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71 years After Independence, Entrepreneurs Find Little Freedom In Ease Of Doing Business

Indian entrepreneurs, faced with cost increases and overruns due to lax policies on the ease-of-doing-business front, want easier rules to make conducting business easier

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“How long does it take to open a simple business bank account even after complying with all the requisite KYC?,” laments a small businessman Rajesh Shah. “You would be surprised. It still takes a long, long time. More than three weeks despite all the paperwork being correct," he added.

The fact that India, in quite a short while, has leapfrogged into the top 100 (from 164) on the Ease of Doing Business rankings 2018 of the World Bank is little respite as necessary procedures such as opening a bank account continue to niggle at Indian entrepreneurs.

Sure, improvements in procedures, such as having a single window for company incorporation, have been streamlined, with processes to acquire PAN, TAN, DIN, Company Incorporation and Name Reservation being incorporated on a single application form. But the cost of delay in starting a business is huge, considering the long delays and other petty procedures, increasing inefficiency and non-productivity.

In fact, the World Bank report noted that efficient and non-discretionary business regulations are important drivers of productivity. “A study of India, for example, shows that inefficient licensing and size of restrictions cause misallocation of resources, reducing total factor productivity by preventing efficient firms from achieving their optimal scale and allowing inefficient firms to remain in the market.” The study further adds that these restrictions would “boost total factor productivity by an estimated 40-60 percent.”

So, it’s little surprise then, that India needs to boost its rankings significantly if it has to lead in productivity-related gains. But, can India really outshine and climb up the ladder to the top-25 countries on the Ease of Doing Business?

There’s still much room to cover, according to experts. “From the current rank, improvement is certainly possible and we could rise to about 50-70 in the next three to five years. But, coming somewhere in the top-25 would not be easy because there are many countries which are relatively highly progressive on this front.”

On many diverse counts, India has still a long way to go. Businessmen are still faced with long waits to start a new company, which in countries such as New Zealand are done in a day.

Nevertheless, there is no denying that much progress has been achieved in recent times on the ease of doing business. One of the parameters used to evaluate that ease of doing business is credit availability. On that front, in India the establishment of debt-recovery tribunals has reduced non-performing loans and lowered the interest rate on loans, suggesting faster processing has cut the cost of credit, noted the report.

Nevertheless, things have improved at the ground level. India made obtaining a building permit faster by implementing a Single-Window System for approving building plans. Further, the country reduced the time needed to complete applications for Employee’s Provident Fund. India also strengthened access to credit by amending the rules on the priority of secured creditors outside re-organisation proceedings, and adopting a new insolvency and bankruptcy code which introduced a re-organisation procedure for corporate debtors, notes the report.

The GST just implemented has sunk several taxes. Now, there is just one overall tax structure. There is a state and central GST, of course, but that is because of the structure of the Indian polity, apportioned among the states and the centre, and revenues from the GST are allocated accordingly.

However, what can be done so that entrepreneurs can be free of archaic procedures?

LOWER RESTRICTIONS ON FOREIGN TRADE   

Of course, there is still much progress needed. For example, cross-border trade and procedures relating to cross-border trade still need to be further streamlined.

"Experts note that cross-border trade must be provided incentives and the latitude to move to a more risk-based system," says Jigar Saiya, tax partner, BDO India. “Making cross-border trade more automatic rather than regulated and moving on to more self-declaratory and risk-based inspections and assessments while conducting cross-border trade are what’s needed,” he added.

IMPROVE CORE SECTORS

The other aspect that is hindering businesses and where much needs to be done to unshackle efficiency is infrastructure improvement and procedures. There are still ways to liberalise many processes and documentation required to build infrastructure in the country.

Experts reckon that multiple permissions are required not only from the state authorities, but also from local municipal, aviation, civil and other such authorities. One survey suggests that infrastructure and real estate firms require more than three dozen permissions even now despite implementation of the RERA.

CONSISTENT POLICY

The one big factor that can truly change the course of doing business in India is a complete overall of procedures on the policy front, according to experts. Major policies such as awarding natural resources to businesses or those concerning exploration and mining need to be streamlined and made more transparent so as to attain maximum efficiency.

Some progress has been made such as online auctions of the spectrum; however, large investments on infrastructure, oil and gas, real estate, ports, etc, can come more quickly if some of these policies are transparent and open, encouraging speed and entrepreneurship.

“The three crucial things that every policy needs are speed on how rapidly policies can be implemented, how transparent they are, and their simplicity in understanding,” said Saiya.

The policies also have to lower procedural requirements. While certain industries such as chemicals, and oil & gas are hazardous and require more regulations in place, too many rules and restrictions do not allow businesses to function in all freedom to pursue profit profitably. 

The system needs to trim as many procedures and permissions as this would create higher standards of efficiency, and allow businesses the freedom regarding labour. Ultimately, the more entrepreneurship is encouraged, the more jobs and economic value are added to the nation.
 
 


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