New e-commerce FDI rule kicks-off; it may not hurt India’s Ease of Doing Business ranking, say experts

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The new Foreign Direct Investment (FDI) policy, which kicked off on February 1, 2019, may not affect India’s Ease of Doing Business Ranking this year, suggest experts.


The new Foreign Direct Investment (FDI) policy, which kicked off on February 1, 2019, may not affect India’s Ease of Doing Business Ranking this year, suggest experts.
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The new Foreign Direct Investment (FDI) policy, which kicked-off on February 1, 2019, may not affect India’s Ease of Doing Business Ranking this year, suggest experts. While the year 2018 was the first time when India ranked in top 100 countries on the World Bank’s Ease of Doing Business, Prime Minister Narendra Modi has set the target of breaking into top 50 this year.

The index takes into consideration steps taken by the government to ensure ease of doing business in the country, and any step that makes it difficult for business to enter a market or operate in a market has a negative impact on the rankings. However, few experts Financial Express online reached out to on whether the new FDI have any impact on EODB rankings negated the possibility.

No impact on business rankings:

Doing of Business (EODB) takes several parameters to access a country’s business friendliness. While FDI is linked to the Ease of Doing Business (EODB) index, it is limited to a relatively smaller segment of businesses, said Riaz Thingna, Director, Grant Thornton Advisory Private Limited. “FDI policy affects only those companies which have Foreign Direct investment”. Since it does not mean a macro-level impact on the businesses, it might not affect the rankings as well.

According to the World Bank report, India fared better in 2018 as it had undertaken a series of reforms which made it easier for companies to get construction permits, pay taxes and trade across borders. FDI was not directly a contributing factor in this improvement.

”Most of the changes in India’s foreign investment policy in the recent past have been towards liberalization and streamlining of processes or clarifications of existing policy”, said Amarta Roy, Partner, Cyril Amarchand Mangaldas. He added that it is unlikely that the changes in foreign investment policy itself will precipitate a lower ranking for India in 2019.

FDI and Ease of Doing Business Index; dynamics

According to a 2013 Doing Business report, the performance on the Doing Business Indicators and inflows of foreign direct investment (FDI) are associated. “A higher rank in the Ease of Doing Business (lower numerical value) could be a fillip to a country’s ambitions of attracting more Foreign Direct Investment”, Amarta Roy asserted. However, the reverse does not necessarily follow.

Overall implications

Sudish Sharma, Executive Partner, Lakshmikumaran & Sridharan Attorneys said that the marketplace e-commerce platforms are still an attractive business activity for foreign investors in India.

However, Riaz Thingna does not believe in the same and said, “While this may not impact the rankings as discussed above, it will surely send a spread a negative sentiment across FDI investors.” Riaz Thingna said.

Modi led-BJP government has worked since 2014 to bring India’s Ease of Doing Business (EODB) ranking from 142nd rank to 77th in a list of 190 nations. Promoting marketplace based model in e-commerce sites, the policy was welcomed by Confederation of All India Traders (CAIT).

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