EASE OF DOING BUSINESS – INDIA

Sep 11, 2020 | Posted by : Ashokan Krishnamurti | Category : Article

EASE OF DOING BUSINESS

Over the past few years, India has been steadily improving its performance in the World Bank’s Ease of Doing Business. From a low of 139 in 2014 India is ranked 63 among 190 countries as of 2019. The rankings for 2020 are expected to be announced later this year.

The rankings are arrived at based on 10 performance parameters. These are:

  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

  10. Resolving Insolvency

For the study, the World Bank chose Mumbai and Delhi as the two cities for evaluation.

While the improved ranking is commendable, India’s aim should be to break into the top 50, if not the top 20, if it has to become a favoured destination for investors and FDI.

How to go about in achieving this target?

As per the study India’s performance in six of the ten parameters was below par.  These are, Starting a Business (136th), Registering Property (154th), Paying Taxes (115th), Enforcing Contracts (163rd), Trading across borders (68th) an Resolving Insolvency (52nd).

The Department for Promotion of Industry and Internal Trade (DPIIT) coming under the Ministry of Commerce and Industry has initiated action to bring about structural changes with the objective of improving the performance in these six parameters. It is hoped that the changes would bring about the desired improvements.

For the year 2020 the World Bank has added two more cities, Kolkata and Bengaluru, apart from Mumbai and Delhi, for carrying out the study. One more parameter, Government Contract, has been added to the current list increasing it to 11 parameters.

While the World Bank carries out its study based on the parameters fixed by it, the government also needs to take a hard look at the some of the hurdles faced by business and industry in its day to day operations.

A few examples:

Labour Reforms – Employers don’t have powers to hire and fire workers, at times even for genuine reasons. Working hours are another issue affecting the employers. Recently the UP Government brought in a rule extending the regular working hours to 12 hours a day. There was an immediate uproar from various trade unions post which the rule was withdrawn.

Land Reforms – Land acquisition for big projects are a major issue leading to cost and time overruns. Additionally, land records are not digitized leading to litigations over property rights which drag on for years, if not decades.

Taxation Policy – Most industries have a long term strategic plan spread over a period of five to ten years. These strategies are based on the prevailing tax rates/tariffs. More often than not, these rates are tinkered with every year as part of the budget exercise, rendering the strategic plan a futile exercise.

A few years back, Government of India brought in the concept of “Retrospective Taxation” which put paid to the future prospects of a telecom giant. Fortunately, this rule was withdrawn later on but the damage was done.

The actions of Government of India in stabilising GST, in bringing out reforms in Direct Taxes through Transparent Taxation with extensive use of Technology, making a statutory Taxpayers’ Charter and reducing the corporate tax rates should, to some extent, remedy the situation.

Other Policies – Automobile industry requires a clearly defined long term policy. In view of the rising pollution level in all the major cities, the Government advanced the implementation of the BS6 emission norms by a few years bypassing the BS5 norms and fixed the rollout for April 2020. This entailed huge investment by the automobile manufacturers. With the focus now shifting to electric vehicles, which have been given various incentives and concessions, the heavy investments made by the automobile manufacturers are turning unproductive.

All the examples listed above have a bearing on the investor confidence, both domestic and overseas, who consider these as impediments to the smooth and profitable running of business. It becomes imperative for both, the Central Government and the State Governments, to provide an atmosphere conducive for the business and industry to thrive.

The US China trade war and the Covid19 pandemic have forced a large number of MNCs to contemplate shifting their manufacturing base out of China. This presents a huge opportunity to India which has the capability to broaden and deepen its manufacturing. However unless India improves its Ease of Doing Business it could lose out to other ASEAN countries as an alternate destination as these nations appear to be more business friendly.

While the Government of India must put its best foot forward to improve on the Ease of Doing Business ranking, it is equally important for the State Governments to remedy the operational bottlenecks locally. In fact, if these bottlenecks are removed the world ranking will correspondingly improve on its own. This can only come about through a pro active and concerted action by the Centre and the States.

The Central Government has expressed its desire and commitment to improve the Ease of Doing Business in the Country at the highest level. It has the capacity to inspire the State Governments to do their part. One can hope for improvement in the Ease of Doing Business in the coming days.

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