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Calling For Freedom

Business World |

24 August 2018

Indian entrepreneurs want easier rules to make conducting business easier

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.”

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.

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, no surprise that India needs to boost its rankings significantly if it has to lead in productivity-related gains. But, can India really climb up the ladder to the top 25 countries on the ease of doing business?

There’s still much room to cover, which means there is scope for improvement. “All the good countries rank very high in ease of doing business. While you have to see percentile as well as absolute rankings, sure I see a lot of scope to improve,” says Dilip Piramal, CMD, VIP Industries.

Piramal believes that GST is a pivotal reform for existing businesses. “There are two aspects to ease of doing business, one, for new companies where the ease of doing business is in the setting up and getting permissions and land, etc. The other is for existing establishments which impacts profitability and economic sustainability of any enterprise, and also your competitiveness. GST is a fantastic reform. One does not need so many warehouses,” says Piramal.

One of the parameters used to evaluate ease of doing business is credit availability. On that front, in India the establishment of debt-recovery tribunals has reduced dud loans and lowered the interest rate on loans.

In fact, Piramal attributes the reform as one of the biggest in recent times for ease of doing business. “The Bankruptcy Code is really going to help businesses because it was the biggest impediment to growth with so much capital blocked.”

Further, India has made obtaining a building permit faster by implementing a single-window system for approving building plans, as well as reduced the time needed to complete applications for Employee’s Provident Fund. It has also strengthened access to credit by amending the rules on 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.

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

Cross-border trade and procedures relating to it need to be further streamlined, according to experts. Experts note that cross-border trade must be provided incentives and the latitude to move to a more risk-based system of evaluating trade. Says 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.”

The other aspect that is hindering businesses is infrastructure improvement and procedures. There are still ways to liberalise many processes and documentation required to build infrastructure in the country. One survey suggests that infrastructure and real estate firms require more than three dozen permissions despite implementation of the RERA.

For the banking and finance sector, the reform process instituted through the NCLT and IBC code has been game changing. The debt market too is going to see a lot of change as plans are afoot to further open up the bond market so corporates can avail credit from it. SMEs have been given latitude to raise more risk capital.

The oil and gas sector, though, needs a much more open exploration policy to encourage investments. Experts reckon that oil and gas companies should be given more freedom to pursue tie-ups and exploration across the globe.

Licensing still remains an issue for the pharma sector, though. However, drug registrations are getting done faster, while healthcare reforms are getting a boost particularly on the health insurance side. Some challenges remain such as regulating diagnostic companies so that tests are more accurate.

For corporates, a big change in recent times has been introduction of online auctions of spectrum and other projects.

The policies also have to lower procedural requirements. 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 will get added to the nation.