India eases up on doing business

Till last month, entrepreneurs had to fill up eight different forms to register a company. The process was complex, time consuming and expensive. Naturally, efficiency suffered, causing pain and harassment all around. Average time taken to incorporate a company was 27 days. India's rank on ease of starting a business in the World Bank's Ease of Doing Business Index: 179 out of 189 countries.Compare that with the top three countries on the same parameter: New Zealand tops the list. It takes one procedure and one day to start a business there. In Canada and Singapore, ranked second and third, respectively, it takes one and three days to start a new business. No wonder, Flipkart, India's leading e-commerce company, and several others, are registered in Singapore rather than in India.In keeping with Prime Minister Narendra Modi's clearly stated goal of improving India's overall rank, currently at 142 out of 189 countries, to 50 within two years, the Ministry of Corporate Affairs has crunched the eight forms into one, called INC 29. From May 1, businessmen have to only fill up this one form, which will bring down the time required to start a new business to two days.That should result in a significant jump in India's rankings.That's only one step. The government has mandated the Department of Industrial Policy & Promotion under the Ministry of Commerce to re-engineer the entire architecture of doing business in India to improve India's rankings.Another massive pain point, the procedures for environmental and forest clearances, which were cumbersome and encouraged rent-seeking by politicians and bureaucrats at every level of government, have also been streamlined and made online, minimising the need for personal contact and illegal inducements.More steps are in the offing. Taxation is another area that is responsible for India's low ranking. Multiplicity of central and state taxes, the procedures to be followed while complying with them as well as harassment at the hands of tax inspectors makes for a nightmare scenario for businessmen. The Goods & Service Tax Bill, which is expected to become law in the Monsoon Session of Parliament, which will begin in the last week of July, will cut through this labyrinthine process by subsuming almost all indirect taxes levied by the Centre and the states into one comprehensive tax that will be transparent, easy to administer and comply with and, most importantly, stitch all of India into one common market.The government is keen on implementing it with effect from April 1, 2016. If it succeeds, this will be another step that should take India several ranks higher than its current level on the ease of doing business.Several other measures such as reduction of paperwork for exports and imports, the scrapping of the no objection certificate for new electricity connections and online payments of ESIC and provident fund contributions will also make it significantly easier to do business in this country.Several other measures are still works in progress. Easier land acquisition norms, which will come into force once Parliament passes the land bill (expected in the Monsoon Session), more rational and less obstructionist labour laws, the new bankruptcy code to facilitate exits and encourage more efficient use of land, labour and capital that current regulations discourage along with skills development across the board and greater use of technology will improve India's rank further.Further, the government is designing its own ease of doing business index to rank India's states on business-friendliness. This is expected to spur the states to not only cooperate with the Centre on easing procedures but also innovate and introduce more reforms-oriented measures to attract investments and create jobs for their youth.“It will be enough even if only 10 states join the race and take steps to ease their business procedure,” said a senior bureaucrat, accepting that there will be some ruling parties in states that will drag their feet out of political, ideological other petty considerations. “And more than 10 states are already on board,” he added.However, enforcement of contracts is one area in which it will take a long time to improve India's ranking, which is at 186 out of 189 countries. It takes on average four years to legally enforce a contract and the enforcer has to spend about 40 per cent of the contract value on legal fees and associated costs.The government is the biggest litigant, accounting for 40 per cent of all cases filed in India. Although it is in the process of putting in mechanisms to prevent bureaucrats from blindly going to court or filing appeals as a matter of routine, the structure of the judiciary and the fact it is completely independent of the government are expected to pose significant hurdles in implementing reforms in this area.Global consultancy major KPMG has estimated that delays caused by a combination of the above factors costs the corporate sector 5-10 per cent of profits. If the government can actually meet its goal of improving its rank to 50 by next year, it will not only make India a far easier place to do business in, it will also make it more profitable.

Arnab Mitra is a senior journalist based in Delhi. He writes on business and politics.

The above article was published in India Inc's print edition of the India Investment Journal launched in June 2015 in conjunction with the Policy India Roundtable 2015.