How India can better ease of doing business score

Economy


By Aman Singh


GoI is concentrating on expanding the geographical focus in India of the World Bank’s ‘ease of doing business’ (EoDB) index from just Mumbai and Delhi to include Bengaluru and Kolkata.

This is in line with the World Bank’s own direction. While the efforts are more than creditable, almost all EoDB reform in India has focused on one aspect of the interface between government and business: the role of GoI as facilitator and as supplier of services.

There is a very crucial kind of interaction that GoI has in its role as a buyer or as a seller to businesses, which also needs to be brought into the ambit of EoDB.

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Take the power sector. The scope of reforms in power distribution companies (discoms) has been restricted, by design, to the process for providing a new electricity connection. That discoms play a larger role, and have much room for improvement, in how they buy power from independent power producers (IPPs) is another story altogether.

The business of generating power is one of pure conversion and should be very simple. Alas, it is not. A generator is hemmed in by government from all sides, and it faces issues on both ends of the value chain — upstream from suppliers, which are largely governmentowned coal companies, and downstream from buyers, which are largely government-owned discoms.

In most cases, the generators end up incurring penalties due to reasons attributable to the coal companies, or discoms, resulting in penalties. These penalties are typically on account of events outside the control of the generators.

Elucidating the point are penalties charged by discoms under power purchase agreements (PPAs), for not meeting normative availability due to short supply by coal companies under fuel supply agreements (FSAs), and penalties charged by coal companies and water departments of state governments on generators for short-lifting of coal or non-utilisation of water, due to failure of discoms to schedule power.

Delay in the recognition of the impact of changes in law by regulators, and allowing for the recovery of related expenses — and delay in adjudication of matters — are some more examples of the injustice that are at the heart of a sad deterioration in the energy sector, which is so foundational for any economy.

Timely payment to private generators by discoms has been a Gordian knot for a long time in India. The mandatory opening of letters of credit (LoCs) by discoms to guarantee payments to private generators through an administrative order was a landmark decision. Having taken this hard decision, a resolute minister stood his ground, stonewalling pressures from political heavyweights including some chief ministers. It was political jawboning at its best. For generators being treated like vassals by discoms, this was manna from heaven.

EoDB rankings have been a great opportunity to improve India’s internal processes, and make them business-friendly. It has an added advantage of benchmarking India, on common parameters, with the rest of the world. In fact, with competition among states hotting up, EoDB rankings have become the single-biggest value proposition to attract investment.

Without undermining the importance of EoDB, it is equally important to appreciate the limitation of focusing on a solitary template for improving business environment. While geographically expanding EoDB to more cities in the country, it is equally important to functionally expand it to other areas of business, which may not be currently part of EoDB rankings as exemplified by the energy sector.

Sectors like road, transport, steel and cement are crying for such reforms. It was for this very reason that the World Bank itself described EoDB rankings as a ‘cholesterol test’, and not a full medical test. Big-ticket reforms are great. They are both necessary and welcome. But, equally, there is a need to focus on many small changes, the confluence of which can have significant impact in the life of a business.

There are dozens of types of businesses that interact with government at various levels. Doing business with government can — and should —be much easier than it is, particularly for monopsonies. A slew of small, but bold, decisions, which may not even be politically fashionable, offer a great opportunity to make a lasting difference. After all, as the old saying from Robert Zemeckis’ 1994 film Forrest Gump goes — and is a favourite of Ali Baba co-founder Jack Ma — ‘Nobody makes money by catching whales. People make money by catching shrimp.’

The writer is former principal secretary, Government of Chhattisgarh



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