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Business News/ Politics / Policy/  Ease of business a difficult job
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Ease of business a difficult job

Parliamentary hurdles and unexpected tax demands on FPIs have diminished the initial euphoria among businessmen

Photo: Ashish Maitra/MintPremium
Photo: Ashish Maitra/Mint

New Delhi: Doing business in India can sap the strength of the most resourceful.

Bureaucratic red tape, poor infrastructure, corruption and archaic labour laws have long thwarted entrepreneurship and stymied economic growth.

Not surprisingly, the World Bank has ranked India close to the bottom in its ease of doing business index: 142 among 189 countries. In the run-up to the 2014 general elections, Narendra Modi promised to change that.

For instance, the government has fast-tracked the environment clearances, blamed for delaying crucial infrastructure projects and hurting economic growth.

The Modi government has implemented around 60 action points, prepared in consultation with lobby group the Confederation of Indian Industry (CII), related to simplifying the process for environment, forest and wildlife clearances for firms.

The initial euphoria among businessmen, however, has somewhat diminished with the government’s failure to quickly push through major economic legislation through Parliament and unexpected tax demands on foreign portfolio investors (FPIs).

Still, Modi has been able to address some of the contentious issue, including taxation, that hobbled the previous regime.

The government has promised measures to make tax administration more friendly and predictable.

Finance minister Arun Jaitley, to whom Modi has entrusted the responsibility of reviving the economy, has postponed the implementation of general anti-avoidance rules (GAAR)—a provision that would have empowered the tax department to crack down on entities that structure investments to avoid paying tax.

The government is also working to revamp the dispute resolution panel for faster and more impartial rulings in tax cases. It plans to set up more benches of the Authority for Advance Ruling and Income-Tax Appellate Tribunal. In addition, the government has eased rules around central excise and service tax registration, allowing the tax assesses to submit digitally signed invoices and maintain e-records.

The government also plans to introduce a bankruptcy code to make it easier for companies to exit businesses.

Among other important measures, the government has introduced steps to rein in the powers of labour inspectors and has made it easier for businesses to file compliance reports.

It has introduced automatic registration of Employees’ State Insurance Corporation (ESIC) through eBiz portal and allowed electronic submission of returns and grievance redressal, aimed at reducing the burden on businesses.

The industry bodies have applauded the government’s efforts.

“In the last year, the government has taken an unprecedented number of steps to improve the ecosystem for doing business," said CII’s director general Chandrajit Banerjee. “It has targeted ‘ease of doing business’ with missionary zeal across the domains of starting a business, getting permits, improving payment of taxes, and so on."

The Modi government also seems to have learnt its lessons from the mistakes made by the previous Congress-led government, which was mired in a series of embarrassing corruption scandals.

To ensure transparency, it has focused on projects such as eBiz, which was introduced before it came to power but had never got the required push. eBiz is an online platform that aims to provide a single-window clearance mechanism to enable businesses to apply for all required approvals, in a bid to improve transparency. The Department of Industrial Policy and Promotion (DIPP) so far has integrated 14 central government services on the eBiz platform and aims to add another 12 by June-end.

CII’s Banerjee said the eBiz initiative was an excellent beginning, and said several changes have been made to environmental and forest regulations to fast-track administrative processes.

While these steps have been welcomed by business owners, environmental activists have criticized some of them. “Doing good business actually means doing environmentally responsible business. I wish the government recognizes this," said advocate Sanjay Upadhyay, who runs Enviro Legal Defence Firm.

“We are not against development at all, we just want the government to make environmental compliance cheaper than non-compliance."

Despite some criticism, the government has pressed ahead with steps aimed at overcoming hurdles in the way of investors. It has already constituted a panel to recommend a simpler mechanism to replace the myriad permits needed to start an enterprise. To ensure that the efforts for ease of doing business do not slow down, all the changes are being directly supervised by the prime minister’s office.

The government still has a long way to go.

Fixing India’s problems will need Modi’s focused attention over the next few years.

“The government has taken some clear steps as far as entry of new companies is concerned, especially with regard to getting government clearances. There are other critical areas that need to be worked on to bring about a genuine improvement," said D.K. Srivastava, chief policy advisor at consulting firm EY Llc.

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Published: 25 May 2015, 12:40 AM IST
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