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Regulatory reforms key to improve India's ease of doing business

Gyanendra Keshri, Executive Editor, INCLUSION

Ease of doing business is critically important for attracting investments and creating jobs.

Narendra Modi government has set an ambitious target to improve India’s ranking in ease of doing business to among the top 50 in the next two years. The goal looks very difficult and ambitious because India is ranked at 142 among 189 countries in the latest World Bank’s ease of doing business index. In fact, India’s ranking has taken a hit in the recent years. It slipped by 11 spot in the past two years. In 2013, the Asia’s third largest economy’s ranking had slipped by three spot to 134th position. In the latest ranking it slid by 8 spot.  

The ranking does not measure all aspects of the business environment and it could be a matter of debate whether it truly reflects the situation at the ground. Still, there is no denying the fact that doing business in India is far more difficult than most other parts of the world. It takes months, and at times years, in India to get necessary approval to start a business, while this can be done in a few days in the countries like Singapore, US and even China.

Ease of doing business is critically important for attracting investments and creating jobs. Modi government seems to be making the right noises. The union cabinet Tuesday approved amendments to the Companies Act to address some of the concerns raised by the corporates and other stakeholders. The Companies Act, 2013 that came into effect from April 1, 2014 has replaced six-decade old archaic legislation. The government is acting swiftly to liberalise it further.

The ease of doing business ranking of the World Bank is based on various parameters including starting a business, paying taxes, getting credit, dealing with construction permits, getting electricity, registering property, protecting investors, trading across borders, enforcing contracts and resolving insolvency.

On most of these parameters India ranks very poorly, far worse than its neighbours like Sri Lanka, China and even Nepal, Pakistan and Bangladesh.

The passage of key legislation pending in parliament related to taxation, land reforms, FDI in insurance and some other sectors, is critical for making business environment better in the country. The Goods and Services Tax (GST) that seeks to bring uniformity in indirect tax structure across the country and ease the process is pending for years. Manmohan Singh-led United Progressive Alliance (UPA) government had introduced the Goods and Services Tax (GST) Bill in parliament in 2011. But it failed to get the legislation passed. It’s a big challenge for Modi government to get the legislation passed in the ongoing Winter Session of Parliament. Unless it is passed in the current session, it would be difficult to implement the GST from the targeted April 1, 2016.

The GST would make taxation process much easier and as a result India’s ranking in the ease of doing business will improve substantially.

There are over 100 laws, including 44 at the Central level, that govern labour sector in India. Some of the archaic laws governing the labour markets in the country include Industrial Disputes Act, 1947; Minimum Wages Act, 1948; Payment of Wages Act, 1936; Payment of Bonus Act, 1965; Factories Act, 1948; Shops and Establishments Act; Maternity Benefits Act, 1961; Employees' Compensation Act, 1952; and, Contract Labour (Regulation & Abolition) Act, 1970. Labour laws need comprehensive reform.

There is need for further reforms in land laws, that was amended last year through the new act named Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. Land acquisition process needs to be rationalised and simplified.

The “Make in India” objectives can’t be achieved without improving on the ease of doing business. The recent steps taken by the government has sent positive signals and created some optimism. However, implementation is the key to ensure investments at the ground and create jobs.

(Gyanendra Keshri can be reached at gyanendra@skoch.in)

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