“NITI-IDFC Report” on the ‘Ease of Doing Business’ in India was recently published.
This is a timely endeavour to assess the impact of the government initiatives at the ground level.
What is the background?
Government has carried out a series of regulatory reforms to create a favourable investment climate.
Various compliances mandated under the Companies Act have been done away.
Commercial courts were setup under the commercial Appellate Divisions Act of 2015, to resolve commercial disputes in a time-bound manner.
Insolvency and Bankruptcy Code (IBC) - 2016 was introduced to global quicken insolvency cases and address the NPA problem.
FDI liberalisation has taken place in the defence, pharmaceuticals and in airport management.
What does the report state?
The criterion adopted for determining the ease of doing business is the efficacy of these reforms.
The “NITI-IDFC Report” studies this based on an enterprise survey of 3,500 manufacturing firms across Indian.
Single window clearance: This system was introduced under “Make in India” initiative in 2014.
It involves routing of all approvals required by an enterprise to set up a business through a hassle free common application window.
Only 20% of the enterprises surveyed were found to have used this, which suggests either lack of awareness on the part of enterprises or ineffective implementation.
Access to finance: Most enterprises rely on borrowings from banks and financial institutions as sources for finance.
61% of the enterprises surveyed reported that access to finance has either remained the same or worsened over the last year.
Clearance Time: The survey finds that 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 an average, the time incurred for land allotment 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.
Sector Specifics - Start-ups & younger enterprises are found to have taken lesser time than older ones.
Furthermore, labour-intensive industries were found to face major challenges than capital-intensive industries.
Where are the areas that need improvement?
The reforms and their impact were pronounced in big cities but not clearly noticeable in smaller cities & rural areas.
The government needs to work for effective implementation of the reforms introduced across all states uniformly.
Creating awareness of the reforms introduced is needed to enable the enterprises to avail these benefits.
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.
How does the future look?
While the report does raise some questions about the efficacy of the reforms carried out, it is a fact that the government focused and is heading in the right direction.
The results may not yet be clearly visible, but there is a greater amount of positivity about India among investors.
It can be safely assumed that the coming years would witness faster growth with a lower compliance burden on corporates.
