India has successfully got the 63rd rank among the 190 nations in the World Bank’s Ease of Doing Business rankings in the 2020 report, jumping up 14 places from the previous year's report. The multilateral body has endorsed many of the reforms of the signature 'Make in India' initiative launched by the Narendra Modi Government a few years ago, with the aim of insolvency resolutions.

This improvement in the rankings will bring a relieve to the government as it is currently struggling to bring out a turnaround in the current economy that is affected by weak consumer demand for a long period as well as lesser investment activities. 

The growth of the gross domestic product (GDP) has been falling to 5 percent in the months of April-June 2019. Our economy has been seen as a global growth engine and has been attracting a lot of foreign investors, but has been recently seen as its investments are falling and the economy is not growing.

As per the World Bank report, India has been recognized as one of the top 10 improvers in this year’s analysis report, successively for the third time. It is said that India is the only country among the large nations that have achieved a significant shift this year.

In its report, the World Bank said that “India, which has conducted successful reforms, recognized in the list for the third time in a row (of the top 10 improvers). According to the size of India’s economy, these reform efforts are commendable.” 

This jump has been significant because it came after last year’s 23 ranks jump when the rank of India had improved to 77 among 190 nations. The country's rank has improved by 67 ranks in the last three years (2017-2019) and by 79 ranks in the last six years (2014-2019).

In the year 2015, the Indian government set a goal for itself to rank 50th in the Ease of doing business by the year 2020 which it had failed, but still, there has been a significant improvement that was applauded by the World Bank.

Next year, India’s rank may rise further when the Corporate Income tax changes come in that were announced by the government last month. In the annual World Bank report, which ranks the countries based on business-friendliness, ease of procedure, regulatory architecture, and absence of bureaucratic red tape, it takes into account all the reforms that were implemented between the months of June-May in any given year.

On 20th September 2019, the Indian government had lowered the corporate income tax rate from 30 percent to 22 percent for all the companies. After the Inclusion of the cess and surcharges, the effective corporate tax rate has come down to corporate tax to 25.17 percent in India. The Newer companies that have been set up after October 1, 2019, will have an even lower tax rate of about 17 percent. 

These new corporate income tax rates will help to bring the country closer to the rates that are found in the emerging and industrialized nations. These newer corporate income tax rates in India will be lower than the other countries, such as the USA (27 per cent), Japan (30.62 per cent), Brazil (34 per cent), Germany (30 per cent) and is similar to China (25 per cent) and Korea (25 per cent). The Newer companies in India will have an effective tax rate of 17 percent, which will be equivalent to what the companies in Singapore pay (17 percent).

As per the World Bank report, Prime Minister Narendra Modi’s “Make in India” initiative has focused on attracting foreign investment, further boost the private sector particularly the manufacturing sector and help to enhance  India's overall competitiveness.

“The Indian government has turned to the Doing Business indicators to show the foreign investors India’s commitment to better reforms and to show tangible progress,” it added.

The World Bank said that “The administration’s efforts to reform have targeted all the areas that have been measured by Doing Business, with a major focus on paying taxes, trading across the borders, and resolving the issue of insolvency,”

After commending the policies of the Modi government in India, the World Bank had said that India has provided an example of successful implementation of reorganization, which includes the strict enactment of the Insolvency and Bankruptcy Code in the year 2016.

It also added that “Before the implementation of the reforms, it had been very tough for the creditors to seize the companies that had not been able to pay off their loans. The common way for the creditors to recover all the debt was through lengthy foreclosure proceedings that usually lasted around five years, hence efficient recovery of the loans was impossible.” 

Because of the new law, there is an option of reorganization (corporate resolution insolvency process) for the commercial firms which is an alternative to the liquidation of debt enforcement, hence reshape the way the firms turned insolvent could be able to either restore their financial wealth or shut down.

Since the implementation of this law, around 2,000 companies have used this law. Out of these, approx 470 have started the liquidation and 120+ companies have approved plans to reorganize and the remaining cases are still to figure out.

Despite the challenges in the implementation of the law whether it is regarding the operations of the court etc, still, the number of reorganizations has been increasing in India. This has become the most accepted procedure for viable companies that have helped increase the overall recovery rate on the dollar from 27 to 72 cents.

India has successfully made starting a business easier. This was achieved by abolishing the filing fees for the company incorporation form, electronic memorandum of association, as well as articles of association.

The World Bank has also commended the reforms of the government in dealing with the permits for construction, enabling the streamlined processes, reducing the time and cost of obtaining these permits, and helped in improving the quality control of the building by strengthening the professional certification requirements.

The country has made it easier to trade across the border by helping enable the post-clearance audits, integration of the trade stakeholders in one single electronic platform, upgrading the port infrastructures, and lastly enhancing the electronic submission of documents.

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image source-The Financial Express