A piece of stat that businessmen, business analysts, research firms, policymakers, govt., entrepreneurs, investors and others eagerly wait for, is termed as the ease of doing business. As the name suggests, it basically tells us how easy or difficult it is for a business to start, run and be maintained across different countries. It’s a data that’s made by the top in the game, the World Bank. It is important cause as our PM said, a better ease of doing business will lead to better ease of living situations. For a developing country like India, achieving an improvement in these business rankings every year is not just a matter of celebration but its an aim, an objective whose fulfilment, India considers as really important so as to give it the much needed impetus for rising above the level at which it has been till now, and further registering it’s name with other more developed nations of the world, though slowly and gradually.

What is EODB?

Ease of doing business is an index published by the World Bank. It is an aggregate figure that includes different parameters which define the ease of doing business in a country. [1]

Better rankings are awarded to the countries where the constraints are minimum to enable the entrepreneurs to transform their ideas into viable businesses.[2] 

First published in 2003, the Ease of Doing Business Index is a World Bank project that looks at small- and medium-sized firms in countries across the world and tracks how easy or difficult it is for them to operate. The index factors in regulatory procedures, legal loopholes and the cost of doing business to arrive at a comparative ranking which provides a snapshot of a country’s business friendliness. The World Bank itself suggests against overemphasizing the rankings. “While Doing Business is a powerful tool for catalysing reforms in business regulation the indicators are not used by policy makers as the only source in structuring reform programs,” it says on the Doing Business website. [3]

How it is calculated

It is computed by aggregating the distance to frontier scores of different economies. The distance to frontier score uses the ‘regulatory best practices’ for doing business as the parameter and benchmark economies according to that parameter. For each of the indicators that form a part of the statistic ‘Ease of doing business,’ a distance to frontier score is computed and all the scores are aggregated. The aggregated score becomes the Ease of doing business index. Indicators for which distance to frontier is computed include construction permits, registration, getting credit, tax payment mechanism etc. Countries are ranked as per the index. [4]

The ease of doing business score captures the gap of each economy from the best regulatory performance observed on each of the indicators across all economies in the Doing Business sample since 2005. An economy’s ease of doing business score is reflected on a scale from 0 to 100, where 0 represents the lowest and 100 represents the best performance. The ease of doing business ranking ranges from 1 to 190. [5]

Indicators or parameters include, Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Minority Investors, Paying Taxes, Trading across Borders, Enforcing Contracts, Resolving Insolvency.

The ease of doing business rank is a stock concept: It represents the reforms that a country has undertaken on various issues like infrastructure, legal systems, etc., over a couple of decades or even more. Hence, this rank ought to be more intricately associated with corresponding macroeconomic stock variables like the level of per capita GDP. [6] Over 13,800 experts participated in the 2019 study, from June 2, 2017 to May 1, 2018. Each country is assigned a rank out of 190 based on the total score it earns on 10 key aspects of doing business.

Where we stand

India has improved from 132 position in Doing Business Ranking in 2008 to 77 position in 2018.

Till rank 53, the level of ease of doing business is termed as “very easy”. From rank 54 onwards, till 97, its “easy”. While rank 98 to 147 is “medium”, rank 148 and till the very end of it all, the level is marked as “below average”.  India unequivocally falls into the category of “easy”, but achieving “very easy” is not going to be a smooth task, having its own range of challenges.

The World Bank now deems India an easier place to do business in than BRICs peers such as Brazil (109) and South Africa (82) and West Asian economies such as Qatar (83) and Saudi Arabia (92). But it has a long way to go before it can catch up with China (46, the Hong Kong Special Administrative Region is at 4), the U.S. (8) or Singapore (a lofty 2). New Zealand is the top dog here.

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. While India managed dramatic changes in some indicators, there were others where its scores barely budged. Its score remains dismal on registering property, where it ranks 166. While it takes 69 days to register a piece of property and costs about 8% of its value in India, the norm for OECD countries is just 20 days at half that cost. New Zealand gets this done in a single day. India also fares poorly, at rank 163, on enforcing contracts. While enforcing a claim through the courts in Mumbai takes 1,445 days and costs 31% of claim value, OECD nations manage this feat in 582 days at a cost of 21%. [7]

All in all, the ease of doing business rankings do serve as the most trusted ready-reckon-er for foreign investors looking to set up shop in a country. For that reason, any major improvement in rankings of the country are an achievement for India to celebrate.

Sources:

[1] https://economictimes.indiatimes.com/definition/ease-of-doing-business

[2] https://www.mbauniverse.com/group-discussion/topic/business-economy/ease-of-doing-business-ranking-of-india

[3] https://scroll.in/article/765709/all-you-need-to-know-about-the-ease-of-doing-business-index-and-why-it-may-not-matter-much

[4] https://economictimes.indiatimes.com/definition/ease-of-doing-business

[5] http://www.doingbusiness.org/en/data/exploreeconomies/india

[6] https://www.livemint.com/Opinion/ZFP18NIFAl8Up0s8FPQySL/Why-the-ease-of-doing-business-matters.html

[7]https://www.thehindu.com/business/Economy/behind-indias-leap-in-ease-of-doing-business/article25469900.ece