Ease of doing business- An Understanding


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.


The ease of doing business indicates better, usually simpler, regulations for businesses and stronger protections of property rights. While fewer and simpler regulations often imply better ease of doing business, this is not always the case. Protecting the rights of creditors and investors, as well as establishing or upgrading property and credit registries, may mean that more regulation is needed.
Ease of Doing Business Index (EDBI)
Generally, an ease of doing business index (EDBI) is a composite measure of the various ways an economy facilitates production and a vital consideration that governs a country’s ability to realize potential GDP. Improved EDBI might result from many interactive changes in countries’ business environments as they affect both domestic economies' activity and international trade. For example, an improved EDBI in a country might cause an increase in foreign direct investment, which in turn might increase competition in domestic markets. The latter lowers domestic prices, leads to an increase in local purchasing power, and thereby increases consumption. Ultimately, this dynamic scenario results in faster economic growth.
The Ease of Doing Business Index is a measure of the extent to which a country’s regulatory environment is conducive to business operation. The Index, which is provided by the World Bank, ranks economies from 1 to 189 with first place being the best. For example, with regards to the Least Developed Countries (LDC) , Chad ranked worse at 185 in 2011, it improved by 0.5% in 2012. In contrast, while Rwanda ranked better than Chad at 48 in 2011, it worsened by 8.3% in 2012. As for the Newly Industrialized Economies (NIE) , the Philippines, India, and Brazil ranked worse than South Africa, Thailand, and Malaysia. As expected, emerging and developing economies rank better than lesser-developed economies, no doubt the result of reform and technology to name a few.
World Bank Group
 The ease of doing business index is an index created by the World Bank Group. Higher rankings (a low numerical value) Empirical Research funded by the World Bank to justify their work show that the effect of improving these regulations on economic growth is strong.
"Empirical research is needed to establish the optimal level of business regulation—for example, what the duration of court procedures should be and what the optimal degree of social protection is. The indicators compiled in the Doing Business project allow such research to take place. Since the start of the project in November 2001, more than 800 academic papers have used one or more indicators constructed in Doing Business and the related background papers by its authors.
The index is based on the study of laws and regulations, with the input and verification by more than 9,600 government officials, lawyers, business consultants, accountants and other professionals in 185 economies who routinely advise on or administer legal and regulatory requirements.
The ease of doing business index is meant to measure regulations directly affecting businesses and does not directly measure more general conditions such as a nation's proximity to large markets, quality of infrastructure, inflation, or crime. A nation's ranking on the index is based on the average of 10 sub-indices:
(i) Starting a business – Procedures, time, cost and minimum capital to open a new business
(ii) Dealing with construction permits – Procedures, time and cost to build a warehouse
(iii) Registering property – Procedures, time and cost to register commercial real estate
(iv) Getting credit – Strength of legal rights index, depth of credit information index
(v) Protecting investors – Indices on the extent of disclosure, extent of director liability and ease of shareholder suits
(vi) Paying taxes – Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit
(vii) Trading across borders – Number of documents, cost and time necessary to export and import
(viii) Enforcing Contracts – Procedures, time and cost to enforce a debt contract
(ix) Resolving insolvency – The time, cost and recovery rate (%) under bankruptcy proceeding
(x) Getting Electricity – procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
The Doing Business project also offers information on following datasets:
(a) Distance to Frontiers - Shows the distance of each economy to the “frontier,” which represents the highest performance observed on each of the indicators across all economies included in Doing Business since each indicator was included in Doing Business
(b) Entrepreneurs - Measures entrepreneurial activity. The data is collected directly from 130 company registrars on the number of newly registered firms over the past seven years
(c) Good Practices- Provide insights into how governments have improved the regulatory environment in the past in the areas measured by Doing Business
(d) Transparency in Business Regulation - Data on the accessibility of regulatory information measures how easy it is to access fee schedules for 4 regulatory processes in the largest business city of an economy
Ease of Doing business 2015
Doing Business 2015 covers regulations measured from June 2013 through June 2014 in 189 economies. The report marks the 12th edition of the Doing Business series.
- Singapore is the first economy of the global ranking followed by New Zealand, Hong Kong SAR, Denmark, South Korea, Norway, the United States, the United Kingdom, Finland and Australia.
- The entrepreneurs in 123 economies saw improvements in their local regulatory framework last year. Between June 2013 and June 2014, the report, which measures 189 economies worldwide, documented 230 business reforms, with 145 reforms aimed at reducing the complexity and cost of complying with business regulation, and 85 reforms aimed at strengthening legal institutions - with Sub-Saharan Africa accounting for the largest number of such reforms.
- Tajikistan, Benin, Togo, Côte d'Ivoire, Senegal, Trinidad and Tobago, the Democratic Republic of Congo, Azerbaijan, Ireland and the United Arab Emirates are among the economies that improved the most in 2013/2014 in areas tracked by Doing Business. Together, these 10 top improvers implemented 40 regulatory reforms making it easier to do business.
- Sub-Saharan Africa accounts for 5 of the 10 top improvers in 2013/14. The region also accounts for the largest number of regulatory reforms making it easier to do business in the past year—75 of the 230 worldwide. More than 70% of its economies carried out at least one such reform.
- For the first time this year, Doing Business collected data for 2 cities in 11 economies with more than 100 million inhabitants. The economies are: Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation, and the United States. The added city enables a subnational comparison and benchmarking against other large cities. Differences between cities are more common in indicators measuring the steps, time and cost to complete a standardized transaction where local agencies play a larger role, finds the report.

 

Wednesday, 31st Dec 2014, 09:35:08 AM

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