1. Ease of doing business: Cutting time needed to start a firm not enough

Ease of doing business: Cutting time needed to start a firm not enough

India managed to cut the average number of procedures required to start a business from 29 two years ago, to about 12-14, but that didn’t help significantly improve its overall Ease of Doing Business ranking

By: | Published: January 11, 2017 6:24 AM
Investors look at many factors, from the size of the market and the quality of the labour force, to flexible hiring policies, the time taken for resolution of disputes and the attitude of the taxman, among others. (Reuters) Investors look at many factors, from the size of the market and the quality of the labour force, to flexible hiring policies, the time taken for resolution of disputes and the attitude of the taxman, among others. (Reuters)

India managed to cut the average number of procedures required to start a business from 29 two years ago, to about 12-14, but that didn’t help significantly improve its overall Ease of Doing Business ranking – in fact, as far as ease of “starting a business” was concerned, the country fell four places in the latest rankings. The Centre, as per a Business Standard report, moving to cut the average time spent in starting a business in Delhi and Mumbai from 26 days to four—by trimming the list of procedures further and tweaking the remainder for faster compliance—therefore is a commendable step. This will involve providing single-window clearance, widespread digitisation. Investors would surely make a beeline for India with this, one would think? Only, the ease of starting a business, while an essential lubricant, isn’t the fuel that fires the investor’s appetite.

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Investors look at many factors, from the size of the market and the quality of the labour force, to flexible hiring policies, the time taken for resolution of disputes and the attitude of the taxman, among others. In the case of labour laws, for instance, while the government has tried to address the issue in the case of new textile units, few states have moved on making laws easier—Rajasthan and Madhya Pradesh are among the handful of states to have made closure of units easier. Though the new bankruptcy code has been brought into force, investors will wait to see its results—after all, when Sarfaesi was brought in, most felt that would ensure companies were wound up quickly. Little progress has been made on increasing commercial courts, and even the government will admit the progress on stopping harassment by the taxman is a work in progress—if the number of pending cases (over 6 lakh) isn’t bad enough, there are new taxes being talked of. A few weeks ago, the taxman issued a clarification that said investors in FII funds located overseas could be taxed in India even beyond the taxes paid by the fund while buying/selling shares here; a host of start-ups, similarly, are facing tax demands on the investments made in them on grounds the valuations were above fair-value and were therefore business income. While cutting the time required to start a firm is important, as is the time required to get an electricity connection—India’s ranking on this score has improved dramatically since the scoring is based on Delhi and Mumbai—it is the issues that firms have to deal with after they are registered that really need to be resolved.

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