According to Sanjeev Sanyal, principal economic adviser to the Indian government, getting the go-ahead from the police was one of 26 licences needed to open a restaurant in the Indian capital. An entrepreneur wanting to start a restaurant business in Bengaluru needs 36 licences while those in India’s financial capital Mumbai need 22. “Each one of these (licences) requires those kinds of documents…In fact, you need special permission for signage, for music, for even bicycle delivery.” By contrast, according to the Economic Survey, opening a restaurant in China and Singapore needs only four licences.
Regulatory burden on a business has a significant impact on its performance. To ensure compliance, regulations impose both time and cost and affect competitiveness of business. Regulations are an important tool for ensuring that markets work effectively and conform to trust among its participants. They bring in the minimum threshold of acceptability and make markets work. The Government’s approach is that the time and costs imposed by the regulations should be minimum. Low regulatory burden means that entrepreneurs devote their time on productive activities.
Since 2014 , the Government of India has worked on creating a conducive environment by streamlining the existing regulations and processes and eliminating unnecessary requirements and procedures. Delivery of government services has been improved in several areas to help businesses grow. A detailed plan of regulatory reforms is being implemented not only in the Central Government’s Ministries/Departments but also in the States through the active engagements with State Governments. As a result of the efforts, India’s ranking on the World Bank’s Doing Business Report (DBR) of 190 countries, has improved from 142nd position in 2014 to 63rd position in 2020. It has earned a place among the world’s top 10 improvers for the third year in a row. Within ease of doing business, the focus now is on reduction in compliance burden by using technology , third party assessment and faceless human intervention.
Approach till 2014
The World Bank Group has been ranking economies annually since 2003 on the prevailing regulatory environment in terms of 10 indicators to publish its analysis in the Doing Business Report (DBR). India’s rank on (EoDB) during 2010-14 was in the range of 131 to 142. Hardly any effort was undertaken by the government to engage with the key stakeholders and implement a plan for improving the country’s ranking. Prior to 2014, India was accepting the World Bank’s ranking of countries on EoDB as an annual academic exercise, without any specific plan for improving performance on the indicators which were relegating our country’s comparative position. India was ranked very low on trading across borders, starting a business, getting construction permits, resolving insolvency, enforcing contracts etc. The half hearted measures to address the challenges by the Government were not bearing any significant results or alternatively, the steps taken by other countries were substantive to be recognized in the ranking arrangement. Consequently, India’s ranking among the 190 countries continued to stagnate in the bottom 25% to 30% of the countries.
Transformation Since 2014
To achieve the vision of the Hon’ble Prime Minister of bringing India within the top 50 countries in the Doing Business rankings, the current Government has improved the existing business regulatory environment. An analysis of leading comparable countries was undertaken to understand the global best practices. A detailed strategy (roadmap) was developed and 7 Ministries/ Departments were appointed as nodal Ministries / Departments across 10 indicators. Since 2014, the aim is to create a conducive business environment by streamlining the existing regulations and processes and eliminating unnecessary requirements and procedures. Three major initiatives are being pursued focusing on – World Bank’s Ease of Doing Business, State & District Reform Action Plan and systematic approach to minimize regulatory compliance burden on businesses. Technology has been identified as the key driver for improving efficiency. Multitude of regulatory reforms have been implemented by Central and State Governments after an extensive Government Process Re-engineering exercise to deliver seamless services to the businesses.
- Launch of web-based SPICe+ and AGILE-PROform has enabled new company incorporation in 3-steps as compared to the 14 steps process in 2014. It acts as a single form for company details.
- One stop shop portal has been launched in Mumbai (mahabhunakasha.mahabhumi.gov.in) & Delhi (doris.delhigovt.nic.in).
- The process of obtaining building permits and occupancy cum completion certificates has become simpler and faster in Mumbai and Delhi.
- Number of days required for getting electricity connection reduced from 105 days in 2014 to 53 days in 2019 in India.
- Trading across borders has been made easier by Electronic delivery of customs clearance copy. Machine based automated clearance of imported goods and Use of ICETAB (handheld device) for on-the-spot clearances.
- Dedicated Commercial Courts with modern facilities in Delhi and Mumbai have been established for early redressal of commercial disputes.
- Introduction of Insolvency and Bankruptcy Code 2016 is a major step forward in Corporate Insolvency Resolution Process (CIRP).
Indicator Wise Improvements
The marked improvement in India`s ranking in ease of doing business parameters has had a very positive impact on the country`s business ecosystem. Potential investors can set up their business and get electricity connection in a transparent manner very quickly, as burdensome procedures have been removed. The significant improvements in the efficiency of the ports and the transparency and accountability in the processes and procedures of customs ecosystem have eased the trading across borders for the exporters and importers. The transformative achievement in resolution of insolvency of business under the new Code on the subject has led to the unlocking of capital, streamlining banking and credit channels and offers a new lease of life to business.
States are constantly engaged in attracting investments by making their regulations and procedures hassle free. The EoDB reforms have instilled a spirit of competition among the States to make life as easy as possible for potential investors to set up business in their regions which would eventually provide employment to its people. Potential international investors base their decision on locating their future investments on the country’s ranking on EoDB. The country`s steady improvement in EoDB rank in a short time span is leading to renewed interest in setting up business in India.
To translate the Atmanirbhar Bharat vision into a reality, the next generation of reforms relating to Minimizing Regulatory Compliance Burden on businesses and citizens are being taken up by Central Ministries and States/UTs on a mission mode. Making Government to Business and Government to Citizen interfaces online, transparent and time bound are among the key priorities . A systematic exercise across Central Ministries/Departments and States/UTs is being undertaken to eliminate or reduce compliances which have an adverse impact on time and cost of businesses. This exercise is divided into two phases:
Phase-I (till March 31st 2021) reducing regulatory burden across the following six areas:
- Renewals of licenses/certificates /permissions to be removed altogether or their periodicity to be increased.
- Inspections to be assigned randomly to Risk-based inspections/ Third-party inspections/ Joint Inspections by concerned government authorities
- Returns/Filings to be standardized and simplified and number of filings to be reduced
- Registers & Records maintenance to be rationalized or removed.
- Display requirements for licenses/permissions to be minimized or eliminated
- Digitization and Simplification of all manual records or procedures.
In view of the resource requirement to meet the challenges posed by the COVID-19 pandemic, the Government of India had on 17th May, 2020 enhanced the borrowing limit of the States by 2 percent of their GSDP. Half of this special dispensation was linked to undertaking citizen centric reforms by the States. The four citizen centric areas for reforms identified were (a) Implementation of One Nation One Ration Card System, (b) Ease of doing business reform, (c) Urban Local body/ utility reforms and (d) Power Sector reforms.
Phase-II (till August 15th 2021) focuses on the following four areas:
- Regulatory Impact Assessment: Regulations to be evaluated in terms of time & cost to business; ‘One-in One-out’ policy
- Decriminalization: Identify and decriminalize regulations which prescribe imprisonment as punishment for minor civil offences
- Redundancy: Identify and repeal archaic laws and rules
- Intensive use of New-Age Digital Technologies: Usage of blockchain (land registry), analytics (sentiment analysis of public services), artificial intelligence (detection of discrepancies/fraud), chat-bots (grievance redressal through chat-bots), DigiLocker (Central Data Repository) and Single Business Identity.
A Regulatory Compliance Portal has been launched by the DPIIT on 1st January 2021. The portal is to act as an online repository of all Central and State-level compliances and to minimize Regulatory Compliance burden. The overall objective of the regulatory reforms exercise is to bring India among the top 50 countries in the DBR.
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.
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.
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.