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IFC Helping India To Become More Business Friendly

by Lorys Charalambous, for, Cyprus

10 December 2007

It emerged last week that the World Bank's private sector operation, the International Finance Corporation (IFC) and the World Bank itself are working closely with the Indian government to help the country become more business-friendly.

'Doing Business 2008', the fifth report in an annual series by the World Bank and IFC, ranks India as the top reformer globally in trading across borders and South Asia’s top reformer on the overall ease of doing business. India improved its ranking by 12 places, to 120th this year - achieving a bigger gain than China, which rose nine places to 83rd.

“We are working with the World Bank Group to initiate reforms in the cities of Mumbai, Hyderabad, Kolkata, and Delhi in the first phase, focusing on indicators such as starting a business, dealing with licenses, registering property, trading across borders and paying taxes,” explained Gopal Krishna, Joint Secretary, Department of Industry Policy and Promotion, Government of India.

While presenting the findings of Doing Business 2008 at Delhi last week, Michael Klein, World Bank-IFC Vice President for Financial and Private Sector Development and IFC Chief Economist, highlighted the need for continued momentum on reform.

Besides making it easier to trade across borders, India recently increased access to credit by expanding credit bureau coverage to individuals as well as businesses. It also introduced an electronic registry for security rights granted by companies.

Paolo M. Martelli, IFC Regional Director for South Asia, observed that: “India is setting the standard for reform in South Asia, with an explicit policy objective to become a leading business-friendly economy.”

'Doing Business in South Asia 2007', a regional spinoff of the main report, has found that there are significant differences on the Doing Business indicators across various parts of India. The time to obtain licenses ranges from 159 days in Bhubaneshwar to 522 in Ranchi. The time to register property ranges from 35 days in Hyderabad and Bangalore to 155 in Kolkata.

“If the top score among Indian cities in each of the Doing Business indicators were used for the country as a whole, India would rise 55 places in the aggregate country rankings,” Michael Klein noted.

However, India ranks 177 out of 178 countries in enforcing contracts. It takes almost four years to resolve a commercial dispute through the courts in Mumbai, compared with slightly over a year in Shanghai. It takes 10 years to go through bankruptcy in India, versus less than two years in Shanghai.

Another potential area for reform is in property registration. India ranks 112th on this indicator: it takes two months to transfer property and costs 7.7% of India’s gross national income. In China, it takes half the amount of time and cost.

“The report finds that equity returns are highest in countries that are reforming the most,” added Klein.

“Investors are looking for upside potential, and they find it in economies that are reforming - regardless of their starting point.”

Larger emerging markets are reforming fast: China, Egypt, India, Malaysia, and Vietnam all improved on the ease of doing business. The report also found that regulatory reform encourages entrepreneurship.

As a region, South Asia has picked up the pace of regulatory reform over the past year to become the second-fastest reforming region worldwide, on a par with the speed of reform in the countries of the OECD. Last year South Asia ranked lowest on the rate of reform; this year two-thirds of its countries had at least one reform.

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