New Year resolution: Cut business costs
new year upon us, India is making a second concerted attempt at reducing the cost of doing business (CoDB), with NITI Aayog planning to conduct a study on the issue. The original burst of administrative reforms pitchforked India into the top 100 in the World Bank's business-friendliness rankings. A second, deeper thrust could place it in the top 50 when the Bank renews its discontinued survey.
Improvements in CoDB seek to address issues such as land, labour, utilities, logistics and regulation. The last item on that list is the low-hanging fruit and GoI is correct in seeking a continuous reduction in compliance burden. Other areas require strengthening cooperative federalism to lower fixed and variable costs of doing business.
India's rise through the rankings is a relative development.
It stands to benefit from deterioration of the Chinese environment. But it is also overshadowed by much more rapid gains in Vietnam. The benchmark will necessarily have to be countries that are doing better than India for it to be able to offer an alternative base for global manufacturing value chains.
The ranking methodology uses per-capita income to normalise scores, and this requires India to reduce both absolute and relative costs. Critically, this boils down to lowering turnaround time for a spectrum of business processes. The business-government interface needs to be streamlined and delayered.
India also needs to work around its handicap of not being part of regional trade blocs that tend to unify the business environment within them.
Its effort must go beyond tariff policy into trade facilitation. Sustainability needs to be factored into CoDB, as does the geopolitical country risk. Being on the right side of fragmenting trade
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