DOING BUSINESS IN INDIA STILL TOUGH

Ravikumar.G , Last updated: 27 September 2007 Share Follow on Google News

First the good news. In the Doing Business report 2008, which is brought out annually by the World Bank and International Finance Corporation (IFC), India has climbed 12 ranks, which makes it the fastest-reforming economy in south Asia. Its speed of reforms is faster than that of arch-rival China which moved up only 9 places. And now the bad news: India ranks a lowly 120, which implies that two-thirds of the 178 economies included in the study provide a better environment for doing business. Many of India's south Asian neighbours have scored better in the aggregate ranking: China (83), Pakistan (76), Sri Lanka (101), Bangladesh (107) and Nepal (111). Go south-east and the gulf gets wider: Singapore (1), Hong Kong (4), Japan (12), and Malaysia (24). The purpose of the study, according to Sabine Hertveldt, private sector development specialist at IFC and one of the authors of the report, is "to provoke and inspire governments so that entrepreneurs have to deal with less red tape". It assesses countries on 10 indicators (see table for how India fares on each). According to Hertveldt, the 12-position jump in India's ranking has come about primarily because of its good performance on the 'trading across borders' indicator, where it is the top reformer this year. India introduced online customs declarations for imports and exports, which has helped cut delays for exporters and importers by seven days. India has also done well on the 'getting credit' criterion with its credit bureau now providing payment histories of not only individuals but also of businesses. Tax payment, however, is an area in need of reform. On the positive side, India is implementing electronic filing of tax returns. However, it fares poorly on several parameters. On an average, Indian companies make 60 payments annually (double the regional average), spend 271 hours per year on tax compliance, and pay 70.6 per cent of their profit in taxes (the regional average is 41 per cent). So there is room for improving both tax administration and for lowering tax rates. Says Hertveldt: "Lowering tax rates would not necessarily imply lower revenues for the government, as India's own experience with slashing property tax rates shows"

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