Home >Opinion >Columns >Opinion | The ease of doing business: It’s time to walk the talk

Addressing the ‘India Global Week’ summit last Thursday, Prime Minister Narendra Modi showcased the country as a favourable global investment destination. Among the many reasons, he also flagged the dramatic improvement India has managed in the World Bank’s ease-of-doing-business rankings. What the PM omitted was this: that despite the impressive improvement, it is still a work in progress.

The biggest obstacle is the historical legacy of red tape, for which both the Union and state governments, despite voicing constant support for economic reforms, were equally culpable.

The damage this causes is two-fold. For one, it discourages and distracts entrepreneurs from pursuing a business idea. Two, the political economy of this is terrible; such controls foster a perfect ecosystem to breed crony-capitalism. Worse, these off-the-book payments make Indian units that much less competitive, both domestically and internationally.

It is what Manish Sabharwal, chairman, TeamLease Services, and a constant champion of reforms, sums up in his inimitable style: regulatory cholesterol. A subsidiary company of TeamLease, which maintains a database on government regulations, estimates that, at present, companies have to annually adhere to 69,233 compliances and 6,618 filings and intimations.

The onset of the covid-19 pandemic has made this worse with firms having to adjust to even more than the normal (3,000 annually) regulatory changes at the district level—particularly with respect to compliance with lockdown norms.

Imagine the plight of the small companies: they risk being buried under paper work, which more often than not, is needless, even as they deal with the bottom falling out of their revenues.

If you think running a business is tough, then check out what it takes to set up a business in India. The World Bank’s ease-of-doing-business rankings, in which India has shown a remarkable improvement over the last two years, has a very revealing statistic.

In the 2020 report, while India has an impressive overall rank of 63, its rank in setting up a new business is an abysmal 129 out of 190 countries! Clearly, the legacy of crony capitalism and its business model lives on—wherein you first create the policy impediment, and then charge a pay-off to clear each hoop.

The problem in India has been that most of the changes undertaken in the past were pro-business and not pro-market—the latter favours competition in a rules-based regime, and the former is an exception-based regime premised on the power of discretion vested with authorities.

Not only has this fostered corruption, it has also left most Indian businesses ill-equipped to deal with a change in regime. The country initiated baby steps towards establishing a rules-based regime (think Aadhaar-based delivery of subsidies) about 10 years ago; their situation has only worsened after the pace of change hastened recently (launch of the nationwide goods and services tax, ‘one-nation, one-market’ for agriculture products, and one-nation, one-ration card to access the public distribution system).

In many ways, the challenges before Indian businesses mirror what the country in general is up against. At every step, there is an impediment to change. The situation is coming to a head because a young, aspiration-driven society is no longer content with status quo.

The onset of the covid-19 pandemic may actually provide the perfect cover for initiating transformative reforms to bury the past. Deployment of technology to deliver tasks, such as paying out subsidies, will eliminate middlemen; this process of disintermediation will, in turn, destroy the enabling infrastructure of crony capitalism.

Similarly, e-commerce platforms, such as Amazon and Flipkart, which basically aggregate small businesses, have got a leg-up as the rise of the fear economy in the post-covid world has discouraged footfalls in markets.

In the final analysis, it is clear then that at one level, India has made enormous progress in logging key milestones in the ease of doing business. But this is mostly a low-hanging fruit and largely bypasses the states. The next round of change will be tougher as the entrenched lobbies will push back. This will be the litmus test for the Union government’s commitment to economic reforms.

Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.

Comments are welcome at anil.p@livemint.com

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