Business Standard

Making it easy for business

States have to take the lead if India has to improve its rank as an industry-friendly destination

Sudipto Dey 

The month of October this year could turn out to be a litmus test for India's effort to improve its rank in World Bank's Ease of Doing Business sweepstakes. And, senior government officials in the national capital's Udyog Bhavan, which houses the Ministry of Commerce and Industry, know this too well. In October last year, India dropped three positions in the report, from 131 to 134, among 189 countries. It not only fares poorly among the (Brazil, Russia, India and China) peers, even neighbouring countries such as Maldives, Sri Lanka, Bangladesh and Pakistan outscore India in certain parameters affecting the business environment.

In the last week of June, senior officers of the Department of Industrial Policy and Promotion made a presentation in the Prime Minister's Office on the steps being contemplated to facilitate ease of doing business in the country.

Many in industry-and some within the government-believe that could set out the road map for India to improve its position and image as a business-friendly destination. The findings of the next report towards the year-end would well be a key pointer to the task at hand.

States hold the key

Industry analysts and government officials agree that most of the parameters affecting business environment - land acquisition, property registration, obtaining construction permits, creation of single-window clearance mechanism, earmarking industrial clusters, availability of power, payment of taxes, labour administration, environmental compliances - states have a major role in decision-making.

The Centre's role becomes crucial only when it comes to easing dispute resolution, which depends on judicial reforms and facilitating exits (guided by labour laws).

So, any effort to improve the ease of doing business has to be largely driven by states. Perhaps, taking a cue, as a precursor to the shape of things to come, Rajasthan set the ball rolling last month by initiating reforms in state-level labour laws - offering companies more flexibility in hiring, and making the laws more compliance-friendly.

"Replicating the best practices in each state on a national level is the way forward," says Sudarshan Sampathkumar, head of the India

Performance Improvement Practice, and senior partner of the Industrial Goods & Services practice, Bain & Co, a consultancy firm.

The centre is in the process of creating a task force to sensitise states of best practices followed by different states, and benchmark these best-practices, both nationally and internationally.

Sampathkumar points out it is important to have a specific plan for each state so that they are able to adopt and adapt these best practices as per their local requirement and need.

For instance, take the Bain & Co report comparing best business environment practices among some Indian states; the study points out that when it comes to land acquisitions, Gujarat stands out with its policies based on partnership with owners, and market-determined pricing models. Andhra Pradesh, on the other hand, scores with smooth and predictable procedures for land allotment. Similarly in property registration, Karnataka's computerised registration and "anywhere registration" policies in Bangalore are worth replicating across many states, while Gujarat has computerised land records to accelerate the registration time. When it comes to obtaining construction permission, online submission of building plans in Chennai helps to cut down on bureaucratic red tape, while in Bangalore one can submit building plans online, and get computerised approvals.

Industry players and analysts point out that there is room for improvement in implementation of procedures and policy framework. The challenge is to build a stable regulatory regime, with clear road maps and certainty in regulation, says Girish Vanvari, partner, & co-head (tax practice), KPMG India. For effective implementation, it is important to cultivate a performance-driven culture among local bodies and state-level government department, points out Sampathkumar. That is something that could turn out to be time-consuming, and easier said than done.

The road map

Most in industry and many in the government agree replicating best business environment practices across states would help bring up India's rank as a business-friendly destination by 20 to 30 places in the short to medium-term in the list. A recent note prepared by Confederation of Indian Industry recommends need for a series of short, middle and long-term measures to improve the ease-of-doing-business climate over a period of two to five years. It has come out with a 10- point agenda that includes measures to ease starting of a business, building backend to single-window clearances, easing land acquisition process, labour and skill development, ensure contract enforcement, open access policies to meet energy deficit, facilitate cross-border transactions, simplify tax administration, ensure continuity of commitment, and ease of exit for industry. "It would be fair to break into the Top 50 list over the next two years, and be among the Top 10 ranked destinations for Ease of Doing Business over the next five years," says Sampathkumar.Whatever be the outcome of the next report, India has its task cut out if it is to live up to its potential as one of Top 10 business-friendly destinations in the world.

  • Land acquisition: Gujarat stands out for its policies based on partnership with owners, and market-determined pricing models. Andhra Pradesh scores with smooth and predictable procedures for land allotment
  • Property Registration: Bangalore's computerised registration and "anywhere registration" policies are worth replicating across states. Gujarat has computerised land records to accelerate the registration time
  • Construction permission: Online submission of building plans in Chennai helps cut down on bureaucratic red tape. In Bangalore one can submit building plans online and get computerised approvals
  • Single-window clearances: Andhra Pradesh has implemented Single Window Act with deemed clearances, while Rajasthan has implemented it with time-bound clearances
Source: Ficci-Bain & Company study

First Published: Sun, July 06 2014. 21:20 IST