India's business environment improves but lags Asian peers

The World Bank's Ease of Doing business survey ranked India at the 130th position amongst 189 countries. This marks an improvement of 4 notches from last year's revised ranking. Most improvement was noted in ease of starting business (in terms of procedures, time, minimum paid up capital etc.), getting electricity and dealing with construction permits. Other parameters registered no change or a small fall. 

This improvement is taken as a reflection of the successful reforms undertaken by the government in its first year in office. But meeting the goal of rising to the top 50 in these rankings will require deeper, broader and structural changes in the business environment. This is likely to prove to be a challenge. As it stands, India's rankings are weakest amongst its Asian peers, also lagging Russia, South Africa and Brazil.

A marked improvement in the rankings here on will require changes across the areas covered by the study. This includes easing the time and process of registering a business, registering property, gaining credit, enforcing contracts and resolving insolvency, amongst others.

Early changes are underway, i.e making contracts/ permits web-based, pushing through the bankruptcy law, passage of goods and services tax etc. But these are far from complete. Legislative hurdles have also stalled progress on key bills. Beyond the state election results due in the first half of Nov, focus will shift to the winter parliamentary session is due to start later in the month. We expect constitutional amendments to the GST bill to be given priority in the next sitting, though implementation will get pushed beyond Apr16.

"We maintain that aggregate demand conditions are likely to improve gradually in the coming quarters, along with a cyclical upturn in industrial activity driven by higher government-led infrastructure investments, lower financing costs and easing inflation. Structural tailwinds are however lagging and will impinge on the economy's return to high growth rates in the medium-term," commented DBS Group Research notes.