The Prime Minister of India invited entrepreneurs from overseas by his first speech from Lal Quila on 15th of August to come and ‘make in India’, a debate has generated in a big way for facilitating such move, inter-alia, by providing ‘ease for doing business’ because no business enterprise would like to lock its funds in a new venture in India and then run after various Ministries and Depts. of the Govt. at Central, State and Local authorities levels to commence business.
Presently, there are still considerable delays for many businesses for clearances from many Departments before the business could be commenced.
In this Article, I will be discussing the Major Problem Areas for Doing Business in India and also the Initiative need to be taken by the Government.
Problem Areas of Doing Business in India:
The problems of doing business do not end with starting them. Ease of doing business has to deal with sustaining the momentum as well. India, a fastest growing economy in the world, ranks 130th among 189 countries lower than its BRICS (Brazil, Russia, India, China, South Africa) counterparts as per the ‘Doing Business’ annual reports published by the World Bank. Problems and restrictions plague the business throughout its lifecycle, making it difficult, expensive and cumbersome to start, grow or exit from a business. There is a need to focus on improving the business environment which is likely to spur growth and generate employment for millions across the country.
Improvement areas in various aspects of doing business in India have been identified viz. starting a business, land acquisition, labor, and taxes.
Starting a Business
The cost of starting a business in India is astronomical, and the procedures involved can be daunting without local knowledge. There are 12 procedures to complete in the initial set up of a business costing 49.8% of income per capita. It takes almost a month (27 days) to complete the tasks on average, which is well above the OECD average of 12 days.
Dealing with Construction Permits
Construction permits are also a costly pursuit, involving 34 procedures and taking 196 days. Obtaining Intimation of Disapproval from the Building Proposal Office and paying fees takes around a month.
The cost of getting electricity is relatively cheap in comparison to the rest of South Asia, but the number of procedures involved can be rather daunting. What’s more, each procedure is in itself quite time constraining, taking around eight days to receive an external site inspection and three weeks to get externally connected, have a meter installed and conduct a test installation.
Protecting Investors and enforcing contracts
The concept of investor protection is one that has garnered a lot of attention of late, and new bodies such as the Securities and Exchange Board of India (SEBI) have been set up to that effect. Enforcing contracts will also be an area that must be looked at; India ranks as one of the worst countries in the world for the ability to enforce a contract, taking an average of 1,420 days.
Currently Insolvency is marred by delays. It takes anywhere between 5 to 15 years for lenders to recover money in the event of default.
The Insolvency and Bankruptcy Code, 2015 (Introduced Recently) on bankruptcy has fixed a timeline of 180 days, extendable by another 90 days, for resolving cases of insolvency or bankruptcy.
Labor & Employment
Negative covenants in employment contracts in the form of non-compete clauses are unenforceable beyond the term of the contract. While terminating employment contracts, investors should be careful to comply with relevant laws such as Industrial Disputes Act, Shops and Establishments Act and state specific employment orders. These laws lay down specific rules for employment and termination.
India still lags behind many developed nations in its implementation and enforcement of intellectual property laws. Foreign investors must take adequate measures to protect their intellectual property rights from infringement and misappropriation.
Delays in Courts
One of the biggest challenges that foreign companies face while litigating in India is the problem of delay, with cases sometimes taking several years to be resolved. While alternative forms of dispute resolution such as arbitration are available, they are yet to gain complete acceptance.
Corruption is a big hurdle when doing business in India. As per the Transparency International’s Corruption Perception Index, in 2005, India ranked 92nd out of 159 countries Investment in sectors which require continuous interface with various regulatory authorities expose the investor to delays in implementing the project thus affecting their profitability. Foreign investors also face the challenge of dealing with rampant bureaucracy at various levels of federal, state and local governments.
Statutory Problems under Current Corporate Laws:
Major Problems Under The Companies Act: For starting a company, various requirements of the companies legislation, rules and regulations are to be complied with. It was expected that with the coming into force of the Companies Act, 2013, the position regarding the filing of documents and getting Certificate of Commencement will ease, but that has not happened. Even the Companies Act, 2013 (Act) has been amended many times after coming into force. Many provisions of the act are stringent and therefore scaring entrepreneurs to form a company and running it.
Compliance of Income Tax Act [Act]: In the past – say 50 years - the compliance under the Income Tax Act was cumbersome. Since then, the Dept. has moved in a big way in facilitating doing of business. There was a time when the taxpayers had to visit Income Tax Offices, in some cases, many times in getting their assessments completed with big bundles containing their books of account and other documents. From that stage, the I.T. Dept. has moved to a situation, where 98 to 99% of the returns filed are accepted and assessments are made without requiring the presence of the taxpayers. Only returns in few cases are scrutinized. Over the years, the I.T. Dept. has switched over to online functioning and the process is showing continuing progress.
SEBI Listing Regulations 2015: The latest from SEBI is the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. This has been introduced as if the listing agreement mechanism has lost its relevance all of a sudden. One is at a loss to know why suddenly introduce a new regime without first showing the existing dispensation has lost its relevance or is not able meeting the desired objectives. Isn’t it therefore necessary to think about making easier for doing business? It seems to be the need of the hour. It is absolutely not necessary to have multiple and layers of penal provisions and punishing authorities. Only if flooding of information, documents and records is reduced, there is a possibility for a proper monitoring. Officers at the Registrar of Companies or in Central Registry could take up for scrutiny select cases as per internal norms and guidelines so that the presence of a regulator is not at all felt in day-today management. If any suspicion arises from the deeper study of the records and returns, additional information could be called for and Registrars could commence necessary enquiry.
It is important to focus on challenges that entrepreneurs face at home because long-term economic growth can only take place if driven by domestic start-ups. Even if big global players are tempted to come to India because it is easier to set up shop here, it will not be sufficient to turn the economy around. What India needs is Reforms in economy, Removal of Corruption and streamlined taxation so that investors are not scared of retrospective amendments in corporate and taxation laws.
- CS Rahul Harsh, An Associate Member of The ICSI and A Commerce Graduate from Kolkata, Currently Employed as an Assistant Company Secretary with Aanchal Ispat Limited.
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