Ease of Doing Business in India Improving
The Indian market is one replete with idiosyncrasies – on one hand, it offers endless business potential while on the other hand, it demands that its peculiarities be navigated with tact. It was in 1991 that the Indian government initiated economic reforms that set the path for liberalizing the Indian economy – reducing government interference in business and guiding India to an era of growth.
Today, 25 years since the reforms began the Indian economy boasts of a 7% Gross Domestic Product growth and is looking at achieving an 8% economic growth. It is setting its goal at not just achieving this growth rate, but also maintaining it over the coming years.
Report Cards for India
To make economic growth sustainable India has been making efforts to create conditions that are more conducive for starting businesses as well as attracting foreign investments.
In the World Economic Forum’s Global Competitiveness Report (GCI) (PDF, 12MB), India saw an encouraging climb of 16 points to be ranked at 39 in a list of 138 countries. According to the report, growth in South Asian countries in recent years seems to be tapering off, except for India. Among countries to feature in the top half of the GCI rankings, “only India achieves this feat,” it states.
“India leads the group of South Asian economies, climbing to 39th with improvements across the board, including institutions and infrastructure, which have been particularly important in increasing overall competitiveness. The two most significant improvements are in infrastructure and in health and primary education: for example, India almost halved its rate of infant mortality,” it adds.
The improvements in the business ratings have unmistakably seen a rise after the takeover of the Narendra Modi government that is viewed as a ‘business-friendly’ regime. The government with several initiatives including its ‘Make in India’ campaign has been looking at boosting manufacturing in India as well as inviting foreign investments to the country. There are ongoing efforts at improving the business climate in the country. Commerce Minister, Nirmala Sitaraman at the recently held India Economic Summit, World Economic Forum, pointed out that for India to achieve its 8% growth goal in the coming years, it needs to facilitate businesses. This with “many steps to remove regulatory hurdles that affect India’s competitiveness and the ease of doing business for firms,” she said.
According to the World Bank’s “Doing Business” Rankings India has moved up 12 spots from 142 to 130 in the last two years in an evaluation of 189 countries. The report (PDF, 1.9MB) that measures business regulations in various countries includes 11 cycles of a business – starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labour market regulations. India’s leap in certain areas has been noteworthy – The time for commencing a business for a domestic entrepreneur has now shortened from 29 to just 12 days. Another area has been “Access to Electricity” where India saw a 29-point leap.
While this might not seem like a tremendous improvement ranking given the number of participating countries, the ranking comes at a time of other reports that point to the business environment improving in India.
The reports this year so far, also include the Global Retail Development Index 2016, released by the Consulting firm AT Kearney. The report names India as the second best global retail market in the world for its “GDP growth, improved ease of doing business, and better clarity regarding foreign direct investment (FDI) regulations.” It stands next only to China, which undeniably is a tough competitor, yet is ahead of other robust economies including South Africa, Russia and UAE.
In a major effort to facilitate ease of doing business in India, the country recently cleared the Goods and Services Tax Bill (GST). A reform that now allows for a unified tax system that will hopefully stimulate business as well as spare investors an otherwise unpredictable tax regime.
Jumping Hoops and Doing Business
These reports paint a picture of an economy that’s changing and making space for entrepreneurship. But despite these changes, the path to doing business in India can be laden with familiar challenges. Even according to the World Bank evaluation, there has been little change in some areas such as enforcing contracts, registering property and resolving insolvency. The World Bank report weighs various factors only in the context of domestic businesses. How the business climate plays out for foreign investors could depend on other parameters that it has not evaluated. The Indian market while may be lucrative and untapped in many aspects continues to pose its set of trials for foreign players.
Red tape, bureaucratic processes, on ground delays, lack of protection of minority investors etc are some areas to be worked on. Customising business as well as practices to suit the Indian market and its cultural uniqueness and diversity is another important aspect of doing business in India. Delving in this potential goldmine of an economy that is tipped to be among the world’s third largest economy by 2030 is done best with those who have been here and tested the waters. Research, collaboration with the right advisors, lots of planning and unending patience are old time rules that still ring true here.
Elizabeth Raj | Blogger – Arsha Consulting