According to the World Bank’s recent Doing Business report, India jumped 30 spots from last year, and now ranks 100 out of 190 countries. Manufacturers in the U.S. are pleased to see improvements to India’s business environment as a sign of progress, but their day-to-day experience in India shows there is still much work to be done to improve India’s trade and investment environment. Such work needs to cut through the red tape that often faces manufacturers in the United States trying to succeed in India.
The Doing Business report is based on quantitative indicators related to how easy or challenging it is for companies to start and operate a business in India. These include policies and practices related to areas such as starting a business, dealing with construction and other government permits, obtaining critical business inputs ranging from credits to electricity, protecting contracts and investors, paying taxes, and resolving insolvency.
To be clear, India’s jump in the rankings reflects improvements in various areas. Most of these steps primarily benefit domestic Indian entrepreneurs and businesses, but these moves did include some changes that have a direct impact on manufacturers in the United States. India’s biggest jumps this year fall in a few specific areas: “getting credit,” “resolving insolvency,” “protecting minority investors,” and “paying taxes.” These jumps can largely be traced to two high-level reforms over the last year: the passage of India’s Bankruptcy Law and ongoing efforts to reform India’s complicated tax system with the passage of the Goods and Services Tax (GST).
Both improvements have a broad enough impact on the commercial environment that they were listed among improvements in a recent letter to Ambassador Lighthizer from business groups such as the Alliance for Fair Trade with India (AFTI), stating that “U.S. businesses have seen small positive steps in the right direction, including foreign investment openings in a few sectors, fossil fuel and energy efficiency policy initiatives, efforts to address infrastructure project permitting and licensing challenges, and passage of legislation related to bankruptcy and tax reforms.”
While manufacturers welcome these changes, India must step up its efforts to accomplish Prime Minister Modi’s repeatedly stated goal of reaching the report’s top 50. India still trails countries such as the Dominican Republic, Tunisia, and Guatemala in the current rankings. Despite progress, India still ranks towards the bottom of the report in areas such as “starting a business” (156), “dealing with construction permits” (181), “registering property” (154), “trading across borders” (146), and “enforcing contracts” (164). Moreover, India fell in the rankings for some of these areas, including cross-border trade, property registration and business start-up. Many of these areas, particularly cross-border trade and enforcing contracts, rank among the most troublesome areas for manufacturers from the United States.
In addition to the focused business indicators listed in the report, manufacturers in the U.S. still face a wide array of longstanding and new trade barriers in India that make it extremely difficult to do business, and undermine India’s efforts to rebrand itself to attract trade and investment. These trade barriers prevent fair access to its markets and ultimately stunt innovation and economic opportunities for both U.S. and Indian manufacturers. Examples of issues include new price controls on innovative medical devices and agriculture products, a series of forced localization policies across high-value industries, and ineffective protection of patents, copyrights and trade secrets.
India’s efforts to climb the rankings of the Doing Business Report must be applauded – but it clearly still lags behind most large economies, and even other emerging economies such as China, in terms of its business climate. To boost FDI and truly position India as a leader in trade and innovation, Prime Minister Narendra Modi must take this jump in the rankings not as a victory lap, but as a reason to accelerate reforms and concrete actions to eliminate trade and investment barriers preventing U.S. manufacturers from investing and operating in India.