From Red Tape to Red Carpet: How India can regain its competitive edge!

“There’s a great unease to doing business in India. Companies face so much red tape they’re uncompetitive from the start,” claims a Bloomberg Opinion piece.

As per the report, “a little over three years ago, the World Bank scrapped its annual ‘Doing Business’ report amid allegations that its top management had applied pressure on staff to boost China’s score. Back then, India’s rank was 63. That was a big jump from 2014, when it languished at a lowly 134th position among 189 economies. Still, starting a business continues to be a nightmare. The internet is strewn with first-person accounts — like this one — of the fruitless running around for mindless permits and approvals overwhelming even the most intrepid of entrepreneurs.”

It further states, “Prime Minister Narendra Modi’s ‘Make in India’ campaign has also got lost somewhere in the labyrinths of this bureaucratic maze. Despite the decade-old program, which claims to be the “single largest manufacturing initiative undertaken by a nation in recent history,” the share of manufacturing in the economy has shrunk to its lowest since 1960. A great unease of doing business is a big drag on India’s competitiveness.”

In a social media post on X, the author has also shared a chart comparing the cost of setting up a small factory in Maharashtra with that of setting up one near Bangkok. For instance, a piece of land which costs $777,000 in Thailand, would cost $971,200 in India. The cost of registration will be $15,500 in Thailand, while it would be $58,300 in India.

Industry experts, however, say the cost of establishing and running a factory, including land and building costs and obtaining permissions, is not the only consideration for manufacturers.

“There are also the cost of labour, the availability of relevant skills through appropriate local technological institutes, the customer base for the product being manufactured, and local and Central government incentives and tax breaks offered to manufacturers. Given the incumbent government’s Make in India programme and all the associated schemes and benefits which attract various global manufacturers to India, making an apples-to-apples comparison is not as straightforward as it may seem,” says Santhosh Kumar, Vice Chairman, ANAROCK Group.

Vimal Nadar, Senior Director and Head of Research, Colliers India, says project costs in real estate developments include multiple elements such as material, labor & equipment cost. Costs of utilities and facilities too come into play in both under-construction and operational stage. Additionally land acquisition cost, financing cost, legal & insurance expenses and regulatory expenses in the form of taxes, duties & registration charges also add up to project overheads significantly and are finally built into their pricing, eventually being passed on to end-users.

“Although regulatory costs in real estate development vary from state to state and at times across cities in the same state, most governments have made considerable progress in expediting approvals through single window clearance mechanisms. Seamless integration of government approvals and statutory payments, along with digitization of land records, can potentially enhance the ease of doing business, especially real estate development, thereby reducing costs,” adds Nadar.

According to property consultants, India’s infrastructure development story is closely tied to its economic growth, and recent government initiatives have significantly improved connectivity through state highways, national highways, and expressways. Enhanced logistics and dedicated freight corridors have reduced travel times and streamlined the transportation of goods. This has not only boosted e-commerce and the manufacturing sector but has also laid the groundwork for achieving 24-hour delivery across 600 to 700 km, a game-changer for India’s logistics industry.

However, “this surge in connectivity has had a mixed impact on real estate, particularly in industrial zones. In some regions, better road and freight connectivity has skyrocketed land prices, making it increasingly expensive to set up industrial units. For small and medium businesses, the cost of land acquisition has become a barrier to entry, disrupting the financial viability of new projects,” says Pradeep Mishra, CMD, ORAM Developments.

To address these challenges, the government has actively focused on developing industrial parks and special economic zones (SEZs). By acquiring land from farmers and allocating it at affordable prices, authorities aim to make land costs competitive and attract industries. The introduction of SEZs, which offer tax-free benefits for a limited period, has further incentivized investment in manufacturing. These initiatives are essential for promoting industrial growth and aligning with the government’s ‘Make in India’ vision.

The manufacturing sector’s performance is already showing results, with the Index of Industrial Production (IIP) registering a 5.2% growth in November 2024, the highest in six months. Manufacturing alone grew by 5.8%, supported by 1.9% growth in mining and 4.4% in electricity. These statistics highlight the sector’s potential and the importance of well-structured infrastructure policies in sustaining this momentum.

However, “one key issue remains: the disparity in real estate costs caused by varying state-level taxes and charges. Additionally, unregulated costs and corruption in some areas hinder industrial and housing affordability. Such inefficiencies directly impact the government’s flagship ‘Housing for All’ initiative and discourage long-term investments in industrial real estate,” adds Mishra.

For investors and businesses, navigating these complexities requires a strategic approach. Understanding regional tax structures, leveraging government schemes, and investing in emerging SEZs and industrial parks can reduce costs and enhance profitability. While infrastructure growth is a major driver of India’s economic story, controlling land price inflation and eliminating systemic inefficiencies are essential for ensuring equitable growth across sectors.

By focusing on ease of doing business and ensuring competitive costs, India can position itself as a global manufacturing hub. The goal is clear: make ‘Make in India’ synonymous with efficiency, affordability, and innovation. This transformation will pave the way for a more inclusive and resilient economy.