The euphoria around the World Bank thumbs up justifies the Narendra Modi government’s celebrations, as the quantum leap to the 100th spot in the World Bank annual report card consolidates its future economic trajectory. Irrational exuberance it is, as the India Story had begun its temporary deceleration after the twin structural reforms, and the RBI shocker of 5.7% growth only mirrored the extent of slowdown. The report card on Ease of Doing Business (EODB) is highly laudatory in the political will displayed by Team Modi targeting “100 going on 50”, a scale-up that can only be achieved under Modi 2.0, but only post-2019.
As of now the glass is half-full and its reason for partial cheer, reflecting as it does only one part of a whole, which is how conducive is the political-economic environment in facilitating enterprise. Firstly, it is a limited dip-stick of parameters culled from Delhi and Mumbai, the political and financial capitals of India. That “mean” could have dipped if it included “B townships” and state capitals of BIMARU states like Bengal and Bihar. Yet the jump is significant in its reflection of evolving corporate ethics and in sync with Team Modi’s goal to re-brand Business India through multiple reforms at economic purging. However, just as the Sensex at lifetime highs of 33,000 doesn’t mirror accurately an economy in pain, or like Moody’s and Fitch ratings only reflect the credibility parameters of nations, the WB report card is a first-step criterion for investment considerations. Because the report reflects a futuristic uptick that will make India a preferred destination for industry, and is a vital input for any project manager’s spreadsheet while doing his due diligence and SWOT analysis (strengths, weaknesses, opportunities and threats) to consider.
However, ratings can never be interpreted or interspersed for economic growth, and tangible benefits on job creation and GDP growth will only manifest later. Our regulators date back to the 1960s, so starting a business, registering property, accessing finance etc., each check post has to pass through resistant babus, who are discretionary and demand their pound of flesh. And corruption costs are built into project costs as a “given” in doing business in India, as lower bureaucracy remains graft-ridden despite best intentions.
There are multiple other factors that businesses give weight to, before setting up shop anywhere in the world, like predictability of government policies and a congenial versus a predatory tax regime; ease of living, like environmental pollution, health and education facilities in proximity to the location of industry or commerce where executives will relocate; the corruption index, which is high even in China or Russia; freedom of speech index; or even gender parity index, which slid 21 places in the WEF Global Gender Gap; land and labour reforms, as also expediency in dispute resolution, are criteria to gauge the ambient, local conditions before infusing fresh capital, particularly big-ticket FDI. High EODB ratings are at best a “tempter” or facilitator at the primary level of decision making for any entrepreneur. Other considerations then get weight based on market forces, like supply and demand, cost of capital, macro-global headwinds, and micro or local economic conditions. As India complies to a rule-based global order, it is a huge plus, yet political leanings of a ruling regime being leftist\centrist\rightist or a coalition or protectionist are also vital determinants in luring or deterring capital influx.
Targeting to get to the “Top 50” is entirely do-able with a decisive leader like Modi, if only he lowers corporate taxes to globally competitive levels, taking a leaf out of the otherwise erratic Trump’s policies. Secondly, reining in the bureaucracy, especially lower bureaucracy, and instating the long awaited Lok Pal ombudsman is a priority, because “governments make policies, legislators make laws, and bureaucracy sabotage both”, and while governments get voted out, bureaucracy outlives them all. Time-bound clearances must be rewarded and bureaucracy corporotised by building in incentives into their salary-structure, as equally delays or harassment in awarding clearances must be penalised. For example, bureaucratic bottlenecks ensured no major Make in India project took off in three years, making a well-intentioned government thrust sabotaged by a well entrenched bureaucracy.
Lastly, working on India’s Internal Report Card is a more important certification than the external international ratings, because a holistic approach to economic progress must also include EODB parameters for the marginalised at the bottom of the pyramid. On this last count, Team Modi deserves maximum credit in moving the needle, because Modinomics recognises government cannot create all the 16 million jobs needed annually to absorb the workforce. So the solution lay in fostering an entrepreneurial society, which created newer businesses and laying the foundations for future force- multipliers for EODB in rural India, as half the population still depends on agriculture, which only contributes to 16% of GDP. This is the segment that aspires to migrate to MSMEs, services and manufacturing sector, which can enhance productivity and GDP to above 7%, through EODB initiatives taken by government in:
* the thrust to village electrification, affordable housing and toilet construction, helping lift the ease of living for the rural poor;
* initiating Jan dhan, the most ambitious inclusion project when millions came into the banking net with 30.24 crore zero accounts, who now have Rs 66,466 crore as deposits, and having understood the virtue of savings will over time widen the mutual fund and insurance sectors;
* the Mudra scheme, in funding the unfunded without collateral, helped with seed capital for self employment in setting up rural cottage industries, where loans were taken by rural womenfolk, Scheduled Castes and OBCs.
At the end of Modi’s term, the voter will gauge him more by what I am calling the “Internal Report Card” and the prism of the above mentioned initiatives that bridged the gap between the privileged and marginalised, than a certificate by IMF, WB or any international ratings agency. Because improving EODB in rural India is as important as EODB for urban India.
Bindu Dalmia is author and columnist.