Doing Business In India

Saurabh Singh
Class of 2012

Background
India is undergoing a paradigm shift due to change in its competitive position in the world. The Indian economy is on a robust growth trajectory and exhibits a stable annual growth rate, rising foreign exchange reserves and booming capital markets. From 2004 until 2010, India's average quarterly GDP Growth has been 8.37 per cent [1]. India has emerged as the fourth largest economy in the world on the basis of purchasing power parity (PPP). Vast investment potential exists in sectors such as biotechnology, retail, real estate, power, and telecommunications. The investment prospects are strengthened by having a large pool of skilled and competitive manpower, huge research and development base, growth in the Indian domestic market owing to higher disposable incomes and abundant natural resources required to set up industries.
In spite of the above factors, India ranks 134 among 183 nations in a survey called “Doing Business 2011″ - that gauges the ease of doing business in a country — and is ranked behind countries like arch rival Pakistan, Bangladesh and Sri Lanka.


Evaluation System of Survey
The study conducted on the world’s economies gives ranking to countries after executing lot of calculations on various parameters on “ease of doing business”. It takes into account nine areas- (i)starting a business (ii) dealing with construction permits (iii) registering property (iv) getting credit (v) protecting investors (vi) paying taxes (vii) trading across borders (viii) enforcing contracts (ix) closing a business. Out of these, India ranks very low on (i), (ii), (viii) and (xi), as compared to its neighbors. China is way ahead of India in areas of registration of property and enforcing contracts. It shows a much stronger legal system and transparency in proceedings in China. Even, Sri Lanka and Pakistan are ahead of India in these areas.

Reasons for Non-conducive Business Environment
The major factors responsible for the appalling condition for starting and operating the business are inefficient bureaucracy, inadequate infrastructure, corruption, weak legal system, and law and order problem.
The red tape hassles inherited in bureaucracy and loads of paperwork makes doing business difficult in India. The Indian bureaucracy seems to carry the legacy of “License Raj”, which appears to be a black box to many entrepreneurs. The plight of Indian bureaucracy is that the structure of district administration in India has not changed since the pre-independence era. The bureaucrats work under the influence of politicians. They decide their promotions, tenure at a place or position so bureaucrats work under an apprehensive environment.
The Indian economy is losing 1.5-2.0 per cent in growth annually due to the poor state of the country's infrastructure. Most of the foreign firms often cite rickety infrastructure like congested ports and poor roads as the biggest challenge in doing in India. India’s trade, for example, could be rendered less competitive because of high transit time and congestion surcharges. India suffers an estimated food grain and agriculture produce loss of Rs50, 000 crore every year due to the lack of adequate post- harvest infrastructure and inefficient supply chain management by the country's farmers [10].
The business environment is very badly affected by the pervasive corruption at all levels of government. The awarding of public contracts is notoriously corrupted, especially at the state level. The numerous bodies charged with combating corruption have conflicting mandates and suffer from lack of qualified staff, funding and easy accessibility. India has slipped three places in global rankings of most corrupt countries, from 84 in 2009 to 87 this year [5].
A country’s law regulate business practices, defines business policies, rights and obligations involved in business transactions. In India, Justice delayed is justice denied" is the oft repeated sentence which itself is delayed and denied both in letter and spirit. In China there are 1, 30,000 courts while it is just 14,000 courts in India [6]. Financial experts had put forward that the delay is dragging down GDP by 2 per cent on an average especially creating a hostile environment for investment and business, in general. Financial investors investing in India has a "legal risk premium" which is an additional cost involved for investment due to the weak legal system. This arises because of the obstacles affecting enforcement of a claim or a contract especially in matters relating to land acquisition, which is one of the criteria in evaluation system.
No country can claim to have a conducive business environment without having robust and effective law and order system in place. It is because business cannot thrive in an environment which cannot guarantee its security. The states like U.P, Bihar and Jharkhand lag in this aspect which is responsible for lesser investments in these states. The threat of naxalities in states of Jharkhand, Chhattisgarh, Orissa and north-east states has led to under utilization of vast natural and human resources in these states.

Improving business scenario
The conditions for doing business in India can surely be improved, provided, the problems are tackled through specific strategic solutions which may require, in some cases, revamping the whole existing system.
We need to have a system in which bureaucrats need to have autonomy. India's bureaucrats need to be insulated from political influence. They deserve transparent appointments and promotions and fixed tenures. The civil service needs a code of ethics which demands a “climate of probity in public life”. Bureaucrats should be able to use their own ways of managing their function, bringing new ways to tackle problems and proposing policy changes. They need to be motivated throughout their serving period through various programs and workshops and a clear aim of placing the interest of “the common man” in the center of their actions should be imparted.
Business prospects in the country increase with better infrastructure. It leads to fast and secure transportation of man and material, expansion of business through investments in various places and projects and high growth rate. Now, for developing infrastructure, we need capital. Experts believe that allowing more FDI propels economic progress, job creation for the people and growth of the economy. For investments into large infrastructure projects, India needs to ensure that it has insurance cover and bonding that will cover large projects that are initiated here. But FDI alone may not provide an overall positive impact because large capital inflows may result in depreciation of currency and widening of trade deficit. So, for a holistic solution, it should be accompanied by trade agreements with major trade partners. This will ensure rise in exports and, at the same time, access to hi-tech goods and technology with the improvements in areas of research and development.
We need to have result oriented organizations with clear goals, time frame and pathway to achieve its mission. For this, there needs to be strong supervision and monitoring, at various levels. Accountability can be a very effective tool in eliminating corruption from the system. Every job in the concerned government organization should have a set-time frame, clear requirements (documents or other essentials), the person responsible for completing the job and the supervisor. Transparency is also needed and information technology can play a vital role in this. We should have public access to status reports of various applications of permits, license, registration etc. in concerned department so that end to end view of functions is facilitated.
Indian legal system needs to have a new framework for delivering accelerated dispute resolution. The main problem is the lengthy and highly intricate court procedures and the resultant deferment due to them. The whole system needs a review, with elimination of unnecessary procedures and formalities. It is still in the frame of pre-independence era, with norms not suitable to conditions in India. The simplicity in the process, easy accessibility to legal service and fast dispute resolution are three required areas to work upon in the legal system. There should be time-bound resolution of cases, depending on the broad categorization of nature of the case. India may have Indian judicial service, on the lines of Indian administrative service, to attract talent in this field with bright and secure career prospects. But, in that system, it should have result oriented approach in dispute resolution and not red tape hassles.
Law and order situation can be improved more by focusing more on implementing the existing laws instead of making the existing ones more stringent. It is because latter one, in absence of transparency and results in increased corruption. All the states should give priority in providing secure environment to resources and business zones to ensure their survival and expansion. Also, experts say that [9], if best practices followed in different states of India are followed throughout the country, it can leap by fifty-five places in the rankings of “ease of doing business survey”. So, efforts should be focused to eliminate the regional disparities of business conditions, which will also help the existing units to come out of radar of officialdom, dodging taxes and ignoring rules.

Conclusion
India surely has a long way to go, getting rid of red-tape and improving infrastructure before it can celebrate being a world power, especially if it wants to encourage new business leaders. But, with a vast pool of talent and focussing towards progress-oriented actions, it can surely make its mark in today’s business world.


References
1. (tradingeconomics.com/economics/GDP-growth, 2010)
2. (http://www.indiainbusiness.nic.in/know India, 2010)
3. (Sampathkumar)
4. (http://blogs.reuters.com/india/2010/11/09/survey-says-doing-business-in-india-is-tough/, 2010)
5. (Dholakia, 2010)
6. (S.Madhu)
7. (soutikbiswas, 2010)
8. ( http://www.hindu.com/2010/11/10/stories/2010111052271300.htm, 2010)
9. (Snipping Off shackles, 2010)
10. (http://www.igovernment.in/site/poor-infrastructure-costs-india-rs-50000-crore-agri-loss-every-year/)