Business Standard

The shifting benchmarks of ranking India as a business destination

Regulatory framework has to improve with friendly regulations in place

Kumkum Sen 

Most readers of this page would be conversant with the ranking of countries by the World Bank, based on certain benchmarks of the country's position on its investor friendly approach. The indicators vary from basics, such as getting electricity and dealings with construction permits, and wider concerns of starting a business and providing investor protection.

The reviews date back to 2005-06 when India's ranking was around 116th out of 155 economies. In the mid-twenties India was the 'emerging economy'. In 2013, India's ranking is 12th out of 25 nations. What begs the question is why India's performance has plummeted.

Is it because policymakers and administrators have failed to respond to the low rankings and falling indicators? Or, is it that the reform process has not moved in the last five years.

The absence of transparency, the prevalence of corruption, jingoistic positions on revenue issues, the slow processes and disposal by the Indian courts, even if the verdicts are fair and free from bias, and over all, the inability of the government and the public sectors to accept a judicial ruling which is not in its favour has created some disenchantment among foreign investors.

In response, there has been an official reaction of sorts by the Ministry of Company Affairs in commissioning the Damodaran Report in September, 2013, for 'Reforming the Regulatory Environment for doing Business in India". The first item on the list of recommendations by the committee is legal reforms and changes starting with a review of all laws and rules on doing business in line with the global best practices. The report criticises the absence of transparency in the appointment of persons heading regulatory organisations and the absence of autonomy. It has recommended that such organisations should undertake a self-evaluation process. While such mechanisms look good on paper as a wish-list, the manning and actual dealing of these processes can be conflicting, often incapable of proper implementation. The proposal of advance rulings in all situations may nullify the purpose of having an easy entry process. India's ranking on key indicators, such as, protecting investors, paying taxes, enforcement of contracts has plummeted to an all time low.

Unfortunately, the last year has not been particularly strong on reforms or on easing the entry into India in doing business. While certain sectors have been opened up, there are systems and mechanisms which have to be in place to provide investor protection.

The regulatory framework has to improve with friendly regulations in place. The retrospective amendment to the income tax law, which effectively sought to nullify the Supreme Court judgment in the Vodafone tax dispute was clearly a step that disenchanted investors. Recently, the finance ministry has been looking at re-negotiations of India's Bilateral Investment Protection Agreements. While the fundamentals - emerging markets, rule of law, political stability are strong, land reforms have been initiated, poor infrastructure and absence of transparency continue to remain disincentives. However, the policy changes in September, the Shome Committee recommendations, and a new face in the Reserve Bank augur changes for 2014.

The specifics include, among others encouraging arbitrations for dispute resolutions, which is not being proposed for the first time. The fact remains that both systems are essential and there cannot be a total conversion or replacement. That the regulatory systems require overhauling is also a truism - one of the many cats to be belled. What is more critical is the appointment of the regulatory heads - how proper parameters have to be laid down and such posts do not become resting posts for retired bureaucrats. On the other hand, setting up a regulatory review authority will not create any tangible benefit, but only lead to unwarranted duplication and delays, what is imperative is prompt disposal of justice and administrative actions in accordance with law.



Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at kumkum.sen@bharucha.in

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First Published: Sun, November 24 2013. 21:36 IST
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