India lags behind in terms of ease of doing business: CII-KPMG

The report identifies key areas for reform which will enable doing business in India, including setting up of business, land acquisition, taxation and contract enforcement

May 19, 2014 2:46 IST | India Infoline News Service
CII released a report titled “Ease of Doing Business in India” in partnership with KPMG in India. Despite being one of the fastest growing economies in the world and potential investment hub, India lags behind in terms of ease of doing business. Taking cognizance of this anomalous situation, CII and KPMG have jointly prepared a report aimed at improving India’s position in the World Bank’s Ease of Doing Business rankings, where India has repetitively been ranked India low compared to 184 other economies.

The report identifies key areas for reform which will enable doing business in India, including setting up of business, land acquisition, taxation and contract enforcement. 

According to the report, despite two decades of economic reforms, India continues to falter on various sub-indices such as starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across border, enforcing contracts or resolving insolvency. In fact, the latest rankings place India 134th among 185 countries; lower than all its BRIC counterparts. Therefore, there is an urgency to focus on improving the business environment and arrest the decline in relative performance against various determinants of investment attractiveness.
On release of the report, Chandrajit Banerjee, Director General, CII said, “CII hopes that 
the findings of this report would help bring the issues to the fore and also serve as a reference point for the imminent need to pursue reforms in business practices and processes. Indian industry hopes that the new Government would accord due importance to this extremely important and urgent agenda that would help churn the wheels of investment and growth.
The report is b
ased on a survey conducted amongst Indian industry followed with extensive primary and secondary research to assess the prevailing business regulatory environment in the country. Key issues highlighted include lack of an effective land acquisition process, unfavorable taxation regime, high cost of starting a business, complicated and time consuming contract enforcement process.
Commenting on the findings of the report Richard Rekhy, Chief Executive Officer, KPMG in India said, “Having an environment that facilitates entrepreneurship, promotes investments productivity and growth is critical for improving business climate in India. The ease with which this is achieved can be a source of strategic advantage. The vulnerability of our country’s current standing in the Doing Business index means that reforms in these areas have become critical.”

Key issues and recommendations
Survey identifies key issues against the four parameters studied, and suggests recommendations to arrest the rapid decline in ease of doing business.

Parameter Studied Issues Recommendations
Land Acquisition Process
  •  Average time taken to acquire the land is 14 months and often
  •   could take longer
  •  58% of the respondents feel the number of visits made to each department to obtain the permission pose major obstacles in the approval process
  • 69% of the respondents feel that there is a lack of effective land acquisition process
  • 83% of the respondents feel that unsecured land titles generate uncertainty
  • Land mutation process is considered complex and time-consuming
  • Setup large designated industrial zones with pre-clearances and ready to move in
  •  Single window registration and mutation process
  • Move from a deed based registration to Title based registration(Torrens System)
  • Streamlined process for land use conversion
  • A market-based pricing system, where price is determined by an independent body
Starting a business
  • Approvals related to environment clearances, land procurement, construction permits, industrial safety permits and power connectionare top five obstacles in starting a business
  • 85% of the respondents feel that the time required to obtain such clearances is not reasonable
  • 78% of the respondents who feel the number of windows/ministries one has to visit is not reasonable
  • Reduce approval turnaround – make eBiz portal more effective
  • Wider and effective adoption of Deemed approval principle
  • Automatic approval for power, water and sewerage
  • Moving away from Department centric approach to Business centric approach
  • Labor reforms
  • Continuous skill development
  • Access to funds for Micro Small and Medium Enterprises (MSME)
  • 90% of the respondents are in favor of reduction in tax rates.
  • 92% of the respondents feel that there are challenges in transfer pricing assessments relating to distribution / agency
  • 90% of the respondents believe that the tax authorities are not proactive in promoting investments
  • 60% of the respondents feel that the neutralization of tax decision by
  • Supreme Court through retrospective amendment has had damaging effect on investment sentiments
  • More than half the respondents have faced delays in obtaining service tax refund
  • Implement Goods & Service Tax (GST)
  • Reduce the number of taxes and the ambiguity / discretionary nature of taxes, especially in Transfer pricing cases
  • Efficient, effective and time-bound taxation related dispute resolution
  • Ensure taxation does not hinder free flow of goods
  • Implement independent Grievance Redressal Cell
  • Operational reforms required to get the tax base right
  • Administration reforms required for consistency and increased efficiency in approach to taxation
Contract enforcement
  • Time taken from filing to final judgment seems unreasonable to most of the respondents and poses major obstacles
  • Costs involved (costs for engaging and retaining lawyers, miscellaneous costs, during the interim stage, enforcement costs) also pose significant obstacles
  • 84% of the respondents have indicated that a review of laws & regulations needs to be taken up urgently
  • Create a centralized contract repository with Non-repudiation
  • Effective implementation of e-courts
  • Increase number of courts and tribunals
  • More international treaties for increasing "reciprocative territories"
  • Update antiquated laws
  • Recognize and update laws keeping in mind the trends of higher technology updation, greater trade based on IPR and greater global trade

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