Budget 2020: Cut red tape, regulate inconsistent laws to regain investor confidence

India need pertinent policy changes to climb up the ladder of ease of doing business

red-tape Bureaucratic red-tapism is the scourge of 'ease of doing business' in India | Shutterstock

Budgets are usually about taxes and policy boosts, and expenditure outlays. So it is all the more interesting how 'ease of doing business' as a narrative has occupied centre stage in the run-up to the Union budget 2020. From business bodies to export promotion councils, everyone is calling on the government to bring in steps or set in motion policies that will simplify rules for setting up and running businesses.

Attracting investment seems to be the only panacea for Indian economy's present state. But that is easier said than done. Though India has moved up in the World Bank's Ease of Doing Business index, from No.77 in 2018 to No. 63 last year, many feel it is still not enough. Now, with the economy on a downward spiral with seemingly no end in sight and India Inc smelling an opportunity to attract increased FDI from the US-China trade war, many believe this is the chance to go all out in the budget.

Business body ASSOCHAM has its checklist to improve 'ease of doing business' pat down, such as faster allotment of land/warehouses (fix timeline, online tracking of application, including for land acquirement), digitisation of land records and judicial reforms for greater contract enforcement. “Though India's ranking in ease of doing business has improved at the national level, many states need to catch up by addressing ground level constraints and simplifying the approval process,” says Niranjan Hiranandani, president of ASSOCHAM as well as real estate body NAREDCO.

Bureaucratic red-tapism is the scourge of 'ease of doing business' in India, with laws and slow-moving government machineries, especially the local levels proving to be a disheartening experience for budding entrepreneurs. “In China, it takes 15 days to set up a business after applying,” says T.C.A. Ranganathan, former chairman and managing director of Exim Bank of India and co-author of the book All The Wrong Turns: Perspectives on Indian Economy. “We have to clean up the laws, but you leave huge departments and bureaucrats everywhere. No country in the world has so many ministers looking after the economy,” he points out.

With garnering more FDI at the crux of the efforts, export organisations have clear-cut ideas on what the government should do in the budget. “China is losing its competitiveness in manufacturing... The tariff war has given further inducement to investors to move away from China,” points out Federation of Indian Export Organisations president Sharad Kumar Saraf. “Many investors who are located in China with focus on the US are exploring the possibility of relocation. India has all the wherewithal to attract such investment with (the recent) reduction in corporate tax—however, the ease of investment is still lacking.”

The suggested solution? Government to nominate a nodal officer for every entrepreneur investing beyond a threshold limit who will arrange all clearances to the investor from the statutory agencies.

Another persistent demand from virtually every foreign investor in India is the requirement for laws to remain steady. “One of the biggest issues is sudden changes in policy,” CII president and business tycoon Vikram Kirloskar says, adding, “Govt should look for knots in the economy and untie them.” Quips Ranganathan, “There are so many laws, even the bureaucrats don't know how many!” 

“In most foreign countries, a foreigner coming in to set up business knows the rules and that they will not change. That is called consistency. That is called reliability,” he adds.

In 2018, India's FDI inflows had not only dropped from the high of a few years ago, it was also just half of what China got. Last year, it dropped to the lowest in 10 years. Arbitrary government decisions, like the latest on placing restrictions on imports of items like palm oil (ostensibly miffed at palm oil producer Malaysia's anti-CAA stance), iron and steel, to even commerce minister Piyush Goyal's outburst against Amazon during its CEO Jeff Bezos's India visit and on the eve of the World Economic Forum, surely does not inspire confidence. Nor does constant tweaking of tax and duty rates. Nirmala Sitharaman will have to tread a very delicate path indeed, to ease in more 'ease of doing business.'