India, Bhutan, and Sri Lanka lead South Asia's jump in reform

South Asia picked up the pace of regulatory reform over the past year to become the second-fastest reforming region in the world, on par with the speed of reform in the countries of the OECD, finds Doing Business 2008.

The report is the fifth in an annual report series issued by the World Bank and IFC. Last year South Asia ranked lowest on the rate of reform; this year two-thirds of its countries had at least one reform.

The pickup in reform was led by India, which rose 12 places on the ease of doing business and made the reform of business regulation a policy objective. India was the top reformers worldwide in trading across borders.

Bhutan and Sri Lanka are the other top reformers in South Asia this year. Bhutan introduced the country's first fundamental labour protection. Sri Lanka made it easier to start a business and to trade across borders.

Worldwide the top 10 reformers are, in order, Egypt, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. Reformers made it simpler to start a business, strengthened property rights, enhanced investor protections, increased access to credit, eased tax burdens, and expedited trade while reducing costs. In all, 200 reforms-in 98 economies-were introduced between April 2006 and June 2007.

Singapore, for the second year running, tops the aggregate rankings on the ease of doing business. The top-ranking countries in South Asia are Maldives (60) and Pakistan (76). India improved its ranking to 120th this year-achieving a bigger gain than China which rose by nine places to 83rd.

"The report finds that equity returns are highest in countries that are reforming the most," said Michael Klein, World Bank/IFC Vice President for Financial and Private Sector Development.

"Investors are looking for upside potential, and they find it in economies that are reforming-regardless of their starting point,' he added. Large emerging markets are reforming fast: China, India, Malaysia, Vietnam, and Egypt all improved in the ease of doing business. The report also finds that thanks to regulatory reform, more businesses are starting up.

India is now setting the standard for reform in South Asia, with an explicit policy objective to become a leading business-friendly economy. Besides making it easier to trade across borders, India increased access to credit by expanding credit bureau coverage to individuals as well as businesses. It also introduced on electronic registry for security rights granted by companies.

* Other notable reforms in South Asia

Afghanistan cut the number of procedures for transferring property and began digitizing title deeds.

* Bhutan made it easier to start a business by cutting the number of procedures required. The country also implemented its first labour law. The law prohibits forced labour, discrimination, sexual harassment, and child labour.

It also remove the 12-month limit on fixed-term contracts eases restrictions on night work and does away with mandatory pay premiums for daytime overtime. Bhutan also sped up property registration by a month by adding more judges to handle property transfer.

* Pakistan extended overtime limits for retail workers and made working hours more flexible. The country's private credit bureau now reports both positive and negative information on borrowers and stores more information on loans. The public credit registry eliminated its loan threshold, boosting coverage by a factor of 20.

* Sri Lanka made the most progress in South Asia in easing business start-up. A new company act eliminated burdensome approvals, introduced a flat registration fee, and made company seals and notaries optional. Procedures for start-up were cut from eight to five, and the time from 50 days to 39. Sri Lanka also introduced electronic submission of Customs declarations, cutting the time for trading by seven days.

One way to spur reforms is to compare cities within a country. Doing Business finds that the time to obtain a business licence in India ranges from 159 days in Bhubaneshwar to 522 in Ranchi.

The time to register property ranges from 35 days in Hyderabad to 155 in Culcutta. If the top score among India cities in each of the Doing Business indicators were used for the country as a whole, India would rise 55 places in the aggregate country rankings. The Indian government is using this information to plan further reform.

Elsewhere, Eastern Europe and Central Asia led world regions in reform, with Estonia, Georgia, and Latvia all among the top 25 on the ease of doing business. In Africa the pacesetters are Ghana and Kenya, but was uneven, with almost half the countries not reforming at all. Reform in the Middle East and North Africa is picking up speed, led by Egypt, Saudi Arabia, and Tunisia, Latin America and East Asia are at the bottom of the list of reformers this year.

The report also finds that higher rankings on the ease of doing business are associated with higher percentages of women among entrepreneurs and employees.

The benefits of increase regulatory reform are especially large for women," said Melissa Johns, an author of the report. "Women often face regulations that may be aimed at protecting them. But the effect is counterproductive, forcing women into the informal sector, where they lose out on job security and social benefits."

Doing Business 2008 ranks 178 economies on the ease of doing business. The top 25 in the overall rankings are, in order, Singapore, New Zealand, the United States, Hong Kong (China), Denmark, the United Kingdom, Canada, Ireland, Australia, Iceland, Norway, Japan, Finland, Sweden, Thailand, Switzerland, Estonia, Georgia, Belgium, Germany, the Netherlands, Latvia, Saudi Arabia, Malaysia, and Austria.

The rankings are based on 10 indicators of business regulation that track the time and cost to meet government requirements in business start-up operation, trade, taxation, and closure.

The rankings do not reflect such areas as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates. Since 2003 Doing Business has inspired or informed more than 113 reforms around the world.