India has been a consistent reformer

India has been a consistent reformer
The Financial Express, September 10, 2009, Page 2

P Raghavan

India and China are ranked very low on ‘Doing Business Report’ despite being the fastest growing economies. In an interaction with P Raghavan of FE, Dahlia Khalifa, co author, Doing Business team explains key business regulations and issues, which play a crucial role in attracting investors. Excerpts

Pace of regulatory reform has touched a record high during the last year. Has the quality of reforms also show a substantial improvement by focusing on core areas?

Last year, the reforms recorded were the highest ever. There was a 20% increase in reforms with the number of reforms implemented in 131 countries going up to 287. And two-third of these reforms were in developing countries unlike the scenario in the early years of the decade where the reforms were mostly in the developed countries

A major change that is noticed is that more and more countries are recognising the importance of the small and medium industries and the quality of regulatory measures in 10 areas of the business life cycle. Our study has also focussed on the SME sector as it is the largest sector in most countries. We also notice that the recession has forced the government to focus on this sector.

But the reforms seem to have evaded most of South Asia where ranking has slipped in case of most countries. Why is South Asia lagging?

This is because the ranking are relative. Some countries are naturally reforming faster than the others. So many countries in South Asia, which are reforming at a slower pace see a slippage in rankings. The differences are not just related to the pace of reforms but also the breath of reforms. Each of the 10 indicators which we have identified carries equal weight. So countries like Luanda come to the top as the country has taken up extensive reforms in 7 of the 10 areas. India has been a consistent reformer over the last 5 to 10 years.

But one should also remember that the national ranking in the study are based on the survey carried out in the largest city. In India’s case it is Mumbai, while it is Beijing in China and New York in the United States.

But Mumbai is not the top ranked city when it comes to doing business in India. As our earlier report on doing business in India showed, there are large differences across cities and places like Ludhiana and Hyderabad rank much higher than Mumbai.

India’s ranking in the 10 different areas is very skewed ranging from 30 in the getting credit ranking to 182 in enforcing contracts ranking. Which are the areas that should get top priority in India’s regulatory reform agenda?

Countries set their priorities according to their plans and generally it can be noticed that government normal tend to focus on reforms that can be done through administrative changes which are much easier to push through. Such step can for instance help to make the procedures for starting a business much more efficient like by doing it on line or from a single desk. But other reforms like legal changes are much more long term in nature like in the case of enforcing contracts. But India has a very good record in other areas like the ease of securing credit and protecting investor rights and these are impressive.

How relevant is the Doing Business ranking given that countries like India and China which continue to be among the fastest growing economies are ranked very low?

India and China are attracting investors. This study looks at the issues concerned with business regulations and there are a whole lot of other issues, which play a crucial role in attracting investors like market size, stability, the macroenvironment and so on which plays a equally important role in deciding the investments and overall growth of the economy.