AIR spotlight summary on “Government to monitor progress on Ease of Doing Business”.

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AIR spotlight summary on “Government to monitor progress on Ease of Doing Business”.


Introduction

A committee has been setup to oversee the oversight functions of the government to ensure that the government does not interfere much in the business and at the same time allowing the business to flourish in the economy. The Ease of Doing Business is now the central policy of the government and is crucial for the Indian economy. India is improving in the Ease of Doing Business. Before 3 years India was at 144th position, now we are at 130th position. This is because of many policy reform measures by the government and attracting more investments from the foreign market and promoting exports from India in the last 3 years. Even at 130th position, the growth rate is more than 7% which is appreciable.

Government’s focus on Ease of Doing Business

  • If the Ease of Doing Business ranking goes below 100, then the potential for growth is in double digits in the next few years. Therefore the government’s focus is majorly on Ease of Doing Business.
  • There are improvements in getting electricity connection. There are areas which require more improvements like in enforcement contracts, starting a business and registering property. The government is providing guidelines to the concerned policy departments for the implementation of the reforms.
  • The complaint of the overseas investors was that the procedures, time and the cost to start a business was always an issue. These hurdles have been removed especially while obtaining clearances and permits. Many of the states have implemented single window system to provide clearances required for the manufacturing processes. In the medium term we should focus on the core factors for production.
  • The Prime Minister Narendra Modi has been making visits across the border to different countries, signing MOUs and commercial treaties to ensure that the trade, commerce and intercourse goes up. All the major macroeconomic and investment parameters are improving like there is improvement in real GDP, decline in Inflation and fiscal deficit which is a major indicator for foreign investment.
  • Demonetisation, implementation of GST in coming days, implementation of labour laws, and resolving Insolvency are all business friendly and would go a long way in improving the ease of doing business in the coming times.
  • After the implementation of GST, the ease of doing business ranking may come below 100 because GST will resolve so many issues in ease of doing business. Government wants to be with top 50 in ease of doing business by 2018.

Attracting FDI inflows

  • There have been around 7000 reforms which are carried out and in process by the state and the centre. 90% of these reforms implementation is complete. These reforms include Business start-up policy, construction permits, access to electricity, property registration, tax structure like GST, trading across borders, enforcing contracts, resolving insolvency where Insolvency and Bankruptcy code is a major success and access to credit. All of these are combined to ensure that FDI into the economy will improve. There are indicators that FDI inflows will improve.  
  • For the contract enforcements, the fraud and breach of contract enforcements is always a concern for the foreign investors. There are courts and Alternative Dispute Resolution Mechanism where amendments have been done in the Arbitration and Conciliation Act. All these factors encourage the FDI into Indian economy.
  • FDI increased by 37% after the announcement of Make in India and the government’s focus on ease of doing business. Industrial investments in the states are also progressing with recent investment meets in some states which have attracted lot of investments which shows that these states are progressing in attracting investments from foreign countries.

Need of the Hour

  • There are reforms required in the land acquisition which is a basic necessity to set a production unit. The finance minister has announced in the budget that the government will reform the labour laws.
  • Trading across border is important for Indian businesses because most of the raw material inputs are coming from foreign countries. If the rules for trading across border are simple and leveraging e-commerce for trade, it will help in ease of doing business.
  • Banking support and access to finance is very important especially for small businesses. Banks should come forward for the full transmission of policy rate cut by RBI to the customers.              
  • MSME sector is a major growth progressive sector, and contributing to the growth of manufacturing and exports. The sector is facing lack of available credit; the rate of finance is very high compared to other countries. If these issues are taken care of, then the sector has the potential to grow more than 20% which gives a major push for the Indian economy.
  • There is a need to concentrate more at the grass root level; states should not focus only on the implementation of reforms; there should be comparison of outcomes also like how states are performing, how they are improving their socio economic parameters and how states are attracting investments.