India slips in global ranking for ease of starting up biz, pegged at the bottom heap

23 Oct, 2012

While the number of entrepreneurs starting their own ventures has been gradually increasing in India, it doesn't mean that starting a business in the country has become any easier. According to a report by The World Bank and its private sector investment arm the International Finance Corporation (IFC) called Doing Business 2013, India slipped four notches and figured just above the bottom of the heap.

The report said starting a business in India requires 12 procedures, takes 27 days, costs 49.8 per cent of per capita income and requires paid-in minimum capital of 140.1 per cent of income per capita.

The report has measured the ease of starting a business in an economy by recording all procedures officially required or commonly done in practice by an entrepreneur to start up and formally operate an industrial or commercial business, as well as the time and cost required to complete these procedures. It also records the paid-in  minimum capital that companies must deposit before registration (or within 3 months).

While in many aspects like procedure numbers, time and paid-in minimum capital (per cent of income per capita) have all gone down over the years, the cost (per cent of income per capita or average income per head) has increased by three per cent in comparison with the last report. Globally, India stands at 173 (in the ranking of 185 economies) on the ease of starting a business, which is a slip from the 169th position that it held in the DB2012 report (when the sample had 183 nations).

The average ranking for the South Asia region was much higher at 86 reflects how India compares poorly to other neighbouring countries in ease of starting up and was below each of the block of four fastest growing emerging markets of BRIC(Brazil, Russia and China).

On the flip side, India has come a long way from a decade back, when it took over three months to start a business and cost almost three times in relative terms (compared in per capita income).

Globally, New Zealand maintained the number one position in terms of starting a business, followed by Australia, Canada and Singapore. And while India was 173rd in terms of ranking for starting a business, it fared a little better and was ranked at 132 (same as the last report) in terms of ease of doing business. Singapore topped this list, followed by Hong Kong SAR, China, New Zealand and the US. The overall ease of doing business also tracks aspects such as dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and employing workers.

And while economies around the world have taken steps making it easier to start a business, according to the report, the only reform measured in the country since 2008 was around two years ago, when India established an online VAT registration system and replaced the physical stamp previously required with an online version.

Note that in order to make the data comparable across economies, the report has used several assumptions such as all information is readily available to the entrepreneur and that there has been no prior contact with officials.

It also assumes that the entrepreneur will pay no bribes and that the business is a limited liability company located in the largest business city and has between 10 and 50 employees; conducts general commercial or industrial activities and has a startup capital of 10 times income per capita; has a turnover of at least 100 times income per capita and does not qualify for any special benefits; does not own real estate and is 100 per cent domestically owned.

(Edited by Prem Udayabhanu)