Corporate Law Investment Law

Ease of Doing Business in India Improving

India is one of the fastest growing economies in the world and by 2016-17 it will be the biggest economy in the world. India’s growth rate is destined to touch 8% by 2016-17. Further, by 2050, it is believed India will overtake all countries in its Purchasing Power Parity (PPP).

However, doing business in India is very difficult and the World Bank ranked India 142nd among 189 economies in its Ease of Doing Business Report, 2015. Some problems that businesses face in India relates to lack of effective taxation laws, land ownership laws, governmental regulations and clearances required to set up businesses in India, etc. Most importantly, the legal system needs upgrade to effectively implement the laws in a timely fashion.

Transaction costs of starting and operating a business are also very high  India and there are several regulations that business owners have to follows such as obtaining Tax Account Number (TAN), Permanent Account Number (PAN), Value Added Tax (VAT), Employees Provident Fund (EPF), Employees State Insurance (ESI), Excise Department, etc. It has been seen that setting up a business in India, typically takes about a month whereas it takes one day in New Zealand, three days in Singapore and Rwanda, nine days in Mexico and 19 days in South Africa. In India, it takes 1420 days to enforce a contract which has 46 procedures. India’s rank on this parameter is 182nd out of 183; and, it takes seven years to resolve solvency with barely 20 per cent recovery rate. An entrepreneur spends almost 254 hours per year in paying taxes while registering a property in India takes almost 44 days.
If an entrepreneur in India thinks about a start-up then he has to obtain a number of clearances and permits from the central and state governments, like; a no objection certificate from Pollution Control Board, land use
permits, power, water and sewerage connections, etc. before getting along with his business. On top of that, there are number of restrictions on exiting the business and it takes almost a year to remove the company’s name from government official registrars.

However, to counter such effects, the present government is taking various positive steps that will reduce the red tape in doing business in India. Currently, the government’s “Make in India” policy promises to give a boost to the manufacturing sector to 20% from its current 16%. The government has already circulated a draft national entrepreneurship policy to reduce the time of starting a business from the present 29 days to about two weeks. To achieve this goal, the Government will:

(i) introduce Single Unique Enterprise Identity Number (SUEIN) that a new enterprise could use for various registrations including taxes and social security like, EPF and ESI. Once SUEIN is available, the information could be
forwarded to all the relevant regulatory and support agencies, which in turn use it to facilitate the process of setting up the enterprise.
(ii) encourage states to introduce a ‘Single Composite Application Form’ (SCAF) that will help entrepreneurs file a single application for obtaining all the approvals and clearances from various government authorities. Some states
have already introduced the SCAF; other state governments will be encouraged to follow suit. To this effect, the government has already set up the eBiz website that will allow entrepreneurs and businesses the ease of doing business in India.
(iii) encourage state governments to strengthen their Single Window System on the lines of the states like Andhra Pradesh, Chhattisgarh, Odisha, Rajasthan, under which a High Power Committee is constituted to give all the necessary clearances for setting up a business. The SCAF system will also be implemented under these empowered committees.
(iv) provide on-line access to application forms and other relevant information on availability of land, water and power connection, tariffs, incentive policy, rules, regulations and procedures, etc., to potential entrepreneurs.
(v) convert the present District Industries Centres (DICs) into Business Development Centres (BDCs) with an objective to provide technical and procedural handholding support and counselling to pre-start-up, nascent,
early start up and growth ventures. These BDCs will be governed by an independent Governing Board with successful entrepreneurs in the majority (At least 1/3rd members will be successful entrepreneurs, including successful women entrepreneurs, below the age of 30 years). A successful local entrepreneur will be its Chairperson.
(vi) assess the feasibility of setting up special ‘Fast Track Commercial Courts’ (FTCCs) to settle commercial disputes and cases related to enforcement of contracts and solvency/bankruptcy, within a stipulated, reasonable timeframe. The government will also encourage state governments in setting up FTCCs.
(vii) permit flexibility to start-ups in ‘hiring and retaining’ workforce for operational adjustments and rationalisation during the first three years of operation of an enterprise, assuming that by the end of three years it will either stabilise and grow or become sick and close down.
(viii) allow easy exit to enterprises if they have been in operation for less than three years. Such enterprises will be facilitated to close their operations, if not found viable, within a period of three months.
Acknowledging the information deficit facing nascent entrepreneurs, the Government will also:
(i) set up a One-Stop-Shop that will provide optimal information services to start ups and existing entrepreneurs., (on the lines of ‘One Stop Capital Shops’ in the USA, ‘Direct Access Government Online Resource’ in the UK and ‘EnterpriseOne’ in Singapore) to facilitate easy access of entrepreneurs to ‘online information’ at the click of the mouse. It will be housed in the Ministry of MSME till a better alternative is found. Other relevant ministries like the Ministry of Commerce, Ministry of Rural Development, Department of Science and Technology, etc. will be encouraged to join hands in this endeavour.
(ii) create an all-encompassing website on Entrepreneurship as a one point information kiosk on commercial information which will include market related information on prospects and trends, international business environment and cautions wherever necessary, information on ‘doing business with a particular country’, new emerging technologies and their sources, information on technologies that have potential of commercialisation and are available with public funded research organisations, etc.
(iii) bring out ‘periodically updated’ Entrepreneur Information Handbooks containing guidelines on all the procedures and formalities of setting up and operating a business and accessing support infrastructure, in Hindi and English as well as in regional languages. This source will be made available in both hard as well as soft form.

The policy also suggests:

(i) create district, state and national level ‘Entrepreneurship Ambassadors’ from amongst successful entrepreneurs to recognize their success and achievements.

(ii) facilitate setting up of ‘Young Entrepreneurs’ Consortium’ (of entrepreneurs below 30 years of age) at all levels (district, state and national levels) with the mandate to seek their support in promoting entrepreneurship in their areas by delivering motivational lectures and organising various events around the theme of entrepreneurship and development work (a la Teach for India and Yuva Unstoppable), by involving youth.

(iii) introduce a ‘Give An Entrepreneurial Hour’ scheme to encourage established entrepreneurs to commit 1-hour a month for promotion of entrepreneurship by addressing students of schools, colleges and other groups of youth, in addition to providing hand-holding support to start ups, at local level.

(iv) introduce ‘Young Achievers’ Awards’ (for both men and women entrepreneurs separately) at all levels viz., district, state and national levels to recognise the achievements of entrepreneurs below the age of 30 years. These awards will be coordinated by District Industries Centres at the district level, Commissionerate/Directorate of Industries at the state level and Ministry of MSME at the national level.

(v)encourage media to cover and publicise entrepreneurship related events, including the ‘Award Functions’ and host shows projecting achievements of young entrepreneurs at all levels.

(vi) involve leading industry and business associations like Federation of Indian Chamber of Commerce and Industry (FICCI), Confederation of Indian Industry (CII), the Associated Chambers of Commerce & Industry of India (ASSOCHAM), state level Chambers of Commerce and Industries, sector specific industry associations like NASSCOM, in accomplishing the tasks stated above.

All these measures will definitely help India turn into an entrepreneurial hub in this world. Further, the government should also ease the land acquisition process in India and providing funding avenues for Micro Small and Medium Sized Enterprises (MSME).

In taxation, I think implementation of Goods and Services Tax (GST) will be a welcome move as it will reduce the discretionary nature of taxes. With all these measures, India is the best place to start a business and foreign investors are looking towards India for further changes. Already, there is a very positive mood in the business world and it will continue to grow in future.

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