The World Bank’s Ease of Doing Business study ranks 189 countries and currently, India is just above rank 130th. It is quite evident that doing business in India is not amongst the easiest.
What makes it so complex?
According to the chairman of GodrejGroup, the ease of doing business in India can be defined as “a little bit here and a little bit there”. The delay in getting permissions and the amount of permissions required were far too many, back in 2015.
Definitely the processes have been made easier now but much more needs to be done. There have been significant improvements in many parameters like getting electricity, some states have taken measures to cut red tape, states like Maharashtra have brought down the level of approvals required etc.
India is ranked at 178 when it comes to enforcing contracts and ranked at 183 when it comes to dealing with construction permits. The task of making business easier in India is enormous.This complexity in running a business in India makes it difficult to attract foreign investments. The reasons for that can be broken down into:
DELAYS AND RESTRICTIONS IN PROJECTS BEING APPROVED : Global companies trying to set up units in India often face months of struggle to get administrative approvals. While India attracted $60 billion in foreign direct investments in the year to March 2017 in comparison, China’s FDI reached to a record of $189 billion in 2016, despite an economic slowdown. Our economic growth has been strong, mainly because of the state and consumer spending. Hence the government needs to take measures to revive capital investment.
In an attempt to boost funding, India scrapped off a ministerial panel responsible for coordinating foreign investments. Investors believed that the decisions by the ministry often got delayed due to infighting between government ministries.Secondly, the restrictions for foreign investors have been gradually decreased by our government and nearly 90% of the country’s industrial base has been opened up.
SOVEREIGN DEBT AND FISCAL DEFICIT : The sovereign debt of India is rated one step above junk by S&P Global, Moody’s and Fitch. Our fiscal deficit touched 91.6% of the Budget estimate for FY18. This April-August fiscal deficit is significantly higher than 76.4%, for the previous year period. The government is considering ways of reviving growth which has hit its lowest level in three years and is driving away investors.
COMPLEX PROCESS : There were hundred of approvals required for starting a business in the country but in an attempt to simplify processes by the government, the taxation is made simpler. GST has unified a number of taxes and transformed India into a single market for flow of goods and services. The government has collected nearly Rs 1.9 lakh crore as GST in the first two months itself.
Even though the RBI believes that GST had an adverse impact on manufacturing and may delay investment revival, it has made the tax regime simpler. At the same time, the RBI also believes that the government should simplify GST further, in order to support growth.