Is There Real Ease of Doing Business in India?
Recently an article went viral in which a would-be entrepreneur detailed his experience in getting permission for starting a manufacturing unit in Sangli Maharashtra. He was running from pillar to post since November 2019 and he believed he was still four months away from getting all permissions. After the article reached the corridors of power, it turns out that “it was a mistake” by an entry level employee and the entire process should have taken two months and all the permissions should have been taken by the revenue department itself. And herein lies the problem.
 
What stifles ease of doing business?
 
Bureaucratic mindset is the foremost reason. Bureaucrats believe they need to 'approve' of what citizens are doing. This is the classic license raj mindset.
 
To gain their 'approval' citizens need to bend backwards to satisfy them.
 
This mindset turns the procedures into hurdles by interfering with innocuous wording, changing the grammar etc. These procedures can be bent, of course, if you come through the 'proper channels'.
 
Where the laws are clear, they hide the procedure. If the 'entry level employee' of the revenue department does not know the procedure, then what chance do we citizens have? This procedural shroud can be eased by paying some 'agents'. Without this procedural secrecy we do not need any agents. The best illustration is the passport office procedure.
 
Understanding ease of doing business in India
 
Think of business opportunity as fruits on a tree in the orchard of the global market. Effort is the energy required to climb the tree and gather as much of fruit as possible while competing with other businesses that are trying to get the same fruit. The risk is that you may fall and hurt yourself and would not be able to pick any fruit while your competitors can take away all the fruit in entire orchard.
 
In India, the fruit trees are few (lower rewards), they are super tall (very high effort) and the entrepreneurs and markets are fenced by the government and guarded by ferocious dogs (high risks). The entrepreneur is given a stone to carry around his neck while she jumps the fence, escapes from the dogs, picks the fruit and makes it back. Naturally, not much fruit get picked, so our society cannot enjoy the fruit. The orchards are being picked by global entrepreneurs.
 
What the Indian ease of doing business needs is to set the entrepreneur free to compete. If she is not restrained from picking these fruits, and market orchards are not fenced, and there are no dogs, then the Indian entrepreneurs can outcompete the best. 
 
The Western concept of ease of doing businesses goes a few steps further. It means making ladders and advanced equipment available to enterprising fruit-pickers so that their entire society can enjoy the fruit.
 
What do we need to improve ease of doing business?
 
Each business idea has a mix of three factors – effort, risks and rewards. Therefore, to 'Do' business, the rewards must be greater than the risks at the given level of effort.
 
Reducing risks
 
Different types of risks are inherent in every business.  Every entrepreneur must take the essential risk—that of the business model itself—how it is financed, marketing, sales, assets, scale, time to market, strategy, etc. But there are other risks which can be avoided.
 
For instance, if setting up a business firm is easy, then entrepreneurs can quickly try out ideas. Business firms are building structures that can hold the business model while bearing the load of the risk. The easier it is to create the structure, the bigger would be the incentive for entrepreneurs to build their businesses.
 
Also, many ideas fail. We need to provide a mechanism for the resolution of failed businesses—it should be easy to decide who is liable for how much i.e., how the assets and liabilities of the failed business will be distributed. Such mechanisms build clarity and certainty which itself reduces risks for the entrepreneur. 
 
Reducing efforts
 
Regulations can reduce the non-core 'efforts'. To use the trucking industry analogy, the longer a truck is on the road the more it earns, the time a truck spends in the garage is a waste. So also, the more effort an entrepreneur makes in running the business, the more likely she will succeed. 
 
The time she spends in compliance, running from pillar to post, waiting for permissions, permits, licences and clearance, the lower the earning power of the business. We do not want non-compliance, we need ease of compliance. 
 
For example, we want the businesses to grow, expand across the country and possibly across the world. But, to expand presence across India and overseas requires multiple processes and interface with multiple governments. 
 
Similarly, each step of creating a business can be simplified, clarified and eased such that law-abiding entrepreneurs can sail through the process in minutes while unscrupulous cheats will have a difficult time evading the laws. For example, if you want to build a furnace, there should be a list of registered furnace installers that you can hire. If you hire them, then these approved vendors will be liable to ensure that all laws are followed.
 
Increase rewards
 
Increasing rewards for the corporates or entrepreneurs in India can be achieved by myopically reducing the shares in the pie or more appropriately by increasing the size of the pie itself.
 
To increase the size of the pie we need more prosperity. That will come with rising incomes, better productivity, greater employment, better employment etc. That, in turn, will come with competition, unleashing the forces of innovation (new products, better designs, etc.) .However, prosperity is a third order effect from the start of competition, innovation and growth.
 
Regulating or reducing the shares in the pie is easy and controllable and, therefore, appeals to the bureaucratic mindset. Increasing the size of the pie is difficult to control and therefore it is a bureaucratic blind spot.
 
In Sum
 
Indian economy needs jobs which are going to be created by entrepreneurs. For ever, Indian governments have promoted pseudo-entrepreneurs while stifling the real entrepreneurs with red-tape and procedure. 
 
We will say ease of doing business has improved when all the steps become easy—creating firms to define risks, expanding firms (both within state, within India and globally) AND closing firms with quick and fair dissolution of assets and liabilities.
 
The critical hurdle to ease of doing business and generally ease of living itself is the bureaucracy. The unique layout of bureaucracy was created over 60 years to expand and create opportunities for corruption. Unfortunately, Narendra Modi in the Centre and BJP governments in states have not really tamed this beast.
 
Until then, doing business or simply our day-to-day life itself will remain difficult.
 
Rahul Prakash Deodhar is an Advocate, Bombay High Court. He can be reached at [email protected], on twitter at @rahuldeodhar or at his website www.rahuldeodhar.com.
 
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    COMMENTS

    ssndeepmore89

    3 months ago

    A professionally researched article as always. Success in business happens despite the Government and NOT because of the Govt. I can very confidently say that our country would have been very prosperous if not for the Government interference at every step of entrepreneurship. People like me throw up our hands in frustration at the first stage itself looking at the hopelessness of it all.

    As an example, even when I set up a small shop, I get various Government officials visiting me every Sunday for freebies & I thought that this happened only for hawkers.

    Newme

    3 months ago

    1. More a person visits goverment office, more chance for bribery for the government officers. This is the motive behind red tapeism. Whatever law or process in place, babus know how to bend it for their own benefit.

    2. One thing not discussed here is no politician will dare to question a government officer nor interfere in their bribery tricks. Reason is government officers are vengeanceful type. They will inturn bury the politician in paper work and throw the rule book at them.

    3. In Tamilnadu, there is a big crime going on. Revenue department officers deliberately make mistakes on agriculture land documents - typo in name, patta number or address, and farmers have to visit government offices multiple times to sort it out. Some cases it takes years to correct until then farmers cannot sell their lands nor avail loans nor get subsidies.

    Nahom

    3 months ago

    Smart Indian families know very well that Indian Bureaucracy will stifle growth and it is futile to wait and waste the life of their future generation in this land of Kafkaesque terrorism. That is why they educate their Children in English Medium, sends them to good coaching classes and go abroad. A second class citizenship abroad is much better than third class citizenship under a medieval regime.

    saumilm

    3 months ago

    Can someone explain why banks need to harass customers by asking for kyc every 3 or 3 years? Is it to check if the person is alive?

    gbrhyd

    3 months ago

    Eliminate political involvement in Industry & Agriculture. No permission is required for an industry if set up in Industrial area except GST. Then only India can grow.

    amitjainpc

    3 months ago

    Way too general. No specific suggestions.

    S.SuchindranathAiyer

    3 months ago

    At the end of the day, India remains a legacy Colonial-Communist Totalitarian Command economy in ideology, model of Government, Laws, Regulations and stifling, extortionate bureaucracy and judiciary. Modi made it all tougher by formalizing all the pro corruption policies put in place by Nehru.

    REPLY

    Newme

    In Reply to S.SuchindranathAiyer 3 months ago

    Could you please elaborate on your last sentence.

    Railway Board members' designations changed, Chairman is now CEO
    Almost nine months after the Union Cabinet approved the organisational restructuring of the Indian Railways, including the merger of eight Group A services to end departmentalism, promote smooth working and expedite decision-making, the government on Wednesday formally changed the Railway Board Members' designations.
     
    In an order, the Appointments Committee of the Cabinet, approving the decision of the Union Cabinet for re-organisation of railway board on functional lines, said that the Chairman of the Railway Board will be called the CEO.
     
    Chairman, Railway Board V.K. Yadav will continue as the new CEO of the Indian Railways.
     
    According to the government order, besides the CEO, the new Board will have four other Members with new designations.
     
    The order said that new board members will include Member, Infrastructure (Pradeep Kumar, IRSEE), Member, Traction and Rolling Stock (P.C. Sharma, IRSS), Member, Operations and Business Development (P.S. Mishra, IRTS), and Member, Finance (Manjula Rangrajan, IRAS).
     
    The order also said that three posts have been surrendered, which includes the post of Member, Staff, Engineering and Materials Management in Railway Board and utilisation of the post of Member, Rolling Stock, for creation of the post of Director General (HR) in apex grade as per the cabinet decision.
     
    The Union Cabinet on December 24 last year approved the decision of organisational restructuring of Railways.
     
    The decision was taken in a bid to revamp the Railway Board along functional lines to make it a leaner organisation.
     
    The cabinet last year had approved merger of eight Group A services into a central service called the Indian Railway Management Service (IRMS).
     
    Earlier, the Indian Railways was organised into departments such as traffic, civil, mechanical, electrical, signal & telecom, stores, personnel, and accounts. These departments were vertically separated and each headed by a Secretary-level officer (Member) in the Railway Board.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    soundararajanmk

    3 months ago

    Can any one be posted to any of the four posts of Members at Railway Board from the erstwhile 8 Group A services now or the erstwhile eight services will now get allotted to four services of Members at the Railway Board needs to be clarified.

    soundararajanmk

    3 months ago

    At any cost, there should be two cadres - Technical and Non-technical - for proficiency and proper decision making, while a combined seniority can be maintained for promotion and postings to 'General' posts like GM & DRM.

    REPLY

    soundararajanmk

    In Reply to soundararajanmk 3 months ago

    Unless the 'Departments' controlled by the earlier system also reorganised into four cadres controlled by the proposed posts of Members at the Railway Board, the desired result may not be achieved fully. It is because the continued state of existing functional depts. will continue to retain their supremacy and the ego of controlling Group A officer will raise its head in decision making, nullifying the anticipated efficiency by the merger of various cadres into one 'IRMS (Technical)'.

    rk65aiyar

    3 months ago

    Nice to note keep on post me the current affairs

    REPLY

    s5rwav

    In Reply to rk65aiyar 3 months ago

    Indeed Grateful to Moneylife Team for Such Informative Articles 😄😄😄

    s5rwav

    3 months ago

    Seems Govt of India on Way to Ultimate Goal of Totally Privatize the Indian Railways for ilk of Adani Group and Ambani Group to Rule #WeThePeopleOfIndia. I am Babubhai Vaghela from Ahmedabad. Thanks.

    FinMin Says No Printing of Diaries, Calendars for Next Year, Asks All Govt Entities To Go Digital!
    The ministry of finance (FinMin) on Tuesday directed all Union ministries, all departments of the government, public sector units (PSUs) and autonomous bodies not to print any diaries or calendars and adopt innovative means to use digital or online methods for 2021. Last week, Moneylife wrote how the union cabinet secretariat had ordered all of them to procure diaries and calendars from the bureau of outreach and communication (BOC) under the ministry of information and broadcasting (MIB) only. 
     
    In an order issued on 2 September 2020, Mr Thanglemlian, joint secretary in the department of expenditure under FinMin says, "As the world is increasingly moving towards adopting digital technology for productivity and given the fact that using technological innovations for planning, scheduling and forecasting is known to be economical, efficient and effective, the government of India has decided that there will be no further activities towards printing wall calendars, desktop calendars, diaries, festival greeting cards and similar materials by all ministries, departments, autonomous bodies and other organs of the government."
     
    "All such activities including materials which were earlier printed in physical format shall be done digitally online. The printing of coffee table books is also banned and appropriate use of e-books is encouraged," the office memorandum says.
     
     
    As reported by Moneylife, in February 2020, the cabinet secretariat had reportedly called a meeting where it was observed that instead of various public sector units (PSUs) and banks printing their own calendars and diaries for distribution to staff and clients, it would be better for the central government that the BOC in the MIB should print a common calendar and diary in Hindi and English. (Read: Govt Departments, PSUs & Autonomous Bodies Mandated to Buy Diaries, Calendars from BOC Only)
     
    The meeting also deliberated on the need to rationalise the cost of such items and proposed that each PSU or bank should justify in writing how many calendars they would need.
     
    After the meeting, the secretary for coordination directed all ministries at the Centre, all departments, all PSUs and all autonomous bodies not to print their own calendars but to send a justified indent of how many calendars and diaries they would need and why!
     
    However, with the new office memorandum, the order for procuring diaries and calendars from the bureau of outreach and communication (BOC) seems to be overruled.
     
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