‘Make in India’ will fail without a better Companies Act
Between April-December 2014, new companies incorporated have dropped by over 40%. By subjecting private companies to restrictions on lending, restrictions on dealing with related parties, the new Companies Act has completely throttled the need to ease doing business in India 
The ambitious ‘Make in India’ campaign by Prime Minister Narendra Modi to make India a manufacturing hub will increase investment and employment. One would expect that this will mean an increase in the number of companies being incorporated since foreign investment in India through companies is common and preferred. However, as per data available on the Ministry of Corporate Affairs’ (MCA) website the number of new companies incorporated between April to December 2014 has dropped by over 40% over the corresponding period in the last year ( On the contrary, the number of limited liability partnerships (LLPs) incorporated has gone up by 67% during the same period. Companies Act was made onerous by the Congress-led government.
The difficulty of doing business in India affects foreign direct investment or FDI. The provisions of FDI framed by the Reserve Bank of India (RBI) allow investment in India only through a company under the automatic route. Of course, investment through other vehicles such as LLPs is also allowed after seeking necessary approvals from the government, but company is the most preferred vehicle since it involves lesser timeline and lesser pre-conditions. It is also from here that the real problem starts.

Effect of the Companies Act

According to the Annual Census on Foreign Liabilities and Assets of Indian Companies: 2013-14  published by the Reserve Bank, out of the 13,686 companies which filed foreign liabilities and asset (FLA) in 2013-2014 to report inward direct investment, 13,313 companies were unlisted. Out of these unlisted companies, majority companies are usually private companies and for obvious reasons till the Companies Act, 1956 (Act, 1956) was in force. With a number of exemptions under the Act, 1956, private companies were the most preferred route for FDI in India. In fact, most of the renowned foreign companies doing business have set up private companies in India such as Coca Cola (India) Pvt Ltd, Ebay (India) Pvt Ltd, IBM (India) Pvt Ltd, Yahoo Software Development (India) Pvt Ltd. However with the enactment of Act, 2013, the dynamics of doing business in India have been topsy-turvied since the Act, 2013 treats private companies at par with listed companies! 
Where world over it is common to see that private companies are least regulated, India seems to be following a convoluted approach by first subjecting the private companies to very strict regulation and then providing for exemptions. 
The Companies Act, 1989 and Companies Act, 2006 in the UK has provided a number of exemptions to small private companies. In fact, the JJ Irani Committee Report, way back in the year 2005, underlined the need to deregulate private companies. However, the Act, 2013 has instead done the opposite. 
By subjecting private companies to restrictions on lending, restrictions on dealing with related parties, the need to ease doing business in India to make the ‘Make in India’ campaign a success has been completely throttled. Of course the Government did try to rectify this botch up by introducing certain exemptions to private companies albeit with certain conditions, even that has been pending since July, 2014. It is thus no wonder that the numbers for incorporation of companies in India have shown such a drastic fall.
The only way ahead to savour any chances of making business in India any easier is by making amendment to the Act, 2013 first by providing much needed exemptions to private companies. The Government instead has directed its attention to other legislations such as land acquisition bill, GST Bill which will assume importance only when there are enough companies to do business in India. By subjecting private companies to face similar brunt of regulations as listed companies, it is the Act, 2013, which needs top most attention when it comes to making amendments.
(Nivedita Shankar is a Company Secretary and works as senior associate at Corporate Law Services at Vinod Kothari & Company)



Ramesh Toshniwal

2 years ago

Will u treat a patient only after he dies. Private ltd cos are dying under a government which claims to improve ease of business. Do the government want that only the big companies survive and no new aspiring business should dare to a company. Hale for all ,

Now, the Indian Navy is getting the much needed attention!

The plans outlined by the Narendra Modi government will strengthen the Indian Navy so that it will be able to guard the coastal borders reasonably well


It is hardly 10 days now that the Cabinet Committee on Security (CCS) took the major step to bolster the Indian Naval strength, by clearing the construction of seven stealth frigates and six number submarines.  
These are considered ‘critical’ to provide overall deterrence in the Indian Ocean Region as this will actually cover a vast strategic area of interest, from the Persian Gulf in the west to the Malacca Straits in the East.  This project is estimated to cost over Rs50,000 crore and will boost the manufacturing activities at the Mazagaon Docks (who will build 4 stealth frigates) and the Garden Reach Shipbuilders and Engineers in Kolkata (3 units). It is expected this project will take almost a decade to complete.
The secretive ship building centre at Vizag is already engaged in the building of India's first three nuclear powered submarines with nuclear ballistic missiles, estimated to cost Rs60,000 crore. Of the three, the first, INS Arihant has already begun its sea trials in 2014 and INS Aridhaman is due for launch soon, while the third is under fabrication.
According to the information available, it is now planned that six more nuclear powered submarines will also be built at this centre in Vizag.  The Navy's other requirements include six Scorpene diesel electric submarines being built at Mazagaon Docks, the delivery of the first unit being planned for September 2016. Additionally, a new tender for six advanced stealth diesel nuclear subs is likely to be announced this year, to be built in India, but with foreign collaboration. The project cost is estimated at Rs50,000 crore.
In the meantime, China has been asserting its dominance in the Asia Pacific Region, much to the discomfort of all other much smaller nations.  Chinese threats to these countries need not require any elucidation and they has been growing uneasiness between Japan and China, as a result.  In fact, China has shown its displeasure when Indian Navy wanted to be in that area.  They did not like the idea of even India doing the exploratory work on the Vietnamese waters for Oil and Gas.
However, thanks to the growing friendly relations between India and Japan, New Delhi has now made plans to acquire ShinMaywa US-2i amphibious aircraft from Japan at an estimated cost of $ 1.2 billion to cover 12 such units. The Defence Acquisition Council (DAC) chaired by Manohar Parrikar, the Defence Minister, will take up the proposal to empower the Joint Working Group to negotiate this purchase for the Navy.
Later on, it is reported, that this lot of 12 may be actually increased to 17 to meet the Coast Guard requirements.  It appears that this JWG has been discussing the "technology transfer and licensed production" in India.  When this is finalised, these amphibious multipurpose and versatile aircraft may be stationed at the Campbell Bay in the Andaman & Nicobar Island to ensure security of shipping lane in the Malacca Straits.
The Indian Air Force needs have been recently covered and the final work on the French Rafael fighter aircraft is set for March. Therefore, the plans outlined by the government will strengthen the Navy so that it will be able to guard the coastal borders, reasonably well.  Efforts, however, need to be made to bring down the manufacturing and delivery schedules!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


Budget Day: SEBI, stock exchanges, brokers on high alert

Many brokers have asked customers or investors about increase in trading margin requirements as they are anticipating high market volatility during the Budget announcement


Anticipating huge volatility during the special stock market trading on the Budget day Saturday, market regulator Securities and Exchange Board of India (SEBI) and stock exchanges have enhanced vigil to keep manipulators at bay and ensure smooth operations.
The surveillance systems have been put on high alert, fearing attempts by manipulators to take advantage of high anticipations associated with the Budget, top officials said, adding that the markets are expected to witness a huge turnover, including by foreign entities.
Various market entities have also been asked to ring-fence their systems and infrastructure from any sudden volatility.
Many brokers have informed their customers that they are anticipating high market volatility during the period of Budget announcement and therefore they have increased the trading margin requirements for the clients.
The day, being a Saturday, may add to trading volumes and volatility as overseas markets, including Singapore where many foreign investors take position before trading begins in India on normal days, would be closed and the foreign investors are expected to trade directly on Indian bourses.
Similar arrangements were made last year on the day of the exit poll results as well as the final results of the Lok Sabha elections.
At that time, the movements in stock markets were under special watch on 12 May 2014, the last day of polling and the day of exit polls, as also on 16th May when final results were announced and then on 19 May last year, the first full trading day after the announcement of all results.
Last week, SEBI had decided to keep the markets open on the Budget day, despite it being a Saturday, and asked the stock exchanges to put in place necessary systems to conduct trading during normal market hours from 9am to 3.30pm.
The decision was taken after requests were made by various market entities and others to keep markets open on the Budget day to allow the various proposals to be priced in naturally in the share prices and to avoid any sudden rush on Monday morning when markets would have otherwise opened after a gap of two days.
In that case, it was also anticipated that overseas investors in Singapore could have got an early-bird advantage to take positions because of time zone difference.
This is probably the first time in many years that the Union Budget is being presented on a Saturday. The stock markets are generally closed on Saturdays and Sundays, except for special circumstances.
As the Budget contains several market-moving announcements, trading participants, including stock exchanges, had requested SEBI and the government to keep the bourses open when the Finance Minister, Arun Jaitley, presents his first full-fledged Budget.
Stock markets have always been open during Budget presentations ever since the government changed the timing of Budget announcement to 11am in 2001, from 5pm earlier. 


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