PM Modi, Are You Aware Of Egregious Officers Destroying Business?

As Modi govt cherishes India’s rise in the EODB index, is he aware of the ‘other EODB’ hurting Indian businesses?

Ease of Doing Business (EODB) is an extremely narrow even misleading, summation of a few economic rules which matter to a tiny, very tiny, sliver of India’s vast population.

(Photo: The Quint/Kamran Akhter)

Cameraperson: Abhishek Ranjan
Video Producer: Anubhav Mishra
Video Editor: Mohd Ibrahim

Most of us assume, quite innocently, that the World Bank’s Ease of Doing Business (EODB) Index is the gold standard of economic performance. In reality, it’s an extremely narrow, even misleading, summation of a few economic rules which matter to a tiny, very tiny, sliver of India’s vast population.

Here are a few eye-opening facts:

1) EODB is a Subjective View of Few Dozen Experts

EODB is derived from the subjective views of a few dozen experts in Mumbai and Delhi. That’s it! It’s not based on an objective, statistical collation of hard facts gathered from across the country. And its outcome matters to less than 5 percent of India’s population.

2) ‘Kota Coaching Class’ Approach by The Govt

Most of the improvements came from just four rules that were swiftly changed by the finance minister at a meeting held on 26 December 2017.

This has been criticised as a “Kota coaching class” approach to “gaming the system” rather than effecting a fundamental change:

• Enforcing a single window clearance for building permits in Delhi and Mumbai.
• Allowing exporters to seal their containers electronically, reducing physical inspections to 5% of shipments.
• Introducing a single form for company incorporation.
• Lowering the cost of getting electricity.

That’s it! Just these meagre tweaks to a few rules in Mumbai and Delhi are supposed to have transformed India’s economy.

Never mind the fact that on three significant parameters – paying taxes, resolving insolvency and enforcing contracts – we actually slipped. But why bother with such trivia in a post-truth world?

What EODB Doesn’t Take into Account

Now, it’s even more critical to check what the EODB Index does NOT take into account:

• Drop in the investment rate from 37 percent to 27 percent in less than a decade.
• Shortfall in GST collections by nearly Rs 1 trillion in the current fiscal.
• Withdrawal of nearly Rs 1 trillion by foreign portfolio investors this year.
• Increase in unemployment to 18.9 million by 2019 (as per ILO).
• Sluggish exports through four years of Modi rule failing to touch the 2013-14 record of $313 billion even once.
• Non-performing assets of nearly $130 billion (about Rs 9 trillion) on banks’ balance sheets.
• Refusal by the government to honour global arbitration awards on tax disputes.

Modi’s Old Echo Chamber Voices Discontent

Now see what Prime Minister Modi’s older echo chamber the Gujarat Chamber of Commerce and Industry (GCCI) had said just two days ahead (on 16 November 2018) of his euphoric event to celebrate the EODB’s success.

I am going to quote GCCI verbatim:

• Gujarat’s textile production to fall by at least 20-25 percent this year, on account of GST and attacks on migrants.
• Surat’s synthetic cloth production is down from 4 crore to 2.5 crore meters.
• Gems and jewellery exports down by 4.3 percent this year. 50,000 units in Surat and Saurashtra, employing 200,000 workers could down the shutters because of the delayed refund of input credits.
• Over 2,000 SMEs are on the verge of closure due to the ban on plastics in major Gujarat cities.
• Nearly 5.38 lakh youth were registered as unemployed in Gujarat in December 2017; only 12,689 youth got government jobs over the past two years; Ahmedabad has the highest number ie, 62,608 unemployed youth registered at the exchange.
• This slowdown can be termed as the worst in the past four years.

Now, if you are still not convinced, consider this: Over the last month, 2,000 Indian start-ups have received notices from the Ministry of Corporate Affairs (MCA) asking them to “justify the premium” at which they have raised equity funds or else face harsh penalties and taxes. This has reopened and sprinkled fresh salt on old wounds, when two years ago the Income Tax Department had issued the exact same notices.

But this time, the net has been widened to include private equity and venture capital investors too, in addition to angel investors. It’s a second, and more severe, whammy for the same “crime”!

So, even as Prime Minister Modi got “India Shining” bouquets from his Mumbai/Delhi echo chamber on EODB – his Gujarati kinsmen and India’s first-generation founders, if he had cared to speak to them, would have given a very different “India Taxing” brickbat.

Egregious Officers Destroying Business.