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India needs to reform with alacrity with a view to improving ease of doing business as it is the best way to eradicate poverty and give millions a chance for better life, says a Niti Aayog report.
The report, 'Ease of Doing Business: An Enterprise Survey of Indian States', made a strong case for labour reforms, easier entry and exit of firms and level-playing field for small and larger enterprises.
Prepared jointly by the Niti Aayog and IDFC Institute, the report was released today by Union Minister for Law and IT Ravi Shankar Prasad and Minister of Commerce and Industry Nirmala Sitharaman.
"India needs to reform with alacrity because the ability to do business, create wealth as consequences, and redistribute in a sensible, well-designed manner remains the best way to give millions of Indians a chance for a better life and to make their way out of poverty," the report said.
Referring to labour reforms, it stated that reforming labour laws and achieving greater flexibility in their implementation can greatly help enhance the ease of doing business.
"According to our survey's finding, firms in labour- related regulations particularly are onerous. This fact translates into enterprises avoiding labour-intensive sectors," the report noted.
According to the report, the fact that enterprises in the labour-intensive sector experience greater difficulty than those in the capital-intensive sector points to the need for further reforms in this area.
"In addition, more flexible labour laws will allow enterprises to grow larger and reap economies of scale, generating productivity improvements, job creation and higher growth," the report said further.
It suggested that growth and ease of doing business form a virtuous cycle such that one reinforces the other.
The survey, the report stated, shows that about half of the enterprises do not borrow from financial institutions and about a third consider lack of access to finance as a major stumbling block to doing business.
"This suggests that enhancing the access to low-cost capital to business could be an important vehicle to improve business environment, especially in poorer states such as Bihar," it said.
Noting that faster-growing states have, for the most part, a more conducive business climate than slower growing states, the report said "these results should provide the impetus to press ahead with the economic reform agenda".
On facilitating firms' entry and exit, the report said other things being equal, an increased pace of "creative destruction" that allows more rapid entry and exit should lead to an increase in productivity.
The report stressed on the need of providing level playing field for small and large firms.
"The regulations that place disproportionately large compliance burden on large firms need to be addressed. The survey has shown that in several instances, larger firms perceive greater regulatory obstacles compared to smaller firms... This state of affairs discourages smaller firms from growing larger," it reasoned.
For India to enter the "double digit economic growth club", the report laid a pitch for continually streamlining and improving business environment.
The survey covered more than 3,000 firms in 23 manufacturing categories in all states and Union Territories except Arunachal Pradesh, Mizoram, Andaman and Nicobar and Lakshadweep.
Speaking on the occasion, Sitharaman was emphatic that this report is going to be "the most important" contribution that outgoing chief Arvind Panagariya is making and "I am sure it is going to reveal lots of things".
She also said "we are going through transformational era" and the ease of doing business is getting full attention of the government so that India becomes a manufacturing hub.
Prasad noted that India has transformed a lot in the last three years.
"In the last three years, 95 mobile manufacturing units came up in India. 45 are mobile manufacturing plants and 49 plants are making mobile components... Noida and Greater Noida are emerging as the big hub for mobile manufacturing," he pointed out.
Prasad was optimistic that India should emerge as a hub for international and domestic arbitration centres. He called for a separate kind of index for measuring digital ecosystem of states.
"India can become country for innovation... The digital infrastructure happening in hinterland is remarkable," Prasad said.