Unease of doing business: Despite positive intent, business-friendly environment still a long way to go

Updated: November 27, 2019 12:21:58 PM

Ease of Doing Business for MSMEs: EoDB rankings are primarily based on data in Mumbai and Delhi. This may not be representative of how business is done in other cities.

Kolkata, Bengaluru, ease of doing business, ranking, DPIIT, Department for Promotion of Industry and Internal Trade, foreign investorOne of the critical factors affecting business confidence is the ever-changing legal and executive policy regime.
  • By Saket Shukla

Ease of Doing Business for MSMEs: India’s rank on the World Bank’s Ease of Doing Business (EoDB) index has improved considerably over the last few years. We are now 63 of 190 countries. The PM’s target is even more ambitious and he is working zealously to break the top 50. Admirable as the objective may be, it is worth considering why India continues to be perceived as an over-regulated business environment. EoDB rankings are primarily based on data in Mumbai and Delhi, which may not be representative of how business is done in other cities. Most parameters considered in the EoDB survey (starting a business, enforcing contracts, insolvency, etc.) are being addressed at a policy level. That said, there still needs to be a focus on a comprehensive and forward-looking policy framework. Crossing that barrier seemingly unravels a bigger challenge, implementing policy and enforcement.

Policy Stability

One of the critical factors affecting business confidence is the ever-changing legal and executive policy regime. The intent to adapt the policy to practical situations is positive but the government’s approach needs to be proactive rather than reactive. A case in point is a proposed recent amendment aimed at criminalizing CSR defaults, which had to be withdrawn. Similarly, the Companies Act, 2013 has undergone a sea change since it came into force. Perhaps the requirement to clarify the law frequently indicates the need to replace it with a more thorough framework.

We have also seen the 2019 amendments to arbitration law which sought to retrospectively apply an automatic stay on arbitration awards under challenge, nullifying an earlier Supreme Court decision. Yet another example is a state government’s decision to unilaterally cancel contracts. Such executive decision-making leads to uncertainty and raises a question mark over the sanctity of contracts.

Implementation

This issue is a more deep-rooted one. The PM’s intent and objectives, whilst laudable, require support from the bureaucracy in order to be effective. Let’s start with the infant stage of doing business – incorporating a company. The process has been digitized and there is one form for incorporation (SPICe), DINs, PANs and TANs but the practical story is different and incorporation applications are often rejected by officials without substantive basis. Curiously, queries tend to increase, for no conceivable reason, where companies with a higher proposed authorized share capital are involved.

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Next, the requirement of a video recording for obtaining digital signatures is over the top. A simple fix would be to accept a notarized signature form instead. Similarly, the ‘Active Company Tagging’ initiative seems unnecessary and could have been avoided. It is common for companies to borrow registered office addresses. Director identification obligations mean that traceability shouldn’t be an issue.

GST is one of the most significant recent reforms but an over-zealous set of tax officers, coupled with a lack of consistency in positions being taken across states, don’t help. Even though processes are digitized, obtaining refunds can be a daunting task. Land laws across states are increasingly complex and need support from reasoned regulatory and executive orders that effect rather than defeat the intent of the law. Rules relating to stamp duty, a major revenue generator, remain clouded and ambiguous, with archaic provisions and local exemptions/amendments that remain inaccessible even where parties are ready to pay. A clearer law with an easy to pay regime is the need of the day.

Enforcement

Here again, the intent is positive and although enforcement remains a systemic issue that requires broader infrastructural reforms, better implementation and administrative support can go a long way. MSMEs have been given special fora for quick adjudication of disputes but practice suggests that resolution is far from quick. NCLTs are bustling with activity post the IBC regime but mergers and amalgamations have taken a back seat on account of limited staffing and resources. The commercial court regime, though well-intended, need more time and perhaps more specialist judges to deliver results.

The judiciary is overburdened and perhaps courts need to take a stricter view of frivolous litigation, especially on commercial matters. One sees criminal proceedings being initiated in civil disputes, which needs to be strongly discouraged. The Union of India is itself a major litigator, often sans reason, and a robust set of guidelines encouraging settlement of disputes with private parties can be considered on lines similar to the Cabinet Secretariat’s directions relating to the settlement of inter-se government department disputes.

To conclude, government machinery and concerned stakeholders should pay heed to the PM’s guidance in his Independence Day speech earlier this year, “those who create wealth for the country, those who contribute in the nation’s wealth creation are all serving the country. We should not doubt our wealth creators”. It’s time to think differently and shift the focus to simplification of policies and processes with consistent implementation in order to encourage businesses, our wealth creators.

(Saket Shukla is the Co-Founding Partner at Phoenix Legal. Views expressed are the author’s own.)

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