Ease of Doing Business in India

A perspective on the risks and challenges

As most people are aware, India is a multi-cultural, multi-lingual society governed by a Federal system of governance – where the Central Government and several State Governments have their own jurisdiction and freedom in prescribing regulatory compliances.

Shri K.V. Subramanian, Chief Economic Advisor to the Finance Ministry at a press conference at New Delhi, said that if you want to start a restaurant business in New Delhi you need 45 documents to obtain just one of 26 licences—one for getting a clearance from the Delhi Police. But if you want to own a gun, you need only 19 documents to get the go-ahead from the police. And these number of licences differs from city to city depending on which State it is located. He was making the case for doing away with unnecessary controls.

While India has jumped up in the World Bank ranking for Ease of Doing Business (EoDB) to the 63rd position among 190 countries studied by it, there is still a long way to go for India. To understand what “Ease of Doing Business” (EoDB) means please read the Appendix given below.

In my opinion, the following are the top 5 risks and challenges that have to be addressed:

  1. Understanding the local language and geography of India: Any new venture’s first step is to understand the local culture, language where it wants to set up business. If you want to set up a manufacturing unit in Tamil Nadu and employ local labour, guidance is required on all the nuances of how to deal with Trade Unions affiliated to different political parties. You could end up in major labour disputes and lockdowns if you do not have a strong top and middle management who knows the ground reality. There are various religious, ethnic and annual holidays to consider – State-wise variations included – that one needs to consider even for business meetings or working days.
  2. Stability in Government policies: Every five years, when Central and State Governments in India face change of political parties at the helm of affairs, a trend has been witnessed to ditch the previous regime’s policies and initiatives or stall several projects.

One political party (DMK), when in power, sanctioned the extraction of hydrocarbon project in Tamil Nadu. When a change in Government took place, the same political party (DMK) that sanctioned it earlier opposes it tooth-and-nail – there is no logic or reason behind this except opposing for opposition sake – a case where “ease of business” is not considered. Several such examples can be given across many States where the ruling party is against the Central Government.

3. Reach of “real” education: Societal reforms begin with influencing community on major issues confronting them and what they could do to resolve them. This begins by emphasizing on communal harmony, cooperation, voice against bribery and corruption. Continuous awareness campaigns and education must pervade at all levels – from the super-rich celebrities (who don’t care a damn about anything other than their own careers) to the lowest level of poverty-stricken masses (who don’t care a damn about anything other than day-to-day existence). Unless the divisive tactics for vote-bank politics is shunned by the society, there will always be dissent and roadblocks to any improvements to “ease of doing business”.

4. Prevention of bribes and corruption: Let’s face facts on ground. Although e-filing for building permits has shortened the time for sanction, the grim fact is that at the penultimate or final stage it reaches an officer-in-charge who has to approve sanction and in the pretext of calling for clarifications there are many instances of underhand dealings (more so in high value properties). Unless there is decency and decorum in governance for the benefit of people and businesses, powerful to petty politicians and boot-licking bureaucrats have a field day with their own interpretations of rules and regulations to harass applicants and make money.

New companies, existing companies wanting to expand operations, foreign investors – all of them face high risk of being subject to corruption in many forms. It is a serious issue, despite the Prevention of Corruption Act and the Companies Act, and is prevalent in the police, politicians, judiciary, public services and public or private procurement sectors. Measures like e-filing, single window processing, e-auctioning, etc. may help to some extent, but ultimately the human interface process at some stage needs to be efficient and effective.

5. Start effective implementation, not just streamlining statutory regulations:

There are many confusions and a maze of laws in force in India (including archaic ones from the British regime). But the implementation is haphazard and not effective, some of these laws are irrelevant in current times but the statute still exists and have not been repealed.

This makes investment in Indian business complex and a risky one – here are a few examples:

Existing industries must have easy singular access to compliance and regulations that are relevant for them. Currently one needs a legal expert to wade through several laws to end up with a compliance checklist.

  1. Clarity must be provided to NRIs and foreign investors in easily understandable language about the various options available for them to invest and “make in India”. Impact of the option chosen in the short and long term must be provided, depending on the nature and size of business– whether one should have a Representative office, Branch office, liaison office, private limited company, limited liability partnership, etc.
  2. Industry specific regulations are plentiful – whether it is the services sector or the banking and financial services or the telecom industry or any other – with each one of them having to be complied with different agencies – TRAI for telecom, RBI for banks and financial institutions, IRDA for insurance, FIPB for foreign investments and so on.
  3. Manufacturing sector has a plethora of laws that will bewilder a new start up business and existing ones have to be constantly vigil on whether they are compliant with all applicable ones.
  4. Taxation laws are complex and do not enable businesses to do long-term business planning on the likely outgo and keeps changing every fiscal year or even ad hoc at times.

 

APPENDIX

What is Ease of Doing Business? – www.makeinindia.org which is an Indian Government website has published the below information on the same:

The Ease of Doing Business (EoDB) index is a ranking system established by the World Bank Group. In the EODB index, ‘higher rankings’ (a lower numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

The research1 presents data for 190 economies and aggregates information from 10 areas of business regulation:

  1. Starting a Business
  2. Dealing with Construction Permits
  3. Getting Electricity
  4. Registering Property
  5. Getting Credit
  6. Protecting Minority Investors
  7. Paying Taxes
  8. Trading across Borders
  9. Enforcing Contracts
  1. Resolving Insolvency

Rankings and weights on each of the mentioned parameters are used to develop an overall EoDB ranking. A high EoDB ranking means the regulatory environment is more conducive for starting and operating businesses.

Since assuming office in 2014, the Narendra Modi-led National Democratic Alliance government has pledged to improve the ease of doing business in India.  Many action points have been completed by the Central Government regarding various factors like starting a business, getting construction permits, trading across borders, enforcing contracts, getting electricity, registering property and paying taxes, there are still some underway and state reforms have to also step up their initiatives in this regard. (More details at //www.makeinindia.com/eodb)

4 Replies to “Ease of Doing Business in India”

  1. In India, the challenges are aplenty, including the red tape and excessive bureaucratic procedures to be followed. All this allows a culture of nepotism and corruption to develop around government offices. Too bad it has driven away many business from India. The Central government has to make sure all State governments make it easier for an entrepreneur to set up a business in India and make legal and regulatory compliance simple.

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