Saturday, September 12, 2009

Doing Business Report 2010

The latest version of the World Bank's Doing Business Report, which uses 10 indicators to track changes to regulations that affect businesses, finds that in the June 2008-May 2009 period, 131 countries, mostly from the developing world, introduced 287 pro-business reforms — 20% more than in the previous 12 months and more than in any year since the World Bank started the survey in 2004. It finds ample evidence to suggest that the developing economies are reforming at their fastest pace ever, despite the setbacks of the Great Recession.

The major focus of reforms was on making it easier to start and operate a business, strengthening property rights and improving the efficiency of commercial dispute resolution and bankruptcy procedures. Eastern Europe and Central Asia, and Middle East and North Africa had the most numbers of reform initiatives. Interestingly, Rwanda from sub-Saharan Africa emerged as the world’s top reformer of business regulation, making it easier to start businesses, register property, protect investors, trade across borders, and access credit.

As The Economist writes, lower barriers to entry crowds out the inefficient informal sector, promotes entrepreneurship and adds to the GDP growth. It has been found from across the globe that informal businesses have "lower wages, lower growth rates, poorer safety records, tend not to pay taxes and are prey to corruption". Further, studies show that a ten-day reduction in the time it takes to start a business can lead to an increase of 0.4 percentage points in GDP growth; and people who have a formal title to their property invest as much as 47% more in their businesses.

The Report also contains a section comparing the ease of doing business across 17 Indian cities. It uses 7 parameters in evaluating them - starting a business; dealing with construction permits; registering property; enforcing contracts; trading across borders; paying taxes; and closing a business. It finds that Ludhiana, Hyderabad, and Bhubaneshwar are the most business friendly cities whereas, Kochi and Kolkata, stand at the other end of the spectrum.

Starting a business is fastest in Mumbai and Noida with 30 days and slowest in Kochi with 41 days. Business start up is least expensive in Patna at 38% of income per capita, while in Mumbai, the cost is almost twice as much. The process to obtain construction-related permits and clearances is easiest in Bengaluru, Chennai and Hyderabad, where 15 procedures are required, but more cumbersome in Kolkata and Mumbai, where more than 30 procedures are needed. Indian cities lag behind in the ease of enforcing contracts, closing a business and paying taxes. It also finds that if a city in India were to adopt all best practices that already exist within the country in the seven areas covered by the report, it would rank 67th out of 181 economies, improving India’s global ranking by 55 positions!

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