Laws are so regressive, even labour-intensive exports are falling; can’t hope to beat China with so much red tape.
While the government continues to tom-tom the rise in India’s ranking in the World Bank’s Ease of Doing Business (EoDB), from 133rd in 2009 to 63rd in 2019, this is hardly representative of the situation on the ground. Indeed, a new study by Teamlease, India’s largest temping agency, details just how much red tape remains; in the case of labour, there are 463 Acts that need to be followed, 32,542 compliances and 3,048 filings that need to be made. Nor should this really shock the government since, the latest Economic Survey has several of these details as well; quite eloquently, the Survey pointed out that you require fewer documents to buy a gun than to open a small hotel. The Survey points to 35 Sections that need to be complied with for hiring contract labour and 83 rules and 36 sections and 52 rules for dealing with worker compensation; all told, a manufacturing unit needs to conform with 6,796 compliance items.
Despite all the move up on the EoDB rankings, as the Survey points out, there are more procedures today to register property, and it takes longer than a decade ago; starting a business takes half the time, but there is no appreciable difference in how long it takes to pay taxes and the time to enforce contracts is also up. The costs of enforcing a contract can eat up a third of the original value as compared to around a fifth in the case of OECD countries. In other words, even in the EoDB, the rankings don’t tell the real story, it is the fine print that needs to be read. The situation is far worse when it comes to comparisons with China in the EoDB. It takes double the time to start a business in India as compared to China, around six times as much to register property and double the time—and also in terms of the value of the contrac—to enforce a contract. And, this is without even looking at the policy flip-flops that this newspaper catalogues diligently.
As a result of this, as a story on our front page points out, India is losing out on even labour-intensive exports, supposedly an area of strength. And this is not just in relative terms, but even in absolute terms. Exports of labour-intensive goods have been growing slower than other goods and, as a result, their share in the overall export basket is down from 44% in FY17 to 37% in FY20. While overall exports rose from $310 billion in FY15 to $313 billion in FY20, labour-intensive exports fell from $126 billion to $114 billion. Agriculture exports fell from $30 billion to $26 billion; this is also due to bad policies like the increase in MSP that made exports less competitive. In the case of textiles, exports fell from $37 billion to $34 billion in the same period.
The same happened for gems & jewellery, leather, etc; hardly surprising, then, that employment growth in India remains woefully inadequate. If India is to have even half a chance of beating China—and no lasting military victory can be contemplated with an economy a fifth the size—this cannot be achieved as long as doing business continues to be tortuous. Time to stop bragging about India’s rank in indices that are easily gamed—being able to get an electricity connection faster in Delhi and Mumbai played a big role in India’s ranking improving—and to focus on real change on the ground.