers such as Brazil (109) and South Africa (82), however, China has a better rank (46). India’s Doing Business Score is 67.23 out of 100.

Doing Business Parameters – Areas India improved

India’s climb in the 2019 rankings seems to have come mainly from sharply higher scores on two ‘doing business’ indicators — securing construction permits and trading across the borders. It also made smaller improvements in starting a business and getting credit.

Doing Business Parameters – Areas India is yet to improve

India’s score remains dismal on registering property, where it ranks 166. While it takes 69 days to register a piece of property in India, in Newzealand this can be done in a single day!

Another major bottleneck in India is regarding paying taxes. While many Indian businesses make about 13 tax payments in a year (giving away as much as 53 per cent of their profits),  those in businessmen in Hong Kong make just three payments a year. The average tax rate across global economies is less than half of the Indian rate!

The process of calculating the Ease of Doing Business Ranking

As we have already seen, the Ease of Doing Business study tries to capture the experience of small and mid-sized companies in a country with their regulators, by measuring the time, costs, and red tape they deal with.

To collect data, World Bank empanels experts from the largest business cities in each country (only Mumbai and Delhi are surveyed in India).

It has many rounds of interactions with the experts — typically lawyers, business consultants, accountants, freight forwarders, government officials — who can capture the experience of multiple businesses.

Each country is assigned a rank out of 190 based on the total score it earns on 10 key aspects of doing business.

Note: Over 13,800 experts participated in the 2019 study, from June 2, 2017, to May 1, 2018.

Shortcomings of the Doing Busines Report

Though the report acts as an indicator to understand the ease of doing business with respect to companies in major cities, it has many shortcomings.

1. The Ease of Business Report in India does not cover Proprietary and Partnership Firms – Despite the fact that proprietorship and partnership firms dominate the small business space, the EODB rank does not include these types of firms – it covers only companies.
2. The Ease of Business Report in India covers only Mumbai and Delhi – The report does not take into account the red-tapism experienced by the business firms located in tier 2 or tier 3 towns. Delhi and Mumbai cannot be taken as an exact sample of India. Actually, it is the single-window clearance for securing building permits in Delhi and a new online system in Mumbai brought about this quantum change in India’s rankings recently.

Note: Subnational Doing Business Rankings were calculated in 2009 for 17 select locations in India. However, the same is not used to find the Ease of Doing Business Rank of India.