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On the completion of two years of Central Government, the majority of the respondents have rated the improvement in ease of doing business at 4.6/10 in a survey conducted by PHD Chamber of Commerce.
Lets analyse the current situation of starting a business in India.
India now ranks 130 out of 189 countries in the ease of doing business, moving up four places from last year’s adjusted ranking of 134. Pakistan is at 138 - No comparisons though!!.
What are the complications faced by a new businessman?
1) Multiple licenses and permissions - Too many permissions are required from multiple ministries - both at the central and state level which not only acts as deterrent for new businesses but also delays the entire process. In addition hundreds of Acts are required to be complied with to start a business in India.
2) Inconsistent tax regime - Retrospective tax amendments, complexities in goods and service taxes, very old Income Tax Act and non alignment in State and Central governments only adds to the confusion for new entrants. Vodafone, for example, was presented with a multi-billion dollar capital gains tax bill which they did not expect after they purchased cell phone assets in India
3) Shortage of Skilled Employees - While there is huge manpower ready to be absorbed by industry but skilled and experienced employees are always short in supply.
4) Deeply embedded Corruption - Experts in a recently concluded conclave felt foreign investors are concerned about the ability and willingness of Indian Government to take up more stringent anti-corruption norms. Cases of 3G scandal, Coal Gate, Common Wealth Games etc have not done any good to the country's image.
5) Political Risks - Though India is a stable country but pressure from the public or specific interest groups are sometimes responsible for political backtracking that has affected foreign companies; the decision to permit foreign investment in the retail sector in 2011-2012 took a convoluted path for example. Tata Motors for example was thrown out of West Bengal.
6) Lethargic Legal System - It is a well know fact that getting justice in India is not easy. The existing mechanism has proved both inadequate and ill-equipped, given there is a lack of specialists handling commercial disputes; this has not only impeded business in India, but also has undermined the government’s efforts to attract foreign investment. Of the total of 32,656 civil suits pending at the five high courts with original jurisdiction in India, 16,884 are commercial disputes.
Over past couple of years, we have certainly seen developments in the form of reforms such as new Companies Act 2013, Insolvency and Bankruptcy Act, GST Bill, new law for IPRs, One day company formation, start up India campaign, assurance to avoid retrospective taxes, new commercial courts being set up etc. Situation has improved as compared to the legacy being handed over by its predecessors, but in my opinion the government still has a long way to go for any visible change in the investors perception.
Your thoughts / agreements / disagreements are most welcome.
CA Ankush Garg
M R Garg & Associates
Chartered Accountants
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