Doing business is tough in India

Doing business is tough in India
The Financial Express, July 1, 2009, Page 1

fe Bureau, New Delhi

It is the easiest to start a business in New Delhi, Jaipur and Hyderabad. But to close a business, the easiest places are Hyderabad, Ludhiana and Mumbai. Registering property is pretty easy in Gurgaon, Ahmedabad and Jaipur but enforcing the contract is mighty difficult.

Such wide disparity in business practices across major Indian cities is the reason why the country is placed at a dismal 122 out of a 180-nation ranking for doing business. The World Bank--International Finance Corporation and Confederation of Indian Industry survey is the first of a series of sub-national reports, ‘Doing Business in India’. This impacts the cost of credit, too. “If banks cannot protect their credit, they lend less and at a higher rate”, the report notes. Regulatory reforms have been uneven across the country, according to Penelope Brook, acting vice-president of the World Bank Group’s Financial & Private Sector Development. “In India, where more than 90% jobs are in the informal sector, regulatory reforms can help businesses operate efficiently in the formal sector. Reforms that cut red tape, clarify property rights and streamline regulatory compliance can yield big payoffs for firms and workers.”

The 17 cities studied by the report shows that even the best the performances are way beyond global benchmarks. For instance, although Hyderabad has the highest recovery rate in insolvency cases at 15.9 cents to a dollar (as against Japan’s 99.5 cents to the dollar), it still takes seven years to close a business against the OECD average of less than two years. Creating single access points for all tax registrations and social security requirements, making on-line start-ups fully functional, creating a one-stop shop for all pre- and post-registration requirements are some of the recommendations identified by the report to make the business process in India smoother. The World Bank-IFC report says India can climb up to rank 67, leaving behind regional leader China, if it implements the report’s recommendations.

Immediate steps to be taken include implementing the proposed amendments to the Companies Act, expanding creditors’ rights and developing adequate licensing and training programess for insolvency practitioners. The report commends Andhra Pradesh and Orrisa for simplifying the processes for entrepreneurs by consolidating registration for both value-added tax and profession tax at the commercial tax offices.