It’s now eas­ier to do busi­ness in In­dia

Business Standard - - OPINION - ATUL PANDEY, SATISH PADHI & SHREYA GULATI

The Modi gov­ern­ment has car­ried out a se­ries of reg­u­la­tory re­forms to fa­cil­i­tate the ease of do­ing busi­ness in In­dia and cre­ate a favourable in­vest­ment cli­mate. Th­ese in­clude ini­tia­tives to do away with var­i­ous com­pli­ances un­der the Com­pa­nies Act (such as the min­i­mum cap­i­tal re­quire­ment for com­pany in­cor­po­ra­tion and the re­quire­ment of ob­tain­ing a cer­tifi­cate to com­mence busi­ness op­er­a­tions); the Com­mer­cial Courts, Com­mer­cial Di­vi­sions and Com­mer­cial Ap­pel­late Di­vi­sions Act of 2015, aimed at re­solv­ing com­mer­cial dis­putes in a time-bound man­ner; and the en­act­ment of the In­sol­vency and Bank­ruptcy Code 2016 to in­tro­duce global in­sol­vency prac­tices and a quick re­dres­sal mech­a­nism for the in­creas­ing num­ber of non-per­form­ing as­sets.

The gov­ern­ment has also lib­er­alised its for­eign di­rect in­vest­ment pol­icy in or­der to at­tract in­vestors. Such lib­er­al­i­sa­tion has taken place in the de­fence sec­tor, in brown­field phar­ma­ceu­ti­cals, and in both green­field and brown­field air­ports.

In this back­drop, the re­port of the NITI Aayog-IDFC In­sti­tute on Ease of Do­ing Busi­ness in In­dia (“NITI-IDFC Re­port”), based on an en­ter­prise sur­vey of 3,500 man­u­fac­tur­ing firms across In­dian states and Union ter­ri­to­ries is a timely en­deav­our to as­sess the im­pact of th­ese ini­tia­tives at the ground level. This ar­ti­cle crit­i­cally analy­ses the NITIIDFC Re­port and ex­am­ines In­dia’s re­cent reg­u­la­tory progress in or­der to eval­u­ate the ef­fi­cacy of such re­forms.

The cri­te­rion adopted for de­ter­min­ing the ease of do­ing busi­ness is the ef­fi­cacy of th­ese re­forms.

Sin­gle win­dow clear­ance: This sys­tem was in­tro­duced un­der the gov­ern­ment’s “Make in In­dia” ini­tia­tive in 2014, and man­dates the rout­ing of all ap­provals re­quired by an en­ter­prise to set up a busi­ness through a com­mon ap­pli­ca­tion win­dow. Only 20 per cent of the en­ter­prises sur­veyed used the sin­gle win­dow clear­ance sys­tem, which sug­gests either lack of aware­ness on the part of en­ter­prises or in­ef­fec­tive im­ple­men­ta­tion of the sys­tem.

Ac­cess to fi­nance: Most en­ter­prises rely on bor­row­ings from banks and fi­nan­cial in­sti­tu­tions as sources for fi­nance. Sixty-one per cent of the en­ter­prises sur­veyed re­ported that ac­cess to fi­nance has either re­mained the same or wors­ened over the last year.

Time for clear­ances: The av­er­age time taken to set up a busi­ness in In­dia is 118 days, vary­ing widely across states — from 63 days in Tamil Nadu to 248 days in As­sam. On av­er­age, the time in­curred for land al­lot­ment to an en­ter­prise is 156 days and for get­ting a con­struc­tion per­mit it is 112 days. The av­er­age num­ber of days for com­plet­ing labour-re­lated com­pli­ances is 74 and for re­newal of such com­pli­ances it is 62.

Dispute res­o­lu­tion: The sur­vey showed that the time taken for dispute res­o­lu­tion by en­ter­prises var­ied across states, from less than one year to 13 years. For pend­ing le­gal dis­putes, the en­ter­prises sur­veyed re­ported an av­er­age du­ra­tion of four years once the mat­ter is taken to court.

Also, the sec­tor-spe­cific com­par­isons laid down in the NITI-IDFC Re­port throw up some in­ter­est­ing statis­tics. The av­er­age time taken by man­u­fac­tur­ing start-ups to set up busi­ness is about 87 days, com­pared to 101 days for man­u­fac­tur­ing com­pa­nies other than start-ups. Sim­i­larly, young en­ter­prises take 20 days less to set up a busi­ness, 46 days less for land al­lot­ment and 18 fewer days for con­struc­tion per­mits, com­pared to older en­ter­prises. Fur­ther­more, labour-in­ten­sive in­dus­tries face ma­jor ob­sta­cles in set­ting up a busi­ness, get­ting land and con­struc­tion-re­lated per­mits and tax-re­lated com­pli­ances com­pared to cap­i­tal-in­ten­sive in­dus­tries. Where are the bot­tle­necks? There is an im­per­a­tive need for the gov­ern­ment to en­sure ef­fec­tive im­ple­men­ta­tion of the re­forms in­tro­duced across all states uni­formly. The NITI-IDFC Re­port states that the re­forms and their im­pacts can be seen in big cities but are not clearly no­tice­able in smaller cities. Also, it is im­per­a­tive to cre­ate aware­ness of the re­forms in­tro­duced, so that the en­ter­prises for whose ben­e­fit th­ese re­forms are in­tro­duced are in a po­si­tion to avail of th­ese ben­e­fits. For ex­am­ple, among start-ups that are of re­cent ori­gin, only 20 per cent re­port us­ing sin­gle-win­dow sys­tems for set­ting up a busi­ness and only 41 per cent among the ex­perts have re­ported that they know about the ex­is­tence of the sin­gle-win­dow fa­cil­ity.

One of the other find­ings of the NITI-IDFC Re­port is that labour-in­ten­sive sec­tors ex­pe­ri­ence greater dif­fi­culty than those in cap­i­tal­in­ten­sive sec­tors and this re­quires gov­ern­ment at­ten­tion and calls for reg­u­la­tory re­forms in this area. Labour com­pli­ances need to be fur­ther eased. In this con­text, the pro­posed Model Shops and Es­tab­lish­ments (Reg­u­la­tion of Em­ploy­ment and Con­di­tions of Ser­vice) Bill, 2016 is a step in the right di­rec­tion and should en­able labour-in­ten­sive in­dus­tries to achieve higher pro­duc­tiv­ity.

While the NITI-IDFC Re­port does raise some ques­tions about the ef­fi­cacy of reg­u­la­tory re­forms car­ried out to in­crease the ease of do­ing busi­ness in In­dia, the fact is that such reg­u­la­tory re­forms are a high pri­or­ity for this gov­ern­ment. The re­sults may not yet be clearly vis­i­ble, but there is a greater amount of pos­i­tiv­ity about In­dia among in­vestors and one can safely state that the com­ing years should wit­ness faster growth with a lower com­pli­ance bur­den on cor­po­rates.

There may be ques­tions about the ef­fi­cacy of the reg­u­la­tory re­forms car­ried out so far, but there is greater pos­i­tiv­ity about In­dia among in­vestors and the com­ing years will see faster growth with a lower com­pli­ance bur­den on com­pa­nies

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