Insights into Editorial: Unease of doing business

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Insights into Editorial: Unease of doing business


 

Background:

Last year, after the World Bank’s Ease of Doing Business Ranking placed India at a lowly 130 out of 150 countries, Prime Minister asked bureaucrats to explain the reasons for the country’s poor performance and directed them to work on improving the ranking.

About 10 months later, a survey by the Niti Aayog and the Mumbai-based think tank, IDFC Institute, reveals that the efforts of the Centre and state governments to ease the system of permits and clearances notwithstanding, most entrepreneurs still feel hobbled by the country’s regulatory environment.

The survey of more than 3,000 manufacturing enterprises across the country shows that most firms do not use the single-window systems for business and regulatory clearances.

 

ease of doing business

Ease of doing business index

  • The ease of doing business index is an index created by the World Bank Group.
  • Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights

Introduction:

An ease of doing business report released by the NITI Aayog is a research document that did not represent official views.

The report, ‘Ease of Doing business — An enterprise survey of Indian states’, among other things, said starting a business in India took longer than that estimated by the World Bank. India’s stand is that the World Bank had not considered many of its reforms while placing the country at the 130th position in its latest ranking. 
Gap between claims and ground realities

Despite the Centre’s repeated claims that a firm can be incorporated in less than a week, the survey shows that even in the best performing state, Tamil Nadu, the process takes more than 60 days — on average it takes nearly four months to set up a business in India.

The gap between claims and ground realities suggests that the government’s outreach system requires sprucing up. 

The gap is a sign of a persistent problem with governance in India

  • The gap is a sign of a persistent problem with governance in India i.e. the difficulty of cutting the red tape of the lower bureaucracy.
  • This explains why on an average, entrepreneurs need more than 100 days to get a construction permit.
  • The World Bank’s report, last year, had also highlighted that delays in issuing construction permits affected the ease of doing business in India.
  • The survey had pointed out that labour constraints, difficulties in scaling up and information gap, among other issues, were impediments in creating an enterprise-friendly regulatory environment. 
  • Pointing out to the competitive federalism among states in improving the ease of doing business, the survey said the enterprises in high growth states were less likely to report major or very severe obstacles in land and construction-related approvals, environmental approvals and water and sanitation availability as compared to those located in low-growth states.

Employment-intensive sectors are more likely to face problems

  • The textiles, food processing and non-metallic minerals sectors account for almost two-thirds of the firms surveyed by the Niti Aayog and IDFC.
  • What should also worry the government is the report’s finding that entrepreneurs in these employment-intensive sectors are more likely to face problems and securing construction and other permits, compared to the capital-intensive ones.

Way Forward

  • The Bank’s report came in for criticism by Commerce Minister and Minister of Law and Justice and Electronics and IT. But the government cannot ignore the similarities in the two reports when the economy is slowing down and generating new jobs looks even more of a challenge
  • The survey should serve as a wake-up call to government and a reminder that over two decades after economic reforms the Indian state is still flailing when it comes to easing the path for entrepreneurs.