Wanted in India: A ‘Doing Business’ Minister

Wanted in India: A ‘Doing Business’ Minister
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First Published: Fri, Feb 15 2008. 12 37 AM IST
Updated: Fri, Feb 15 2008. 12 37 AM IST
From earth sciences and public grievances to social justice, urban poverty and the diaspora, the Indian government has a ministry for everything and everyone.
Forming a new agency is its way of legitimizing an activity or an interest group by saying: “We care about you.”
That explains why the coal ministry stands separate from the mining ministry, and the new and renewable energy ministry can’t be merged with the power ministry.
Of course, the number of ministries—there are 48 of them, plus “independent departments” of atomic energy and space—also reflects the compulsion of running a coalition government.
The main ruling party, which at present is Sonia Gandhi’s Indian National Congress, has to satisfy a multitude of smaller groups by giving them ministerial berths. Including junior ministers, 79 politicians currently hold high office in the Union government.
State governments replicate many of the Union ministries. Besides, they have some additional ones. Uttar Pradesh, the most populous state, has a minister for gardens.
Amid this plenitude, one office that’s badly needed and remains missing is the “ministry for doing business.”
Various central agencies deal with commercial enterprises. So, why does one need to add to the aggravation of the businessman by introducing another layer of control?
Too many cooks
The reason why India needs a “minister for doing business” is to reduce the clutter and the confusion that have arisen because businesses are forced to deal with a very large, and growing, executive branch of the government.
Not only that. The further one moves down the chain of command—from the central administration to state governments, and then to civic management—the web of control becomes denser, even as the responsiveness of the officialdom turns less predictable.
Not long ago, foreign investors cited bureaucratic delays as one of the main reasons for not wanting to come to India. Now, the situation has changed. Large investments, such as a $12 billion (Rs47,640 crore) steel mill that Pohang, South Korea-based Posco wants to construct in India if only it can get the land, are coming. Domestic companies, too, are investing heavily. In the three months ended September 2007, net capital flows into India amounted to $34 billion, or 14% of gross domestic product. That compares with just 3% five years ago.
Thinking small
The policymakers’ emphasis must now be on raising India’s ability to absorb higher amounts of foreign capital and local savings. Lifting the economy’s growth potential will require a few big changes. One of them is easing labour laws that dissuade companies from making optimal use of India’s cheap manpower.
But most of the changes that the government needs to urgently implement are small ones that are falling through the cracks because no one is pursuing them earnestly. Someone needs to take a look at all the hoops a business needs to go through in India, compare them with international best practice and cut out the time-wasting, irrelevant parts. That’s all that the “minister for doing business” has to do.
For instance, the minister has to ask why it is that it takes 224 days to get construction drawings cleared and obtain the necessary permits, clearances and utility connections for erecting a new building in Mumbai when the same can be accomplished in Seoul in just 34 days, according to statistics compiled by the World Bank.
When something as basic as that takes this long, businesses seek to speed up the proceedings by paying bribes.
Buying improvements
There are broadly two ways to seek an improvement.
One is to wait for the entire system of municipal governance and financing to modernize. That will take ages. The other way is for the Central government to announce a hurdle rate for completion of this specific task.
Say, any municipality that can vet construction drawings and issue building permits in 10 days on an average—without cutting corners—will be entitled to a monetary incentive large enough to compensate them for the expenses on additional manpower and improved technology. Some cities, such as Hyderabad, are making progress in cutting down the time needed when issuing building permits. They are also making the process more transparent by taking it online. The “minister for doing business” will put in place an incentive structure that encourages such endeavours to be emulated by other municipalities.
The concept of the government “buying improvements” from states has been tried successfully in moving the country towards value-added taxation and in forcing through some policy changes required from subnational administrations to boost electricity generation. It’s now being attempted in urban renewal. There’s no reason why the same template can’t be used to improve the investment climate. All that’s needed is a minister who will become, to borrow the title of Arundhati Roy’s 1996 book, a “god of small things”. That, at this moment, is the biggest job in India.
-Bloomberg
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First Published: Fri, Feb 15 2008. 12 37 AM IST