[op-ed snap] Clearing the way for an investment uptick

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Mains Paper 3: Economy | Investment model

From the UPSC perspective, the following things are important:

Prelims level: World Bank Doing Business (DB) rankings

Mains level: India’s performance in DB rankings and its impact on investments in the economy


Context

India’s jump in doing business ranking

  1. India has climbed 23 spots to rank 77th globally in the World Bank Doing Business (DB) rankings for 2019
  2. This is a substantial jump in the rankings for the second year running
  3. Last year, India jumped 30 notches

Efforts undertaken to achieve this feat

  1. India registered improvement in areas like starting a business, dealing with construction permits, getting electricity, getting credit, paying taxes, and trading across borders
  2. The government has undertaken targeted efforts to address shortcomings in these areas—for instance, the National Trade Facilitation Action Plan (NTFAP) 2017-2020 for increasing the efficiency of cross-border trade
  3. Launched last year, it is putting in place the architecture for decreasing border and documentary compliance time, permitting exporters to electronically seal their containers at their own facilities, and reducing physical inspections to up to only 5% of all shipments
  4. Likewise, the implementation of the single-window clearance system for construction permits in Delhi and the online building permit approval system in Mumbai are important
  5. The goods and services tax (GST) is one of the government’s biggest achievements
  6. There has been an improvement in India’s “paying taxes” score

Do DB rankings show a real picture?

  1. The DB rankings have their limitations, as this paper has noted
  2. They are restricted to findings in two cities—Mumbai and Delhi—and reflect the de jure state of affairs
  3. Research in recent years shows that the de facto reality at the enterprise level may be significantly different and vary across states depending on governance quality and state capacity, among other factors
  4. The rankings, however, give investors a yardstick by which to measure government commitment to reforms
  5. Such messaging is important sentiment for investment, particularly foreign direct investment

Signs of an uptick in investments

  1. In its August statement, the Reserve Bank of India’s monetary policy committee said that the persistent output gap had almost closed
  2. There is still excess capacity, certainly, but it has been in steady decline for a while now
  3. According to reports, the Union ministry of finance is likely to sign off on the second round of capital infusion for public sector banks towards the end of November
  4. All of this lays the ground for an uptick in the investment cycle

Way forward

  1. The sluggish rate of resolution of cases that have come under the IBC is becoming a major roadblock in DB ranking
  2. In GST,  the number of hours taken in a year to file taxes rose to 275.4 from 214 last year and delays in GST refunds have constrained working capital for exporters
  3. All such problems need to be addressed to maintain a continuing momentum of climbing up in DB rankings
Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
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