While COVID-19 has disrupted the world economy it has also has presented an opportunity for India in attracting investment and manufacturing companies. Owing to its liberal FDI policy, strong macroeconomics fundamentals, its democratic governance system, and improvement in its ranking in World Bank’s Ease of Doing Business Report the country has witnessed increased inflow of FDI in recent years. The reforms undertaken by the Government have resulted in India’s leap of 79 positions from the 142nd rank in 2014 to 63rd rank in the World Bank’s Doing Business Report, 2019. Also, India’s rank in Global Innovation Index improved by four positions to the 48th position in 2020 from 52nd rank in 2019.
Time to take proactive measures
No doubt, in post COVID-19 world where the anti-China sentiment runs high India offers the best alternative and has a great potential to attract investment given the size of her domestic market and abundant labour force. It is currently the fifth largest economy in terms of GDP current USD while it is the third largest in terms of GDP PPP current international USD. With the advantage of demographic dividend, rising middle class and rapid urbanisation, India is a young and aspirational economy, creating a huge domestic market. Attracting investment and businesses to India will drive her economic growth through capital generation, job creation, technology transfer, skill development, export promotion and improvement of overall competitiveness of economy while helping the country to integrate into the global supply chains.
Indeed, opportunities are there but opening of the sectors of the economy and inviting foreign investors in itself is not adequate; there is a greater need to create a conducive business environment in the country enabling foreign companies to manufacture at a competitive cost, while utilising its resources including manpower.
Ground reality is different
Though India’s rank in ease of doing business environment has improved, India has been facing myriad of issues due to various administrative and regulatory hurdles which cause delay in getting approvals and licences from the Central and State governments. Further, high cost of inputs due to inadequate and costly credit facility, tedious procedure of land acquisition and necessary environmental clearances, difficulties in enforcing contracts, lack of adequate infrastructure facilities, high logistics cost, presence of large unorganized sector, multiple labour laws, lack of scale in manufacturing and stagnant share of manufacturing sector are some of the major challenges, which need to be addressed to facilitate business friendly environment for attracting investment to India.
Reform measures don’t percolate to the lowest level
Department for Promotion of Industry and Internal Trade has taken up a series of measures to simplify and rationalize the regulatory processes to improve the business environment in the country. However, the initiatives taken for easing the business environment at the Centre level usually does not percolate to the State and local level as desired, leading to administrative and regulatory hurdles at the local level. In other words, many reform measures notwithstanding ground realities have not changed much. Therefore, there is a need to sensitize officials/administrators at the State and district level on the need to expedite the setting up of and implementation of investment projects at the grassroot level.
Starting business still consumes lot of time
Despite several measures taken by the government in recent times, starting of business in India is still a time consuming and laborious process and India is ranked 136th out of 190 countries in this regard. The World Bank’s Doing Business 2020 study reported that starting a business in India took an average of 18 days with 10 procedures. This involved obtaining digital signature certificate, reserving company name, preparing notarized affidavit, filing online form (for company incorporation, PAN, TAN, DIN), making company seal for bank account opening, registration for GST, EPFO, ESIC and Shops & Establishments separately, along with Professional Tax enrolment (in some states) – the list requirements seem to be unending. Therefore, concerted effort should be taken to integrate all Ministries, State Governments and all relevant stakeholders under the web-based system so that it can become a one stop solution for obtaining all required clearances for starting a business.
Registering property is cumbersome too
Registering property for industrial purposes is a cumbersome and costly process in India, which is reflected by the country’s 154th position on this parameter in Ease of Doing Business Report. The process of registering property in India includes conduction of title search, other encumbrances, final sale deed preparation, payment of stamp duty, execution of final sale deed, mutation and application for name change in land records. The number of steps involved in registering a property should be reduced and an online single window portal for registering property which integrates multiple authorities/agencies and other relevant stakeholders should be created.
Its heartening to note that notable reforms have been undertaken with regard to dealing with construction permit. However, most of the reforms undertaken are confined to Delhi and Mumbai. Therefore, these reform measures should be implemented across India and all procedures with regard to construction permit should be made fully online and physical process be eliminated.
The main challenges faced by the country presently are – administrative and regulatory hurdles, inadequate and costly credit facility, tedious land acquisition procedure, inadequate infrastructure facilities, high logistics cost and large unorganised manufacturing sector, among others. The policy changes and the incentive schemes brought in by the Government to overcome some of the challenges are welcome measures and are in the right direction. Having said that success of various schemes depends on the implementation of the reforms through seamless co-ordination between various Ministries and Departments of Government of India as well as the Central and State Governments. We need to look into the policy changes brought in by countries like Vietnam, Taiwan, Thailand, etc. that made them more attractive to the companies shifting their bases from China.