15 November 2011

India, a hell for businesses: What needs to be done?

India is on a mission, to be the biggest economic power in the world in the not so distant future. The government is making policy changes and is welcoming foreign direct investment in the country more than ever before. The country is growing at an enormous pace and is fast becoming a favored business destination for many international players. The country seems to be on the right track, but it can get there faster, if it cared a bit more about certain aspects that hinder this prospecting business scenario.
India, a hell for businesses: What needs to be done?


Recently, World Bank's 'Doing Business 2012' ranked India at 132 in 183 in a global 'Ease of Doing Business' ranking. For a country that has big plans for its future, this ranking is nothing short of failure. One of the country's immediate neighbors, China, came at the second position in the list and this reflects the growth the country has witnessed in the recent years. Even Sri Lanka, Pakistan and Nepal, fared way better with 89, 105 and 107 ranks respectively. It is not just the World Bank's ranking that pointed out the issues that are threatening the very prospective future the country is hoping for; in the lights of the World Bank report, CNBC recently ranked the country sixth among the 'World's 10 worst countries for business.'

While all these stand true, there is another aspect also, UNCTAD forecasts Indian to be one of the 'five attractive destinations for international investors over 2010-12'. This shows that beyond all the issues the country is putting forth, the global companies and countries are still interested in it. So, if the country manages to keep the issues in control and unleash its full potential, the dream of becoming the biggest economic power can be attained sooner. The few areas that the country presently tremendously lags are enforcing contracts (182), dealing with construction permits (181), starting a business (166), paying taxes (147), resolving insolvency (128), and trading across borders (109). These issues have to be resolved with war time urgency, to put the country back in the fast track of growth, and to do this the country needs a government that is not crippled with corruption.

It takes about four years in the country to enforce a contract; this when compared to the one year average in OECD countries, gives a clear picture of how difficult the Indian system has made it for the companyies to work through them. When it comes to getting a construction permit, the country does not make it any easy for the investors, they will have to go through about 34 different processes and spend on average 227 days to get it. For those who want to start a business, the country has put up enough hurdles in the way, which makes an Olympic hurdles course look like a child's play. Time taken in the payment of tax, 254 hours, when compared to Brazil's 2600 hours may looks simple enough, but the 33 payments per year when compared to the nine of Brazil makes it no bit easier for the companies. Resolving insolvency, on average, takes about seven years in the country, this along with the low recovery rate makes this a nightmare situation for the country. The time and cost required to export from and import to the country, is very high and this makes trade across borders a wishful dream for companies operating in the country.

What India needs is more liberalization. As we learned from the last 2 to 3 years' developments in the U.S., a through and through liberalization like that will be a mistake. Yet, the Indian government has to streamline its processes and make it not so excruciating a task for businesses to follow. A lot of the programs like a single window for all permits and National Innovation Council, can have a great positive impact on the business processes of the country, but many times these just end up as paper tigers, or vanish in thin air. The government will have to make sure that any proposed programs will be executed and will be available to the needed. Another big problem faced by people who aspire to start businesses is money; to get the needed monetary support in time, mostly, is an impossible thing. Several written and unwritten golden rules are deployed by banks, to deny any and every loan requests they can possibly deny. If banks liberalize their loan approval criteria a little bit more, that would help businesses a lot and the country will witness rise of much more businesses.

 But, why are these not changing and why is the government not streamlining the process in order to open up the country's economy for businesses? Due to corruption! The corruption in the bureaucracy and in the government itself has been a battle India has been fighting, ever since its independence. Recently, with the almost $40 billion 2G Spectrum scandal, it seems to have reached its tipping point. Wide protest and outrage is presently lingering in the society with the ambition to eradicate corruption. Hopefully, in the aftermath of this outrage will emerge a country, which will be a great place to do business.