Ease of Doing Business in India
India aspires to be among the super powers of the world by 2050 and has a unique strength of the 3 Ds- Demand, Demography and Democracy as mentioned by our Hon’ble Prime Minister. Being among the youngest nations of the world and among the largest emerging markets, India is a land of opportunities for citizens and the world alike. To optimize on these strengths of India, it is important to create an employment generating model of growth. The manufacturing sector with its high employment elasticity has potential to create employment, absorbing the disguised labour from agriculture and generating new opportunities for the youth.
One of the primary areas of focus of the present Government when it came to power in May 2014, was to boost the manufacturing sector of India to correct the jobless pattern of service led growth, generating employment opportunities, transforming India into a manufacturing hub, for which the ‘Make in India’ initiative was launched. The 25 sectors chosen for ‘Make in India’ aim at attracting investments, enhancing the production along with the creation of more jobs and skills, by both domestic and global companies, ensuring international quality standards, and generating a sustainable environment friendly development model. Growth in manufacturing sector requires large investments to promote technology upgradation, Greenfield projects, new entrepreneurships and innovations. In order to attract investments, to give a big push to the manufacturing sector, it is important that India has simplistic and business friendly rules and procedures. The Doing Business (DB) report of World Bank group provides a reality check of the business environment in India, with respect to the world. The report publishes the Ease of Doing Business (EODB) ranking, which provides a comparison of 189 countries in terms of promoting business attractiveness and investment opportunities. The success of ‘Make in India’ in particular and manufacturing sector in general is dependent on the business sentiments prevailing in India, making the EODB ranking important for India.
Recent times have seen progressive steps being taken in India to attract new business investments and startups in innovative projects. Online application for environmental and forest clearances have started and dedicated cells have been established for investor facilitation. Invest India, an official portal for business promotion and facilitation has been set up. eBiz portal provides a one stop solution for all queries related to Government to Business (G2B) services. This portal will help manage licenses, clearances and regulatory filings required for businesses. A ShramSuvidha portal has been created which enables in a simplified format a unified online portal for registration of Labour Identification Number (LIN). The portal aims at simplifying business regulations and bringing in transparency in labour inspections.
Key sectors have been identified which could play a major role in boosting the manufacturing sector viz. aerospace & defence, automobiles & automobile components, chemicals & petrochemicals, construction equipment, food processing, infrastructure development, IT & electronics, pharmaceuticals, machinery, textiles and Micro, Small & Medium Enterprises. FDI reforms and liberalizations have been brought about in major sectors of the economy, to attract more foreign investment in the country.
Getting electricity connection has been made easier by streamlining the approval processes and the same has been highlighted in DB (2016) report. This progress makes India stand out in the South Asian region for its improvements in the areas measured by the Doing Business report. Efforts are being made to simplify the process of starting a business by carrying out preregistration and registration formalities (publication, notification, inspection, and other requirements). Measures are underway to abolish/ reduce minimum capital requirement, enabling small entrepreneurships flourish. The setting up of the Bankruptcy Law Reform Committee (BLRC) to deal with cases of resolving insolvency or bankruptcy of a firm is a positive step. Other measures like simplifying formats, number of documents required to be filled, repealing more than 100 obsolete laws, extended validity for implementing industrial licenses, simplifying procedures of imports and exports are ongoing. Fast tracking of stalled projects is taking place.
These initiatives taken by the Centre need to be supplemented by efforts at the state level. New and innovative initiatives to attract business are being taken in different states. Large numbers of states are carrying out tax reforms. States have facilitated online VAT payment, e-filing of VAT returns. Most states have clear timelines for electricity connection, VAT registration, building plan and construction permit. States are increasingly moving towards creating a dedicated single window for (Government to Business) G2B services and facilitation. Many states have started giving environmental clearances online and are making land records available online to ensure greater transparency. Global business summits are being arranged in many states to showcase their business potentials and attract investments. (Geographic Information System) GIS based land identification system in Gujarat, establishment of commercial benches in high courts of Mumbai and Delhi, online application for construction permits, e-payment of taxes in West Bengal, establishment of e- Karmika for issuance, renewal, amendment of Registration Certificate, filing of annual returns etc and UdyogMitra, e-biz Karnataka, online portal for enabling business facilitation in Karnataka are some of the initiatives taken at the state level.
Challenges and problem areas in the way of enabling business in India: Inspite of the efforts taken to enable the business environment, some of the problem areas still remain.
Land acquisition lacks clarity and transparency. The process of land registration is time consuming and complex. While some state governments have created their land banks and pooled lands for industrial purposes, for the others land acquisition is an issue with tussles over agricultural lands, tribal land holdings and rehabilitation of the displaced.
Multiplicity of taxes, and complicated tax laws creates a lack of transparency in the tax structure. Uncertainty in the tax regime creates a negative environment for business. Recent cases of retrospective taxation hampers the investor sentiments and can scare away investors. These need to be done away with.
The time taken and the cost of resolving insolvencies in cases of failed business models and the legal system to support the same in India is far behind the global standards. While in India the average time taken to resolve insolvency is 4.3 years, for South Asia the average is much lower (2.6 years). The recovery rate (cents on the dollar) for India is 25.7, while that of South Asia is 31.8. Reality check: Although concerted efforts are being taken by the policymakers, these hurdles act as a dampener for the manufacturing sector, business/ entrepreneurial ventures and in attracting new investmentsin India. The EODB ranking in the Doing Business report could be taken as a progress report which hints at the areas of lacunae existing and points out the progresses that the Indian economy has made to create a business friendly environment. The EODB is a combination of different indicators like starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, labour market regulations and resolving insolvency. A comparison of the EODB ranks of India, the neighboring and BRICS are shown in the table.
In the table, rank 1 shows the best performer and rank 189 indicates the worst. India holds an EODB rank of 130 out of 189. This is an improvement from the rank of 134 in 2015 report. Of the ten indicators, improvement was highest in ‘getting electricity’ where India has moved 29 ranks upward from Doing Business (DB) rank of 99 in 2015 to DB rank of 70 in 2016. ‘Starting a business’ has shown improvement of 9 ranks. Marginal improvement was shown for ‘dealing with construction permits’.
Deterioration has been indicated for ‘getting credit’ and ‘paying taxes’. For the remaining five indicators there has been no significant change over the last year. In an absolute sense, India is doing well in (for which DB indicator ranks are below 100) ‘getting credit’, ‘getting electricity’ and ‘protecting minority investors’. The problem areas (for which DB ranks are more than 150) are ‘dealing with construction permits’, ‘starting a business’, ‘paying taxes’ and ‘enforcing contracts’.
Table: Rank of India, BRICS and the neighbouring countries in DB report, 2016,
||Ease of Doing Business Rank
||Starting a Business
||Dealing with Construction Permits
||Protecting Minority Investors
||Trading Across Borders
Source: Doing Business Report-2016, *- BRICS group of countries.
Enabling business and creating an investment friendly environment in order to boost the manufacturing sector is a priority for India. It is through cooperative federalism, wherein there has to be an active participation among the states and between centre and the states of India, that the doing business standards will improve and boost the ‘Make in India’ initiative. Goods and Services Tax (GST), an effort to combine the multitude of central and state taxes into a common tax system, will help avoid double taxation and can be a major game changer for the indirect tax system of India, providing clarity and making investors sentiments stronger. The Hon’ble Prime Minister has stressed that retrospective taxation is a thing of the past for India. Creating land banks (information regarding which be made available online), demarcated zones for industrialization with state of the art technology, infrastructure, electricity supply, and market based land pricing system to compensate the sellers from whom land is purchased, will help fasten land acquisition, setting up of business and registering property. The Start-up India initiative will help create opportunities for the youths to set up own business ventures.
Stable tax regime, steady governance with long term policies are essential for business to flourish. Although efforts are being made, the process involves a gestation period to show results. It is only after a time lag, that these simplification of rules and provisioning of conducive environment for business will start yielding the desired results, when all the indicators of EODB starts showing improvement as an outcome of the ongoing policy changes.
(The Author is Assistant DirectorLabour Bureau, Kolkata. Views are personal.)