A recent report of the International Finance Corporation ranked 17 different states on the ease of doing business by surveying the major cities in these states. The findings were not very surprising as Ludhiana in Punjab, home to some efficient small & medium industries, emerged on top, while Kochi and Kolkata in the Left-ruled Kerala and West Bengal languished at the bottom, probably an indication of the insufficient enthusiasm of the official machinery for encouraging entrepreneurship.
What accounts for these substantial differences in doing business across the major cities in India? The study has investigated this issue in detail by looking at the number of procedures for starting a business, the problems with dealing in construction permits, the time for registering property and other similar aspects like trading across borders, paying taxes, enforcing contracts and the steps for closing down a business.
The problems of doing business in India start right at the beginning when the entrepreneur registers his business. The process takes at least one month in Mumbai, which ironically has the fastest procedure. It goes up to 40-41 days in Bengaluru or Kochi, at the higher end. The substantial difference in the days taken for setting up a business in the best and the worst cities is difficult to understand as the numbers of procedures required for the process do not vary significantly. The count showed that it ranged from a minimum of 11 in Jaipur to 13 in Ahmedabad. In fact a large number of cities have more procedures for setting up business than the two ranked at the bottom.
Smart working of the state machinery is evident in cities like Ahmedabad and New Delhi, which have set up a mechanism for electronic payment of stamp duty by companies. These cities, and Mumbai, also encourage on line application of Vat registration. The cities in states like Andhra Pradesh and Orissa have consolidated the registration for VAT and profession tax under the same authority. The aim should be to create a one-stop-shop for all pre- and post-registration requirements, says the report.
So, one can say that rather than the number of procedures it is the efficiency of the administration and accountability that accounts for substantial disparities in the speed of setting up a business. And procedures for starting a business in India have to be substantially overhauled if they are to attain the global benchmarks achieved in a country like New Zealand, where it takes just one day to get things started. Till then, Indian businesses would be forced to remain officially unacknowledged and unregulated in the informal sector, with their activities remaining largely unreported in the official statistics that play an important role in dictating policy.
Surprisingly, the efficiency of the cities alters substantially when we look at the second indicator of doing business, namely the ease of dealing with construction permits. Mumbai, which ranked in the forefront in the ease of starting a business, falls sharply to the bottom end with the time requirement position touching 200 days.
Only Kochi and Kolkata, which were at the bottom of the earlier list, did worse than Mumbai with the time taken extending to 224 and 258 days respectively. The most efficient state in dealing with construction permits was Hyderabad where it took only 80 days. However, Bengaluru, which lagged at the bottom end in the ease of doing business, made it way up to the second rank when it came to dealing with construction permits, by ensuring that it took only 97 days to deal with construction permits. But the achievement of Hyderabad and Bengaluru in cutting down the days for approving construction projects to 80 and 97 respectively has to be lauded as it took an average of 158 days even in the OECD countries.
Mumbai?s slack performance in approving construction projects is explained by the excessive number of procedures prescribed. A businessman had to plod through 37 procedures to make his case for proceeding with construction. In sharp contrast, the procedures have been whittled down to just 15 in cities like Bengaluru, Chennai and Ahmedabad. The bulk of delays for the tardy progress of construction project approvals are attributed to problems created by utilities and inspectors. Their delays increased the time for clearance by around 160 days in Kochi, 100 days in Mumbai and 80 days in Kolkota.
The scope for improvement on the construction permits front is considerable as some cities like Hyderabad and Bengaluru have been able to cut down the required time for clearance by utilities and inspectors to around 30-35 days. These cities have emerged at the forefront by using cutting edge technologies like digitalised zoning plans, computerised building permit process and improved handling of applications, all of which seem to have been completed neglected in Kochi and Mumbai. The report advocated that the cities should go ahead with the computerisation of construction-related permits and approvals, rationalise and consolidate pre-approval clearances and increase administrative efficiency to ensure faster gains.
But the inefficiencies in starting a business and getting construction permit approvals pale in comparison with the more important aspect of securing property rights. This is reflected in the considerable disparity in time taken to register property which varied from just 24 days in Jaipur to 126 days in Bhubaneshwar. Kolkata, as usual, was ranked second from the bottom with the time being 107 days. Surprisingly, Kochi did comparatively better by ensuring property registration in 27 days. But there is substantial scope for improving the situation in other major metros like Delhi, Mumbai and Chennai where the taime taken was 55, 44 and 48 days, respectively.