REDUCING COST OF DOING BUSINESS

The Government of India has been on a mission mode to improve the ease of doing business (EoDB).

- MS SAHOO and C K G NAIR

 Not surprisingly, India's rank improved by 79 positions from 142nd in 2014 to 63rd in 2019, as per the last World Bank annual ratings. At the sub-national level, there is intense competition among states, and within a state, among districts to improve EoDB in their respective domains. EoDB has improved for sure, if not uniformly across India.

Business growth, however, does not seem commensurate because the cost of doing business (CoDB) has not reduced as much. EoDB gets enhanced if the law entitles an entity to get approval, resources, and whatever else is required to start a business, carry it on and discontinue it. For example, the law entitles a firm to registration if it meets the prescribed eligibility norms. It, however, adds to CoDB if an entity meeting the norms fails to get registration or gets it after a considerable time. Thus, EoDB and CoDB may pull businesses in opposite directions.

The absence of quality institutions increases CoDB. Take the example of the rule of law, a key market economy institution. If a firm manipulates the stock market and thereby secures capital at a lower cost, an honest firm may not survive the competition. Investors may desert the stock market altogether if a few dishonest firms manipulate the market and get away. The rule of law reduces market manipulation, ensures a level playing field, and strengthens the stock market while encouraging honest business.