What is Ease of Doing Business in India? The concept of Ease of Doing Business (EoDB) refers to how conducive a country’s regulatory environment is for starting, operating, and growing a business. The Ease of Doing Business index, developed by the World Bank, measures several factors, including the time, cost, and procedures involved in setting up a business, obtaining permits, and complying with regulations. In recent years, India has made significant strides in improving its business environment, which has been a key focus of the Indian government. This improvement is critical for attracting both domestic and international investments, fostering innovation, and boosting economic growth.
India’s efforts to enhance its business climate have been backed by a series of reforms, aimed at making it easier for entrepreneurs and businesses to thrive. In this article, we will explore the key elements of the Ease of Doing Business in India, the progress made, challenges that still exist, and the initiatives taken by the government to address them.
Understanding Ease of Doing Business
What Does Ease of Doing Business Mean?
Ease of Doing Business is a measure of the relative ease or difficulty entrepreneurs face in operating a business within a given country. A business-friendly environment fosters economic growth by simplifying the regulatory framework, reducing administrative burdens, and encouraging innovation. The World Bank‘s Doing Business Index ranks countries based on how efficient and transparent their regulations are for businesses.
Key indicators typically assessed under the Ease of Doing Business include:
- Starting a Business: Time and cost required to register a new business.
- Dealing with Construction Permits: Ease of obtaining construction permits for new buildings or infrastructure projects.
- Getting Electricity: Time and procedures involved in getting a new connection to the electricity grid.
- Registering Property: Time and cost required to register property ownership.
- Getting Credit: Accessibility of credit and loans for businesses.
- Protecting Minority Investors: Strength of shareholder protection laws and investor rights.
- Paying Taxes: Efficiency in tax compliance, including the number of tax payments and hours spent on filing.
- Trading Across Borders: Ease of importing and exporting goods across borders.
- Enforcing Contracts: Efficiency of the judicial system in resolving disputes between businesses.
- Resolving Insolvency: Process of resolving insolvency and closing a business.
India’s Position in the Global Ranking
India’s performance in the Ease of Doing Business Index has improved significantly in recent years. In the 2020 World Bank report, India was ranked 63rd among 190 countries, up from 142nd in 2014. This remarkable progress reflects India’s commitment to making the business environment more attractive, efficient, and competitive. The government’s reform initiatives have played a key role in improving India’s ranking, signaling to investors that the country is becoming a better place to do business.
Key Reforms in India to Improve Ease of Doing Business
1. Make in India Initiative
One of the flagship programs introduced by the Indian government to improve the Ease of Doing Business is the Make in India initiative. Launched in 2014, this initiative aims to encourage both foreign and domestic companies to manufacture products in India. It focuses on improving the manufacturing sector’s infrastructure, promoting skill development, and fostering innovation. The initiative includes measures like:
- Streamlining processes for setting up manufacturing plants.
- Encouraging foreign direct investment (FDI) in manufacturing industries.
- Establishing Industrial Corridors and Smart Cities to improve logistics and infrastructure.
Through this initiative, India aims to increase its share in global manufacturing and become a hub for production, not just for the domestic market but also for international exports.
2. Goods and Services Tax (GST)
The Goods and Services Tax (GST), implemented in July 2017, was a significant step in simplifying India’s indirect tax system. Prior to GST, businesses faced multiple layers of taxation across states, leading to a complex and inefficient tax structure. GST consolidated several indirect taxes, such as the Value Added Tax (VAT), excise duty, and service tax, into a single tax. The benefits of GST for businesses include:
- Reduced complexity in tax compliance.
- A unified national market.
- Improved supply chain efficiency.
- Reduced tax cascading, which leads to lower costs for businesses.
This reform has made it easier for businesses to operate across state borders, fostering trade and making India a more attractive market for investors.
3. Online Business Registration and Licensing
India has increasingly moved towards digitizing government services, making it easier to start and manage a business. For instance, the process of company registration can now be completed online through the Ministry of Corporate Affairs (MCA) portal. Similarly, obtaining various licenses and permits that were traditionally cumbersome is now faster and more efficient. The introduction of online portals for Income Tax Returns (ITR) and GST filing has further simplified compliance for businesses.
Additionally, the Startup India program, launched in 2016, has helped foster a more startup-friendly environment by providing easier registration processes, tax exemptions, and access to government schemes. The Atal Innovation Mission is another step toward fostering innovation and entrepreneurship in India.
4. Insolvency and Bankruptcy Code (IBC)
The introduction of the Insolvency and Bankruptcy Code (IBC) in 2016 has streamlined the process for resolving insolvency. Prior to the IBC, the process of resolving non-performing assets (NPAs) or bankrupt businesses was lengthy and inefficient. The IBC provides a clear and time-bound procedure for insolvency resolution, which is crucial for maintaining the confidence of investors. This reform has significantly improved India’s rank in resolving insolvency and has made it easier for companies to close down or restructured their business in case of failure.
5. Labor Reforms
India has also undertaken significant reforms in labor laws, aiming to simplify regulations that businesses have to adhere to. The introduction of Labor Codes in 2020, which consolidated 29 labor laws into four codes, aims to make compliance easier for businesses. These reforms aim to provide a balanced approach that benefits both employers and employees while also attracting more investment into the country.
Challenges in Improving the Ease of Doing Business in India
1. Land Acquisition and Construction Permits
Despite several reforms, land acquisition and construction permits continue to be a challenge for businesses in India. Acquiring land in India often involves navigating complex land laws, dealing with multiple government departments, and overcoming long delays. Similarly, obtaining construction permits, especially in urban areas, can be cumbersome due to multiple levels of clearance required from local, state, and national authorities.
2. State-Level Variations
While the central government has implemented numerous reforms to improve the Ease of Doing Business, the implementation at the state level remains uneven. Different states have varying levels of infrastructure, regulatory standards, and policies, which can complicate business operations. For example, some states offer incentives to businesses, while others have more complex and cumbersome procedures.
3. Taxation and Compliance Complexity
Although the implementation of GST has simplified taxation, compliance with tax laws can still be cumbersome for businesses. Small and medium-sized enterprises (SMEs) often face challenges in maintaining records, filing taxes on time, and dealing with complex tax structures. Additionally, India’s tax regime is constantly evolving, requiring businesses to stay updated with frequent changes in tax policies and regulations.
4. Access to Credit
Although there have been efforts to improve access to credit for businesses, particularly through initiatives like the Pradhan Mantri Mudra Yojana and Credit Guarantee Schemes, many small businesses still face challenges in accessing affordable financing. Lenders are often reluctant to offer credit to businesses without strong financial backing or assets, making it difficult for startups and smaller companies to secure capital.
Conclusion
In conclusion, Ease of Doing Business in India has witnessed significant improvement over the past decade, thanks to a series of bold reforms introduced by the government. From simplifying the process of starting a business to enhancing transparency in tax filing and insolvency resolution, these reforms have contributed to a more entrepreneur-friendly environment. However, challenges such as land acquisition, state-level variations, and access to credit continue to impede the country’s progress in becoming a truly global business hub.
