Ease of Doing Business: Still a Long Way To Go

The efforts taken by National Democratic Alliance (NDA) to ease the regulatory environment notwithstanding, the perception of most business enterprises is that little has changed on the ground.

This comes as a wake-up call to the government and a reminder that the legacy of red tape is far more tough to undo than what has been thought so far. The study also reveals that the experience of regulatory reform has not been uniform across the country.

A survey by NITI Aayog and Mumbai based think tank IDFC institute of formal Indian manufacturing firms, has found that, as of the 2016 reforms by the NDA government, factory-owners largely do not feel things had changed excessively.

The results exhibited that for a majority of respondents, parameters such as setting up a business, land and construction, environment, labour, water and sanitation, taxes, and access to finance remained the same compared with a year ago; on legal matters, they reported that things had deteriorated. The survey was conducted in 2016. Last year, the World Bank’s Ease of Doing Business Ranking placed India at a lowly 130 out of 150 countries.

The Niti study has surveyed over 3,000 manufacturing firms all over the country, while the World Bank survey is focused mainly on Delhi and Mumbai, and involves surveying expert opinion to form global rankings.

According to the Niti survey, on an average it took enterprises about two years to resolve a legal dispute and there is wide disparity across states. On an average, companies witnessed around 46 hours of power shortage in a typical month. It took firms 118 days to set up a business. The World Bank's Doing Business survey shows that it takes 26 days to set up a business but this is restricted to Delhi and Mumbai.

Further, the awareness among the firms of government’s actions to improve the business climate is surprisingly low. As per the survey, only 20 per cent of the firms surveyed informed about using single-window systems for setting up a business. A majority of well-established firms nearly 59 per cent didn’t even know of this tool, which greatly eases compliance burden.

However, the study suggests that in labour-intensive sectors like textile, apparel and footwear, more flexible labour laws can aid in scaling up to meet order demand. Improved information to entrepreneurs about “single-window” approvals in states can improve matters. As would better availability of power and finance, especially in poorer states. Undoubtedly, the ease of doing business can be much improved.

Latin Manharlal Group

Uncertain Fiscal Outlook to Undermine India’s Growth Hopes

There seems to be trouble brewing for Asia’s third biggest economy as fiscal slippages could be a drag on the country in the year to March 2018, with outlook for current financial year turning more somber.

According to Economic Survey Part-II released, the country is facing an uncertain fiscal outlook going forward and this would make it difficult in achieving higher end of the 6.75-7.5 per cent GDP growth estimated earlier.

The downside risks to growth and fiscal outlook of the Indian economy are piling up in the form of deflationary impulses like farm loan waivers, stressed farm revenues, as non-cereal food prices have declined and declining profitability in the power and telecommunication sectors, further worsening the Twin Balance Sheet (TBS) problem. However, it remains upbeat on meeting the fiscal deficit target, according to the second part of Economic Survey.

The twin balance sheet problem refers to the ballooning of debt on the books of corporate entities and the estimated Rs10 trillion of stressed assets that have piled up at banks because of the inability of borrowers to repay.

Owing to the gradual fiscal consolidation path chalked out in Union Budget for 2017-18, the fiscal deficit is expected to come down to 3.2 per cent of GDP during 2017-2018. After reaching this milestone, the fiscal deficit target of 3 per cent of GDP under the FRBM framework is likely to be achieved in 2018-19.

The mid-year survey also called for interest rates to be lowered even further as India struggles with subdued private sector investment and a banking sector coping with rising non-performing assets. 

Moving ahead, the government needs to convince the central bank to slash rates further, by pushing policy measures to keep inflation under control. With inflation dipping to 1.5 per cent in June, weak demand has been a serious concern. According to the repot, inflation is projected to remain below the medium-term target of 4 per cent.

Latin Manharlal Group