"Ease of doing Business in India 2014"

Ease of Doing Business in By India -Group10

2014(A study of World Bank report and suggestions of Damodaran

committee)

The Doing Business Report (DB) is a study elaborated by the World Bank Group since 2003 every year that is aimed to measure the costs to firms of business regulations in 183 countries in 2012. The study has become one of the flagship knowledge products of the World Bank Group in the field of private sector development, and is claimed to have motivated the design of several regulatory reforms in developing countries. The study presents every year a detailed analysis of costs, requirements and procedures a specific type of private firm is subject in all countries, and then, creates rankings for every country. The study is also backed up by broad communication efforts, and by creating rankings, the study spotlights countries and leaders that are promoting reforms

India’s rank dropped positions from 131 last year to 134 this year

Chad is the worst place to do business, switching positions with Central African Republic, which ranked second-to-last, according to the World Bank

INTRODUCTION

Source: Doing Business Report, World Bank

Changes in various

parameters since last

Year

Comparing with

Neighbours and BRICS

nations


Doing BusinessRanking

Of Indian Cities

2014

A study was conducted by Global Initiative for Restructuring Environment and Management (GIREM) and a not-for-profit industry body, DTZ, a global leader in property services.

It rates the cities based on factors such as human capital, energy, water, transport, housing, healthcare, climate, office space availability and city culture, among others. These constitute the basic eco-socio-economic factors critical in determining the growth of the city.

As per the report Bangalore has been given highest ranking of 1, followed by Chennai and Mumbai respectively. Chennai has outscored Mumbai, the financial capital of India, as the city is a major industrial, cultural, commercial, economic and educational hub in South India.

BangaloreChennaiMumbaiPuneIndore

BhubaneswarCoimbatoreAhmedabad

NagpurKochi

ChandigarhHyderabadMangaloreVadodraJaipurCalicutNoidaKolkataGurgaon

Navi MumbaiVishakhapatnam

123456789101112131415161718192021

Ranking of Cities 2013

Source: Report of GIREM and DTZ

Doing Business measures the ease of starting a business by recording all procedures officially required by an entrepreneur to start up. Indicators taken into account are:

Number of procedures to legally start and operate a company

Time required to complete each procedure

Cost required to complete each procedure

Paid-in minimum capital

INDICATORS FOR MEASURING EASE OF STARTING BUSINESS IN INDIA:

The ranking given by calculating the simple average of the percentile rankings on the 4 component indicators: Procedures, Time, Cost, paid-in minimum capital requirement.

• Information is readily available to the entrepreneur.• The entrepreneur will pay no bribes.• Business conducts general commercial or industrial activities. • Business has a start-up capital of 10 times income per capita. • Business has a turnover of at least 100 times income per capita.• Business does not qualify for any special benefits.

METHOD USED TO GIVE RANK:

ASSUMPTIONS ABOUT BUSINESS AND PROCEDURES

• Starting a business in India requires 12 procedures to be followed, takes 27 days to complete all these procedures, costs 47.3% of income per capita and requires paid-in-capital of 124.4% of income per capita.

• India stands 179 in ranking of 189 economies on the ease of starting a business:

Mexico

South asia

Russian federation

Japan

Brazil

China

Indonesia

India

48

86

88

120

123

158

175

179

Ease of starting a business

Rank

COUNTRIES

• TIME: India takes 27 days, New Zealand ranks first as it takes only a day to complete registration process.

• PROCEDURE: India still follows the same number of 12 procedures making no changes since 2004.

CHANGES OVER TIME IN PARAMETERS FOR STARTING BUSINESS:



• COST: In India, it is somewhere around 47.3% of per capita income. The cost of completing the procedure has reduced significantly from 80% in 2007 but it is still above average

• PAID-IN MINIMUM CAPITAL: amount that has to be deposited in the bank or with notary before registration or within 3 months of registration. In India, paid-in minimum capital is around 124.4% of per capita income. Though there has been a drastic reduction in the amount to be paid but this is still much higher



• Economies around the world have taken steps making it easier to start a business - streamlining procedures, making procedures simpler or faster by introducing technologies however India has been a laggard in this respect taking initiatives only in 2011 by establishing an online VAT registration system.

RESOLVING INSOLVENCY

A robust bankruptcy system functions as a filter, ensuring the survival of economically efficient companies and reallocating the resources of inefficient ones. Indicators taken into account are:

Time required to recover debt (years)

Cost required to recover debt (% of debtor’s estate)

Outcome

Recovery rate for creditors (cents on the dollar)

INDICATORS FOR MEASURING EASE OF RESOLVING INSOLVENCY IN INDIA:

• India stands 121 in ranking of 189 economies on the ease of resolving insolvency in India:

Japan Mexico

Russian FederationChina

Regional Average (South Asia)IndiaBrazil

Indonesia

126

5578

105121

135144

Ease of resolving insolvency

Rank

COUNTRIES


• TIME: Time taken to resolve insolvency has been constant at 4.3 years since 2004 and there has been no change till today.

CHANGES OVER TIME IN PARAMETERS FOR RESOLVING INSOLVENCY:


• COST REQUIRED TO RECOVER DEBT: includes court fees, lawyers’ fees and other related fees and for India it is around 9% of debtor’s estate.

• RECOVERY RATE: measures the cents on the dollar recovered by creditors, present value of debt recovered etc. In India, the cents recovered on the dollar are less i.e. 25.6 cents.



• Even in this scenario, India has taken little measures and done less on bringing new reforms to improve the current situation. It only took steps in 2010 & eased the process of closing a business by making processes more effective thus reducing time needed.

GETTING CREDIT

The economy has a score of 5 on the depth of credit information index and a score of 8 on the strength of legal rights index

Higher scores indicate more credit information and stronger legal rights for borrowers and lenders.

Standing of the economy today

Globally, India stands at 28 in the ranking of 189 economies on the ease of getting credit

HAS GETTING CREDIT BECOME EASIER OVER TIME?

Construction Permit

According to data collected by Doing Business, dealing with construction permits' in India requires 35 procedures, takes 168.0 days and costs 2640.4% of income per capita

Standing of the economy today


HAS DEALING WITH CONSTRUCTION PERMIT BECOME EASIER OVER TIME?


Procedures: Worsened over time-much above regional average

Time : Improved over time. Now below Regional average

Cost: Has decreased steadily over time but still above regional average


“ Taxes are what we pay for a civilized society”

Taxes are essential. They fund the public amenities, infrastructure and services that are crucial for a properly functioning economy

But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules should be avoided

Tax payments for a manufacturing company in 2012 (number per year adjusted for electronic and joint filing and payment)

Time required to comply with 3 major taxes (hours per year)

Total tax rate (% of profit before all taxes)LOCATION OF STANDARDIZED COMPANY City: Mumbai

WHAT THE PAYING TAXES INDICATORS MEASURES

• On average, firms make 33 tax payments a year, spend 243 hours a year filing, preparing and paying taxes and pay total taxes amounting to 62.8% of profit

• Globally, India stands at 158 in the ranking of 189 economies on the ease of paying taxes

STANDING OF THE ECONOMY TODAY


Over the years, paying Taxes has become easier, with the government merging many taxes and eliminating others, new electronic filing and payment system along with new technology saves a lot of time and is transparent

CHANGES OVER TIME IN PAYING TAXES -


Changes have brought concrete results.

Some noticeable changes by India to make paying taxes easier –

•Consolidating filings

• Reducing the frequency of payments

• Offering electronic filing and payment

• Lowering tax rates

Economies around the world have made paying taxes faster and easier

for businesses

Reforming the tax system, by ensuring rates are at a reasonable level and making it easier to pay, will encourage local businesses to register and pay their taxes and can help developing country governments increase their tax revenues


ENFORCING CONTRACTS

Efficient and transparent courts encourage new business relationships because businesses know they can rely on the courts if a new customer fails to pay.

Speedy trials are essential for small enterprises, which may lack the resources to stay in business while awaiting the outcome of a long court dispute.

The seller and buyer are located in the economy’s largest business city. The buyer orders custom-made goods, then fails to pay. The seller sues the buyer before a competent court. The value of the claim is 200% of income per capita. The seller requests a pretrial attachment to secure the claim. The dispute on the quality of the goods requires an expert opinion. The judge decides in favor of the seller; there is no appeal. The seller enforces the judgment through a public sale of the buyer’s movable assets.

Assumptions :

• Procedures to enforce a contract through the courts (number) :

Steps to file and serve the case Steps for trial and judgment Steps to enforce the judgment

• Time required to complete procedures (calendar days) :

Time to file and serve the caseTime for trial and obtaining judgmentTime to enforce the judgment

• Cost required to complete procedures (% of claim) : Average attorney fees , Court costs, Enforcement costs

WHAT THE ENFORCING CONTRACTS INDICATORS MEASURE

Contract enforcement takes 1420 days, costs 39.6% of the value of the claim and requires 46 procedures

Globally, India stands at 186 in the ranking of 189 economies on the ease of enforcing contracts


Changes over time

Economies in all regions have improved contract enforcement in recent years



A judiciary can be improved in different ways.

Higher-income economies tend to look for ways to enhance efficiency by introducing new technology.

Lower-income economies often work on reducing backlogs by introducing periodic reviews to clear inactive cases from the docket and by making procedures faster

ENFORCING CONTRACTS :

City: Mumbai Claim Value LCU: 142711 Court Name: Bombay City Civil Court


GETTINGELECTRICITY

Access to reliable and affordable electricity is vital for businesses. To counter weak electricity supply, many firms in developing economies have to rely on self-supply, often at a prohibitively high cost.

• Procedures to obtain an electricity connection (number)

•Time required to complete each procedure (calendar days)

•Cost required to complete each procedure (% of income per capita)

Whether electricity is reliably available or not, the first step for a customer is always to gain access by obtaining a connection

In an effort to ensure safety in the connection process while keeping connection costs reasonable, governments around the world have worked to consolidate requirements for obtaining an electricity connection.

WHAT THE GETTING ELECTRICITY INDICATOR MEASURE

The warehouse:

•Is located in the economy’s largest business city, in an area where other warehouses are located. •Is not in a special economic zone where the connection would be eligible for subsidization or faster service.

•Has road access. The connection works involve the crossing of a road or roads but are carried out on public land.

• Is a new construction being connected to electricity for the first time.

•Has 2 stories, both above ground, with a total surface of about 1,300.6 square meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square feet).

Some Assumptions to make data comparable

Economy Standings in India today -

Getting electricity here requires 7 procedures, takes 67 days and costs 230.7% of income per capita


Globally, India stands at 111 in the ranking of 189 economies on the ease of getting electricity

Other statistics can be depicted below -

In many economies the connection process is complicated by the multiple laws and regulations involved—covering service quality, general safety, technical standards, procurement practices and internal wiring installations.


Summarized Procedure for India - 1. Submit application to the local distribution utility and await site inspection (

7 calendar days )

2. Receive external site inspection from the utility and await estimate ( 8 calendar days )

3. Electrical contractor conducts external connection works ( 7 calendar days )

4. Submit electrical contractor's wiring and test report and estimated amount to the utility ( 1 calendar days )

5. The utility inspects wiring and installs meter ( 7 calendar days )

6. It then inspects and tests installation ( 7 calendar days )

7. Submit meter security deposit, receive external connection and the electricity starts flowing ( 30 calendar days )

OBTAINING AN ELECTRICITY CONNECTION City: Mumbai Name of Utility: Bhrihan Mumbai Electricity & TransportUndertaking

Protecting Investors

Protection of investors matters for the ability of companies to raise the capital to grow, innovate, diversify and compete.

If the laws does not protect minority shareholders, investors may be reluctant to provide funding to companies through the purchase of shares unless they become the controlling shareholders.

Ranking 2013: 32Ranking 2014: 34

India needs detailed disclosure and define clear duties for directors

Well-functioning courts and up-to-date procedural rules that give minority shareholders the means to prove their case and obtain a judgment within a reasonable time

Transparency of Related-Party Transactions

Liability for Self-Dealing

Minority Shareholders’ Access to Evidence Before and During Trial

Japan

India

Indonesia

Mexico

Regional Average (South Asia)

Brazil

China

Russian Federation

16

34

52

68

80

80

98

115

Rank

Where does India stand today?While indicators does not measure all aspects of investor protection, a higher rank indicates that an economy’s regulations offer stronger investor protections against self-dealing in the areas measured.

What are the changes over time?

Indicators India South Asia average OECD high income average

Extent of disclosure index

7 5 7

Extent of disclosure index

4 4 5

Ease of shareholder suits index

8 6 7

Strength of investor protection index

6.3 5.1 6.2

Trading Across Borders

Making trade between economies easier is increasingly important for business.

Excessive document requirements, customs procedures, inefficient port operations and inadequate infrastructure all lead to extra costs and delays for exporters and importers, stifling trade potential

Where does India stand today?

Japan

Mexico

Brazil

Regional Average (South Asia)

23

54

59

74

124

132

134

157

Rank

Exporting a standard container of goods requires 9 documents, takes 16 days and costs $1170. Importing the same container of goods requires 11 documents, takes 20 days and costs $1250

What are the changes over time?

India’s implementation of EDI in 2009 reduced the export time. This was a major reform undertaken according to the DB report

Governments have introduced tools to facilitate trade—including single windows, risk-based inspections and electronic data interchange

LOCATION OF STANDARDIZED COMPANY

City: Mumbai

Documents

"Ease of doing Business in India 2014"