Published 17:10 IST, January 31st 2020
Union Budget 2020: Economic Survey shows how easier India needs to be for business
In chapter 5 of the Survey titled, 'Targeting Ease of Doing Business', four parameters are highlighted where India needs to work on hard to be competitive
- Republic Business
- 5 min read
Finance Minister Nirmala Sitharaman tabled the Economic Survey 2019-20 in the Parliament on Friday. In chapter 5 of the Survey titled, 'Targeting Ease of Doing Business', four parameters are highlighted where India needs to work on hard to be competitive and business-friendly. Although India is 63 in the World Bank's Ease of Doing Business rankings, it continues to trail in parameters such as Ease of Starting Business (rank 136), Registering Property (rank 154), Paying Taxes (rank 115), and Enforcing Contracts (rank 163).
The Survey has drawn comparative analysis with economies like New Zealand, China, Bangladesh, among others to capture the on-ground experience of doing business in the country including the logistics of merchandise exports and imports, the number of permissions needed to set up a restaurant and so on. This allows a close look at the nuts-and-bolts of the business environment.
"As India marches towards a five trillion-dollar economy by 2024-25, simplifying and maintaining a business-friendly regulatory environment is essential... Case studies of merchandise exports found that logistics is inordinately inefficient in Indian sea-ports. The process flow for imports, ironically, is more efficient than that for exports," Economic Survey said.
4 parameters where India lags
Starting a business:
For a business to open in India, the number of procedures required has reduced from 13 to 10 over the past ten years. According to the Survey, it takes an average of 18 days to set up a business in India, down from 30 days in 2009. Whereas in New Zealand, a business can be set up in half-a-day with a single form and minimal cost. The Survey says further simplification of processes in India has been implemented very recently but it is too early to gauge its impact.
Manufacturing units have 6,000+ rules
When it comes to manufacturing goods, a company has to conform with 6,796 compliance items littered in 51 Acts with 3,214 sections and 3,582 rules. This figure is astonishingly high and discourages investment in manufacturing. It must be noted that this is not a comprehensive list and not every rule applies to every manufacturer.
More docs required to get a restaurant license than for a gun
The Economic Survey cites the example of restaurants to say how the service sector too is burdened with regulatory hurdles. The survey showed that the number of licenses required to open a restaurant in India is around 12 to 16, while China and Singapore require only four each.
According to the National Restaurants Association of India (NRAI), a total of 36 approvals are required to open a restaurant in Bengaluru, Delhi requires 26, and Mumbai 22. Moreover, Delhi and Kolkata also require a ‘Police Eating House License’. It's easier to get a license to procure new arms than open a restaurant in Delhi, with the ratio of documents required being 19:45.
Construction Permits:
The Economic Survey notes that Hong Kong, which tops the World Bank rankings for ease of obtaining construction permits, takes just over two months to obtain a construction permit, while Delhi takes almost four months. Moreover, it takes 35 days to get water and sewer connection in Delhi while the same can be done in a day in Hong Kong. Obtaining a completion/occupancy permit in Delhi takes a month while the same happens in a day in Hong Kong.
Achieving scale across business:
India struggles to get its products to the global market as the country's supply chain is overburdened. Most of the manufacturing units in India have small capacities and consequently low manufacturing efficiencies which are a disadvantage in the global supply chain. Countries like Bangladesh, China, Vietnam are able to progress in the value chain by increasing their competitiveness in the international market by improving their delivery time and domestic production capacity.
The small enterprises in India have a market value of 80% in total exports, whereas China has the same for large enterprises. Moreover, in India, it can take 7-10 days to reach a port whereas in countries like China, Bangladesh and Vietnam it takes less than a day. Thus, the Indian supply chain ends up with a large number of small consignments clogging already inefficient logistics pathways.
Trading Across Borders
The Trading Across Borders indicator records the time and cost associated with the logistical process of exporting and importing goods. Globally, transportation by ports is the most favored followed by railways and then roads, whereas in India it is the opposite.
India takes a breathtaking 60-68 and 88-82 hours in border and documentary compliance for exports and imports respectively and the cost of compliance is US$ 260-281 (exports) and US$ 360-373 (imports). The Survey notes that procedural complexities, multiple documentations and involvement of multiple agencies for approvals and clearances are the main reasons why our goods languish in our ports for days. The cost of goods concurrently goes up, weakening competitiveness of Indian exports.
The Survey recommends the government to increase digitalization and seamless integration of multiple agencies onto a single digital platform that can reduce these procedural inefficiencies significantly and improve user experience substantially.
What is Economic Survey?
The Economic Survey is an annual document presented by the government mainly to review the state of the economy in the previous year while throwing light on its short-to-medium term prospects. It is seen as an important metric to gauge the effectiveness of the economic and budgetary policy of previous year across the economy and builds a cache of priorities for the upcoming budget.
Updated 17:10 IST, January 31st 2020