Despite being one of the fastest growing economies in the world and a potential investment hub, India continues to lag behind in terms of ease of doing business.
The World Bank’s Ease of Doing Business 2014 Index, which ranks 189 countries, places India in the 134th position, lower than all its BRICS counterparts. The rankings for all the economies were benchmarked to June 2013.
The Confederation of Indian Industry in partnership with KPMG recently released a report aimed at improving India’s position in the World Bank’s Ease of Doing Business rankings.
Titled ‘Ease of Doing Business in India’, the report identifies key areas that need reforms to enable doing business in the country.
Some of the major concerns highlighted in the report include lack of an effective land acquisition process, unfavorable taxation regime, high cost of starting a business and complicated and time consuming contract enforcement process.
The report is based on a survey conducted amongst Indian industry followed with extensive primary and secondary research to assess the prevailing business regulatory environment in the country. On the basis of the findings, the report suggests measures for resolving the various issues that were identified against each of the four parameters studied. The parameters selected for study included land acquisition, starting a business, taxation and contract enforcement.
According to the report, despite two decades of economic reforms, India continues to falter on various sub-indices such as starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across border, enforcing contracts and resolving insolvency. It emphasizes that there is an urgent need to focus on improving the business environment and arrest the decline in relative performance against various determinants of investment attractiveness.
“CII hopes that the findings of this report would help bring the issues to the fore and also serve as a reference point for the imminent need to pursue reforms in business practices and processes. Indian industry hopes that the new government would accord due importance to this extremely important and urgent agenda that would help churn the wheels of investment and growth,” said Chandrajit Banerjee, Director General, CII.
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Key areas that need reforms for improving business climate in India as suggested by the CII-KPMG report
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| Parameter Studied |
Issues identified
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Recommendations
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| Land Acquisition Process |
- Average time taken to acquire the land is 14 months and often could take longer
- 58 percent of the respondents felt the number of visits made to each department to obtain the permission posed major obstacles in the approval process
- 69 percent of the respondents felt that there was a lack of effective land acquisition process
- 83 percent of the respondents felt that unsecured land titles generated uncertainty
- Land mutation process is considered complex and time-consuming
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- Set up large designated industrial zones with pre-clearances and ready to move in
- Single window registration and mutation process
- Move from a deed based registration to title based registration (Torrens System)
- Streamlined process for land use conversion
- A market-based pricing system, where price is determined by an independent body
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| Starting a business |
- Approvals related to environment clearances, land procurement, construction permits, industrial safety permits and power connection are top five obstacles in starting a business
- 85 percent of the respondents felt that the time required to obtain such clearances was not reasonable
- 78 percent of the respondents felt the number of windows/ministries one has to visit was not reasonable
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- Reduce approval turnaround – make eBiz portal more effective
- Wider and effective adoption of deemed approval principle
- Automatic approval for power, water and sewerage
- Moving away from department centric approach to business centric approach
- Labor reforms
- Continuous skill development
- Access to funds for Micro Small and Medium Enterprises
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| Taxation |
- 90 percent of the respondents were in favor of reduction in tax rates.
- 92 percent of the respondents felt that there were challenges in transfer pricing assessments relating to distribution / agency
- 90 percent of the respondents believed that the tax authorities were not proactive in promoting investments
- 60 percent of the respondents felt that the neutralization of tax decision by Supreme Court through retrospective amendment had damaging effect on investment sentiments
- More than half the respondents faced delays in obtaining service tax refund
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- Implement Goods and Service Tax
- Reduce the number of taxes and the ambiguity / discretionary nature of taxes, especially in transfer pricing cases
- Efficient, effective and time-bound taxation related dispute resolution
- Ensure taxation does not hinder free flow of goods
- Implement independent grievance redressal cell
- Operational reforms required to get the tax base right
- Administration reforms required for consistency and increased efficiency in approach to taxation
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| Contract enforcement |
- Time taken from filing to final judgment seemed unreasonable to most of the respondents and posed major obstacles
- Costs involved (costs for engaging and retaining lawyers, miscellaneous costs, during the interim stage, enforcement costs) also posed significant obstacles
- 84 percent of the respondents indicated that a review of laws and regulations needed to be taken up urgently
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- Create a centralized contract repository with non-repudiation
- Effective implementation of e-courts
- Increase number of courts and tribunals
- More international treaties for increasing ‘reciprocative territories’
- Update antiquated laws
- Recognize and update laws keeping in mind the trends of higher technology update, greater trade based on IPR and greater global trade
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