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Ease of Doing Business

India’s Ease of Doing Business (EDB) ranking has moved 143 to 63, but it is still below India’s real potential.

What is in the news?

1. The government is to reduce the time taken and requirement for starting new business from 10 processes and 18 days to 5 processes and 5 days.

2. 10 key services like name reservation, incorporation, registration for various taxes such as GST would be available in two forms instead of multiple forms.

Which are the current issues?

High Compliance Burden

1. Large businesses such as Pharmaceutical company, have to follow more than 1900 rules and regulations at central level and along with states it is about 6000.

2. Despite improvement in efficiency of micro-management, overall macro-management is increasing due to delay in delivering punishments for non-compliance.

3. This results in demand for compliance on all the businesses.

4. Clarity and swift action on non-adherence to the compliance in advanced economies off-sets their high compliance burden.

Implementation Issues

1. Behavioural issues: It takes lots of process and time to bring new system as the system is used to the old forms and method.

2. States following good practise for ease of doing business not integrated with other states and centre.

Cost of Doing Business

1. India’s interest rates are one among highest in the world.

2. The cost of power and compliance is high in India.

3. Cost of meeting contractual obligation is also high.

4. Such high cost of doing business has bearing on sustainability of businesses and start-ups.

Where lies the solution?

1. The new reforms should start from the central government and percolate down to state governments also.

2. EDB should be incorporated with the overall ease of doing ecosystem in India.

3. An integrated platform like GST for state government and various ministries to come together to sort out the compliance and implementation related issues in quick fashion is needed.

How to increase Foreign Direct Investments (FDIs) in India?

1. India is one of the top receivers of FDIs in 2019 with 49 billion USD flowing in 2019.

2. Following factors are considered by FDIs

a. Business prospects

b. Larger economic growth scenario

c. Ease of Doing business

3. India largely has first two prospects resulting in huge FDI flows despite lower growth rate.

4. Ease of doing business will help in incremental FDI flows in India.

5. A perception of India as a large and growing economy is also needed to attract FDIs.

Boosting Consumption

1. Currently the utilization capacity of industries is 75%. India cannot attract more FDI in manufacturing if its capacity is latent.

2. So, revival of economy is important for attracting FDI in manufacturing sector.

3. Reviving rural consumption through public investments will help improve capacity utilization and further increase investments.

Upcoming New Industrial Policy

1. An integrated approach to the business rather than manufacturing and services.

2. Promoting the new emerging concepts like Gig economy, shared economy and circular economy.

3. Institutional mechanism of centre-state and all ministries to implement these policies.