Home / Economy / Focus on local bodies in govt push to improve ease of doing business
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NEW DELHI : When the Bharatiya Janata Party-led National Democratic Alliance sought re-election in the 2019 national polls, its manifesto for the economy section started with the promise that it would improve India’s ‘ease of doing business’ ranking further.

The repeated reference to this subject in the manifesto—nine times—suggested how it will continue to influence India’s economic policies after the country moved up in the World Bank’s ease of doing business ranking in its previous term in office. The country had moved up from 142 among 189 nations in 2014 to 63 in 2019 in the World Bank’s ranking.

Prime Minister Narendra Modi wanted to break into the top 50 nations on this count, but the multilateral agency discontinued this ranking in 2021 and announced its decision to work on a new approach to assessing business and investment climate. The bottlenecks to business it had flagged in previous reports offered a laundry list for advancing business climate to these nations, including India. With the pressure to grab a greater share of world trade in the post-pandemic world and to steer the economy out of the pandemic’s impact on growth, India identified the next milestone to be covered in improving ease of doing business—advocating cutting down outdated procedures, infusing transparency and minimizing citizen-state interface and bureaucratic discretion at the sub-national level up to local bodies. A key tool for the Centre to achieve this is the ranking of states.

Gentle nudges can come in many ways. In FY21, the central government raised the borrowing limits of states from 3% of gross state domestic product (GSDP) to 5% to those implementing specified reforms. A part of the extra borrowing was linked to implementing ease of doing business reforms at the state level. The aim was to tackle inspector raj at state and district levels. The targets given by the Centre included eliminating the need for renewing registrations and licences by businesses under various laws and setting up a computerized central and random inspection system to ensure the same inspector is not assigned to any unit in subsequent years. Also, businesses were to be given prior notice before inspections, and the reports were to be uploaded within 48 hours. Finance minister Nirmala Sitharaman said at the Hindustan Times Leadership Summit 2021 on 4 December that the compliance burden is to be reduced down to the level of panchayats.

Experts pointed out that steps taken so far have helped India break into the top 75 nations in ease of doing business, but there is still a long way to go. “The first critical aspect of being considered would be improving the enforcement of a contract, which requires judicial reforms, and the same has been a pain point. Currently, the judicial procedure in India is prone to undue delays. The next point for improvement would be land acquisition for industrial purposes," said Divakar Vijayasarathy, founder and managing partner at DVS Advisors LLP, a consultant.

According to the World Bank’s ease of doing business report 2020, brought out in 2019, India’s global rank on enforcement of contracts is a low 163. That was an incremental improvement of 23 positions from the rank of 186 in the Doing Business Report 2015. The department of justice says on its website, the government has been aggressively pursuing reforms to create an effective, efficient, transparent and robust contract enforcement regime, and several rounds of meetings have been held with law firms, corporate bodies, chambers of commerce and industry to work in an integrated manner along with the judicial fraternity to improve the quality and efficiency of commercial courts.

Experts said setting up commercial courts is seen as a major step in simplifying dispute resolution in India. India has always been seen as a jurisdiction where enforcement of contractual rights is a long-drawn affair, and it would sometimes take 15-20 years for civil disputes to be adjudicated, said Vihang Virkar, partner at Lumiere Law Partners.

“With the introduction of commercial courts throughout the country, disputes which qualify as commercial in nature will be tried and disposed of in a swift and time-bound manner," said Virkar. After the 2015 legislation, India set up dedicated commercial courts in Delhi, Mumbai, Kolkata and Bengaluru with dedicated infrastructure for quick disposal of cases.

Federal policy think tank Niti Aayog is currently advocating online dispute resolution, which could improve ease of dispute resolution, which has a bearing on ease of doing business. This entails handling disputes outside courts, particularly of small and medium-value cases, using digital tech and techniques of alternative resolution such as negotiation, mediation and arbitration.

Another key interest for businesses is to get quicker access to land for setting up facilities. With the efforts by the government in its previous term to make land acquisition easier for setting up new factories by legislative amendments not having taken off, the effort is to provide a plug-and-play set-up to entrepreneurs with the basic infrastructure and all the clearances to start businesses. Vijayasarathy said judicial reforms, easier land availability for entrepreneurs and implementing labour codes passed by Parliament would significantly improve the ease of doing business.

Making bankruptcy resolution more predictable and reorganization of distressed businesses faster, steps to allow faster starting of businesses, the roll-out of goods and services tax, decriminalization of Companies Act and LLP Act and liberalizing foreign direct investment norms are among the ease of doing business reforms that have helped improve India’s score so far. But a lot still depends on individual states, and till the sentiment percolates down into local laws in areas such as consents for pollution control, land acquisition for projects, stamp duty variance among states and labour and employment law compliances, the full effect of the efforts at the national level in easing the setting up and continuing businesses in India, will not be felt, explained Virkar of Lumiere Law Partners.

Several industry representatives said that while steps taken so far have resulted in big improvements, reducing compliance costs is also important. “Although procedural requirements have been relatively reduced and the communication between government departments has become transparent and hassle-free, the cost aspect still requires further relaxations," said Pradeep Multani, president of the industry chamber PHDCCI. Cost of compliance, as well as logistics, power and credit, needs to be addressed to strengthen the ease of doing business environment, he said. Also, inspector raj still needs to be eliminated with the effective single-window system at the state level, he said.

Businesses are eager to have the cost of compliance lowered as this has a bearing on their cost competitiveness. Reducing the regulatory burden on micro, small and medium enterprises (MSMEs) and revisiting the cost of doing business will go a long way in ensuring long-term growth in the country, said Deepak Sood, secretary-general of industry body Assocham. Its suggestions to policymakers include simplifying GST, revision in GST exemption limit for MSMEs and professionals and even faster bankruptcy resolution.

While there has been a quantum improvement in the ease of doing parameters related to licences, power connections and setting up a business, it is time to transition from the ease of doing business to the cost of doing business because in the ultimate analysis, all economies endeavour for efficiencies through reduced cost, said Davinder Sandhu, co-founder and chairman of consulting firm Primus Partners.

The department for promotion of industry and internal trade (DPIIT) is guiding the efforts of central ministries and states to simplify the regulatory architecture and ranks states on the basis of its business reform action plan.

Removing paperwork that is irrelevant and adds time and cost, repealing redundant laws and making procedural lapses civil offences are the key elements of the drive to improve ease of doing business.

Niti Aayog has also reached out to states to weed out irrelevant compliance requirements.

Making things easier for businesses is one part of the story. Modi has been signalling to central, state and local administrations to improve the ease of living too. Since technology is aiding all interface between the authorities and citizens, there is no need to ask the same document several times for different purposes, Modi had told chief ministers and lieutenant governors at a meeting of the Niti Aayog governing council in February this year. While there are examples of improving ease of living, reforming the massive steel frame of bureaucracy and the numerous regulations could be a long journey.

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