Targeting Ease of Doing Business - indiabudget.gov.in · of the chapter, therefore, is to help the reader to identify the most crucial issues when evaluating Ease of Doing Business

“The King (i.e., the State) shall promote trade and commerce by setting up trade routes by land and by water, and establishing market towns and ports” –

Kautilya’s Arthashastra, 4th century B.C.

Ease of doing business is key to entrepreneurship, innovation and wealth creation. India has risen significantly in the World Bank’s Doing Business rankings in recent years, but there are categories where it lags behind – Starting a Business, Registering Property, Paying Taxes and Enforcing Contracts. This chapter focuses on these parameters and compares India’s performance with both its peers and with the best-in-class. For example, registering property in Delhi and Mumbai takes 49 and 68 days respectively, while it takes 9 days in China and 3.5 days in New Zealand. These performance matrices provide a measure of the scope for improvement. The chapter then explores the density of laws, rules and other statutory compliance requirements faced by a manufacturing or services business (specifically the restaurants segment).

Export competitiveness depends not only on the cost of production but also on the efficiency of logistics. A series of case studies are used to analyse the time taken at each stage for specific merchandise items to travel from factory gate to the warehouse of the foreign customer. For instance, a study found that an apparels consignment going from Delhi to Maine (U.S.) takes roughly 41 days, but 19 of these are spent within India due to delays in transportation, customs clearance, ground handling and loading at sea-ports. A study of carpets exports from Uttar Pradesh to the United States also showed similar results. The process flow for imports, ironically, is more efficient than that for exports! In contrast, however, the imports and exports of electronics through Bengaluru airport was found to be world class. The processes of Indian airports should be adapted and replicated in sea-ports.

INTRODUCTION

6.1 As India leapfrogs towards a fivetrillion-dollar economy by 2024-25, simplifying and maintaining a business-friendly regulatory environmentisessential.Toeasetheconstraintsandgapsintheregulatoryprocessesinvolvedin doing business, it is necessary to assess the country’s progressvis-à-vis other leadingeconomiesonvariousparameters.

6.2 IndiahasmadesubstantialgainsintheWorldBank’sDoing Business rankings from 142 in2014 to63 in2019. Ithasprogressedonsevenoutofthe10parameters.TheGoodsandServiceTax(GST)andtheInsolvencyandBankruptcyCode(IBC)topthelistofreformsthathavepropelledIndia’sriseinrankings.ThetrajectoryofIndia’sperformanceoverthelastdecadeisshowninTable1.

Targeting Ease of Doing Business in India

06CHAPTER

6.3 However, India continues to trail inparameterssuchasEaseofStartingBusiness(rank136),RegisteringProperty(rank154),Paying Taxes (rank 115), and EnforcingContracts (rank 163). It takes roughly 58daysandcostsonanaverage7.8percentofa property’s value to register it, and 1,445daysforacompanytoresolveacommercialdispute through a local first-instance court.These figures are longer in time and often

greater in cost than OECD high-incomeeconomies, and therefore, impede wealthcreation.

6.4 This chapter analyses India’sperformanceintheparametersusedinDoingBusiness reports, and compares it to its peers aswellas to thebest-in-classcountries likeNewZealand,whichhasbeenrankednumberoneoverthepastseveralyears.

Table 1: Capturing India’s decade-long journey in the Doing Business Rankings

Parameters 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Easeofstartinga business 169 165 166 173 179 158 155 155 156 137 136

Dealingwithconstruction permits

175 177 181 182 182 184 183 185 181 52 27

Gettingelectricity - - 98 105 111 137 70 26 29 24 22

Registeringyourproperty 93 94 97 94 92 121 138 138 154 166 154

Gettingcreditfor your business

30 32 40 23 28 36 42 44 29 22 25

Protectingminority investors

41 44 46 49 34 7 8 13 4 7 13

Payingtaxes 169 164 147 152 158 156 157 172 119 121 115Tradingacrossborders 94 100 109 127 132 126 133 143 146 80 68

Enforcingcontracts 182 182 182 184 186 186 178 172 164 163 163

Resolvinginsolvency 138 134 128 116 121 137 136 136 103 108 52

Overall Rank 133 134 132 132 134 142 130 130 100 77 63

Source:DoingBusinessdatabase,WorldBank.

6.5 In addition, this chapter presentsseveral case studies and surveys thatwere conducted to capture the on-groundexperienceofdoingbusiness in thecountryincludingthelogisticsofmerchandiseexportsand imports, the number of permissionsneededtosetuparestaurantandsoon.This

allows a close look at thenuts-and-bolts ofthe business environment. Case studies ofmerchandiseexports found that logistics isinordinately inefficient in Indian sea-ports.The process flow for imports, ironically, ismoreefficientthanthatforexports.Althoughone needs to be careful to directly generalise

TargetingEaseofDoingBusinessinIndia 129

130 Economic Survey 2019-20 Volume 1

from specific case studies, it is clear thatcustoms clearance, ground handling andloadinginseaportstakedaysforwhatcanbedoneinhours.Acasestudyofelectronicsexports and imports through Bengaluruairport illustrates how Indian logisticalprocessescanbeworldclass.Themaingoalofthechapter,therefore,istohelpthereaderto identify the most crucial issues whenevaluatingEase ofDoingBusiness (EoDB)in India beyond the approach taken by theWorldBank’ssurveys.

GLOBAL COMPARISONS 6.6 In this section, India’s performancehas been compared with its peers (China,Brazil & Indonesia) as well as the best-in-classeconomyinEoDB,i.e.,NewZealand.In the interest of brevity, the comparisonsare limited to how India fared over thedecadefrom2009to2019acrossonlythoseparameters of EoDB where India lags,namely- Starting a Business, RegisteringProperty, Paying Taxes, and EnforcingContracts.ThecomparisonsdemonstratethegapthatIndianeedstotraveltoachievethebest international standards.

6.7 Thenumberofproceduresrequiredtosetupabusiness in India, forexample,hasreducedfrom13to10overthepasttenyears(Table 2). Today, it takes an average of 18days to set up a business in India, down from 30 days in 2009. On the other hand, NewZealandhas a seamlessprocessofbusinessincorporation which takes place through asinglewindowviaone agency. It just takeshalf-a-day with a single form and minimalcost to set up a business in New Zealand. Although, India has significantly reducedthe time and cost of starting a business, alotmore is needs to be done. Some furthersimplificationofprocessesinIndiahasbeenimplementedveryrecentlybutitistooearlyto gauge its impact.

6.8 Property registration is anotherinterestingexample.Ittakesnineprocedures,at least49days,and7.4-8.1percentof theproperty value to register one’s property inIndia.Moreover, thenumberofprocedures,time and cost have increased over the last10years.Meanwhile,NewZealandhasonlytwo procedures and a minimal cost of 0.1 per centofthepropertyvalue.

6.9 In the case of paying taxes, eventhough the number of payments per yearhas significantly reduced in India from 59to12overthelastdecade,timespentonthisactivity has not reducedmuch.While Indiatakes 250-254 hours per year to pay taxes,NewZealand spends just 140hours a year.Interestingly,timespenttopaytaxesinNewZealandhasdoubledfrom2009to2019.

6.10 EnforcingcontractsisoneparameterinwhichIndia’sperformancehasbeenverypoorovertheyears.WhileIndiatakes1,445days to resolve an average dispute, NewZealand takes approximately one-seventhofit,i.e.,216days.ThepreviousEconomicSurvey1 had argued that the single biggestconstraint to ease of doing business in India isitsinabilitytoenforcecontractsandresolvedisputes.Given the potential economic andsocial multipliers of a well-functioning legal system,thismaywellbethebestinvestmentIndia can make.

6.11 When compared to the performanceofIndia’speernations,namelyChina,Brazil,andIndonesia,onthesameparameters,itcanbe seen that China fares much better thanIndiaonvirtuallyallparameters(Table3).

6.12 The comparisons with other nationsis not so one-sided.An entrepreneur has togothrough10procedurestosetupabusinessin India taking17-18days todoso.On theotherhand,IndonesiaandBrazilrequireoneextraprocess thanIndia toopenabusiness.

________________________1 SeeEconomicSurvey2018-19Chapter5,VolumeI.

TargetingEaseofDoingBusinessinIndia

Table 3: India v/s Peers on EODB Parameters (2019)India China Brazil Indonesia

Starting a BusinessNumberofProcedures 10 4 11 11Time–No.ofdays 17/18* 9 17 13Cost(%ofincomepercapita) 5.3/9.3* 1.1 4.2 5.7

Registering your PropertyNumberofProcedures 9 4 14 6Time–No.ofdays 49/68* 9 31 31Cost(%ofpropertyvalue) 8.1/7.4* 4.6 3.6 8.3

Paying TaxesNumberofPayments 10/12* 7 10 26Time(hoursperyear) 250/254* 138 1,501 191Totaltaxpayable(%ofgrossprofits) 49.7# 59.2 65.1 30.1

Enforcing ContractsTime–No.ofdays 1,445 496 801 403Cost(%ofdebt) 31 16.2 22 70.3Overall Doing Business Rank 63 31 124 73

Source:WorldBankDoingBusinessReport,2020.Note:IndianumbersareforDelhi/Mumbairespectively,asthesearethetwocentrescoveredbyWorldBankfor

India. #:BeforeIndiareduceditsCorporatetaxratefrom30to25percent.

Table 2: Mapping New Zealand across EODB parameters where India struggles

India New Zealand2009 2019 2009 2019

Starting a BusinessNumberofProcedures 13 10 1 1Time–No.ofdays 30 17/18* 1 0.5Cost(%ofincomepercapita) 66.1 5.3/9.3* 0.4 0.2

Registering PropertyNumberofProcedures 5 9 2 2Time–No.ofdays 44 49/68* 2 3.5Cost(%ofpropertyvalue) 7.4 8.1/7.4* 0.1 0.1

Paying TaxesNumberofPayments 59 10/12* 8 7Time(hoursperyear) 271 250/254* 70 140Totaltaxpayable(%ofgrossprofit) 64.7 49.7# 32.8 34.6

Enforcing ContractsTime–No.ofdays 1,420 1,445 216 216Cost(%ofdebt) 39.6 31 22.4 27.2Source:DoingBusinessdatabase,WorldBank. *:DenotesvaluesforDelhi/MumbaiasthesearethetwocentrescoveredbyWorldBankforIndia. #:BeforeIndiareduceditsCorporatetaxratefrom30to25percent.

131


While Indonesia takes four days less thanIndia,Brazil takes almost the same time asIndiatodoso.Infact,countrieslikePakistan,TurkeyandSriLanka(ranked72,77,and85respectivelyinStartingaBusinessparameter)have a less cumbersome process to start abusinessthanIndia.

6.13 Similarly, while India has five lessproceduresthanBrazil(14)toregisterone’sproperty,ittakesmuchlesstimetodosoinBrazil (31days) than inIndia(49-68days).Indonesia, on the other hand, has only sixprocedures and takes same time as Brazil to register property.

6.14 In case of paying taxes, althoughIndonesia (26) has more than double thenumber of payments per year than India(10-12), its citizens spend far less time inpayingthemthanIndia.Brazilseemstofareparticularlypoorinthissegment.

6.15 India’s performance in contractenforcement is poor even when comparedto India’s peer nations. While it takesapproximately four years to enforce a

contract in India, Brazil and Indonesia spend 2.2 and 1.1 years, respectively to doso.Witharankof163outof190nationsinEnforcingContracts,onlyafewcountrieslikeAfghanistan, Mozambique, and ZimbabweperformworsethanIndia.

6.16 Aholisticassessmentandasustainedeffort to ease business regulations and provide an environment for businesses toflourishwouldbeakeystructuralreformthatwould enable India to grow at a sustained rate of8-10percentperannum.Thisrequiresanuts-and-bolts approach of feedback loops,monitoring and continuous adjustment.Thenext section, surveys some of areas wherethereisscopeforsignificantefficiencygains.

DENSITY OF LEGISLATION AND STATUTORY COMPLIANCE REQUIREMENTS IN MANUFACTURING

6.17 Amajorchallengemostcompaniesface is the complex architecture ofthe Indian governance framework

Table 4: Applicable Rules and Statutory Laws for Manufacturing

S. No. Name of the Act(A)

No. of Sections

(B)

No. of Rules, etc.

(A+B)Total

1. Apprentices Act, 1961 37 14 512. Air(Prevention&ControlofPollution)Act,1981 54 - 544. CentralExciseAct,1944 40 90 1305. CentralExciseTariffAct,1985 5 - 56. CentralSalesTaxAct,1956 26 9 357. Companies Act, 2013 470 19 4898. ContractLabour(RegulationandAbolition)Act,1970 35 83 1189. Customs Act, 1962 161 53 21410. CustomsTariffAct,1975 13 - 1311. DepositoriesAct,1996 31 - 3112. EmployeeCompensationAct,1923 36 52 8813. EmployeeStateInsuranceAct,1948 100 211 311

14. Employment Exchanges (Compulsory Notification ofVacancies)Act,1959 10 8 18

133Targeting Ease of Doing Business in India

15. Environment(Protection)Act,1986 26 88 114

16. EmployeeProvidentFunds&MiscellaneousProvisionsAct, 1952 22 156 178

17. EqualRemunerationAct,1976 18 6 2419. FactoriesAct,1948 120 128 24820. ForeignExchangeManagementAct,1999 49 102 15121. ForeignTrade(Development&Regulation)Act,1992 20 18 3822. FinanceAct,1994 36 43 79

23. Guidelines ofDepartment of Scientific and IndustrialResearch - 6 6

24. IncomeTaxAct,1961 298 125 42325. IndianStampAct,1899 78 22 10026. Indian Boiler Act,1923 34 626 66027. IndianElectricityAct,2003 185 - 18528. IndianWirelessTelegraphyAct,1933 11 13 24

29.Indian Standard Code of Practice for Selection,InstallationandMaintenanceofPortableFirstAidFireExtinguishers

- 16 16

30. IndustrialDisputesAct,1947 40 80 12031. IndustrialEmployment(StandingOrders)Act,1946 15 22 3732. LegalMetrologyAct,2009 57 64 12133. MaternityBenefitAct,1961 30 - 3034. MinimumWagesAct,1948 31 32 6335 MotorVehiclesAct,1988 217 164 38136. NarcoticDrugsandPsychotropicSubstancesAct,1985 51 68 11937. PaymentofGratuityAct,1972 15 17 3238. PatentsAct,1970 161 139 30039. PaymentofWagesAct,1936 26 13 3940. PaymentofBonusAct,1965 40 5 4541. PetroleumAct,1934 31 202 23342. PoisonsAct,1919 9 - 943. SecuritiesandExchangeBoardofIndiaAct,1992 31 334 36544. SecuritiesContract(Regulation)Act,1956 31 21 5245. SpecialEconomicZonesAct,2005 58 6 6446. Water(PreventionandControlofPollution)Act,1974 64 - 64

48. Water(PreventionandControlofPollution)CessAct,1977 17 9 26

49. ShopsandEstablishmentAct State-wise State-wise State-wise51. TradeMarksAct,1999 159 185 344

Total 3,214 3,582 6,796Source:FederationofIndianChambersofCommerceandIndustry(FICCI).Note:Thisisnotacomprehensivelistandnoteveryruleappliestoeverymanufacturer.Itisjustanillustrationofthewiderangeofrulesthatamanufacturerfaces.


including the density of legislation andstatutory compliance requirements.A listcontaining the names ofActs applicableaswell as number ofSections /Rules ofsuch Acts required to be complied withbymanufacturing units is given inTable4. Manufacturing units have to conformwith 6,796 compliance items, which is atedious and time consuming task. It must benoted that this isnotacomprehensivelist and not every rule applies to everymanufacturer. It is just an illustration of thebewilderinglywiderangeofrulesthatthesectorfaces.

STARTING A BUSINESS: REGULATORY HURDLES IN OPENING A RESTAURANT

6.18 The services sector too facesmany regulatory hurdles even for routinebusinesses. The bars and restaurants sectoris an important source of employment and growth everywhere in the world. It is alsoa business that, by its nature, faces a highfrequency of starting new businesses andshuttingoldones.

6.19 A survey showed that the numberof licenses required to open a restaurant inIndiaaresignificantlymore thanelsewhere.While China and Singapore require only

four licenses, India requires several moremandatory licenses and approvals (thecomparisonisinTable5andsomeofIndianrequirementsarelistedinTable6).

6.20 AccordingtotheNationalRestaurantsAssociation of India (NRAI), a total of 36approvalsarerequiredtoopenarestaurantinBengaluru, Delhi requires 26, andMumbai22.Moreover,DelhiandKolkataalsorequirea‘PoliceEatingHouseLicense’.Thenumberof documents needed to obtain this licensefromDelhiPoliceis45–farmorethanthenumberofdocumentsrequiredfora licensetoprocurenewarmsandmajorfireworks,19and12respectively(Table7).

6.21 Moreover, in India, only the list oflicenses and permissions can be obtained from a government portal or informationcenter.On theotherhand, inNewZealand,the website ofAuckland Council (operatedby a private third-party agency) has alldetailed guides and stepwise procedures about permissions, fees and timeline to open a restaurant. The website is also equippedwith ready-to-use business plan templatesandcomprehensiveinformationondifferentbusinesses irrespective of the scale ofbusiness. The contrast reflects a differencein approach – government control versuscuration/partnership.

Table 5: Licenses Required to Open a Restaurant

Country Market Size (US $ billion) No. of licenses Nature of licensesIndia 61 12-16* As detailed in Table 6

Singapore 8.3 4

FoodshopLicenseLiquorLicenseImportingFoodLicenseHalalCertificate

China 815 4

SanitationLicenseEnvironmentLicenseFireLicenseSalesLicense

Source:NationalRestaurantsAssociationofIndia(NRAI).Note:*Thesearejustkeylicenses.Inpractice,eachcityrequiresseveralmoreapprovalsasmentionedinthetext.


Table 6: Key Mandatory Licenses required to open a Restaurant in India

S. No. License Authority Delhi Mumbai Bangalore Kolkata1. FoodSafety FSSAI Yes Yes Yes Yes

2. Heath/Trade Municipal Corporation Yes Yes Yes Yes

3. PoliceEatingHouseLicense

PoliceCommissionerLicensing Yes Yes

4. FireNOC FireDepartment Yes Yes Yes Yes

5. Shops&Establishment LaborDepartment Yes Yes Yes Yes

6. LiquorLicense(IfservingLiquor) ExciseDepartment Yes Yes Yes Yes

7. TourismLicense(forliquorservice) TourismDepartment Yes

8.

EnvironmentClearanceforGreaseTrap/ETP(WaterPollutionAct)

StatePollutionControl Board Yes Yes

9.

EnvironmentClearanceforGenSets(AirPollutionAct)

StatePollutionControl Board Yes Yes

10. WeightsandMeasures LegalMetrologyDepartment Yes Yes Yes Yes

11. MusicLicenseCopyrightSocietiesregisteredbyGovt.of India

Yes Yes Yes Yes

12. SignageLicense Municipal Corporation Yes Yes Yes Yes

13. GST/VATRegistration GST/TaxAuthorities Yes Yes Yes Yes

14. EmployeesStateInsurance/PF

Labor/PFCommissioner Yes Yes Yes Yes

15. LiftLicense(ifliftinstalled) ElectricalInspector Yes Yes Yes Yes

16. DeliveryBikes(ifemployed) FSSAI Yes Yes Yes Yes

Source:NationalRestaurantsAssociationofIndia(NRAI).

Table 7: Documents required for obtaining a license from Delhi Police

Type of license Number of documents requiredEatingandLodgingEstablishmentsLicense 45New Arms license 19Fireworkslicense 12Source:DelhiPoliceLicensing.


Figure 1: Cost of Construction Permits in India

Source:WorldBankDoingBusinessdatabase.

CONSTRUCTION PERMITS6.22 Table 8 shows the procedures, time,and costs that businesses in Delhi have toundergo for building a factory/warehouse,including obtaining necessary licenses and permits,completingrequirednotificationsandinspections, and obtaining utility connections.

6.23 When compared to the best in class-Hong Kong, which tops the World Bankrankings for ease of obtaining construction permits, itcanbeseen thatHongKong takes

justover twomonths toobtainaconstructionpermit,whileDelhitakesalmostfourmonths.Moreover, it takes 35 days to get water andsewerconnectioninDelhi.

6.24 Nonetheless,itmustbenotedthatIndiahasconsiderablyimprovedtheprocesstoobtainconstruction permits over the last five years.Comparedto2014,whenittookapproximately186daysand28.2percentof thewarehousecost;in2019ittakes98-113.5daysand2.8-5.4percentofthewarehousecost(Figure1).

Table 8: Construction Permits - Delhi vs Hong Kong

Source:WorldBankDoingBusinessReport,2020.

Submit online Common Application Form along

with requisite building permit fees and drawings

Request & obtain release of building sanction plans

Submit online notice of completion up to the plinth

level and get inspection done

Obtain approval by submitting applications to the

One Stop Center

Receive inspection by Building Dept. on foundation

strata

Request and receive inspection on the superstructure

construction

Submit notice of completion, receive final

inspection & obtain Fire NOC

DELHI, INIDA (RANK 27)

0.5

HONG KONG (RANK 1)

Receive an audit inspection by the Building

Department

45

30 1

15.5 1

2.5 1

Obtain completion/occupancy permit Submit notification of project completion and

relevant applications 30 1

Request water and sewer connection approval and

inspection

Obtain relevant certificates through the One Stop

Center 35 18

Receive joint & final inspection of licensing

authorities; Obtain Water & Sewerage connection 1

2.8 Cost (% of Warehouse) 0.3

113.5 Days 69 Days Time Taken

Days Days

25.4

15

28.2

4

185.9

106

70

100

130

160

190

0

5

10

15

20

25

30

2014 2019

No. of Procedures

Cost (% of warehouse)

Time (Days)


Table 9: Emerging Economies Comparison - Scale and Logistics

Bangladesh China India Vietnam

ScaleofOperations 80%largeenterprises

80%ormorelargeenterprises

80%smallenterprises

80%ormorelargeenterprises

TurnAroundTime(inDays)(fromordertodelivery) 50 31 63 46

TimeTakentoreachport(inDays) 1 0.2 7-10 0.3

Source:HighLevelAdvisoryGroup(HLAG)Report,2019.

ACHIEVING SCALE ACROSS BUSINESS 6.25 One issue that gets in the way ofbusinessefficiencyinIndiaisthatofscale.MostofthemanufacturingunitsinIndiahavesmallcapacitiesandconsequentlylowmanufacturingefficiencies which are a disadvantage in theglobalsupplychain.CountrieslikeBangladesh,China,Vietnamareabletoprogressinthevaluechainbyincreasingtheircompetitivenessintheinternationalmarketbyimprovingtheirdeliverytime and domestic production capacity.

6.26 Compared to Bangladesh, China, andVietnam,whichhavemorethan80percentofmarket value of exports by large enterprises,India has 80 per cent by small enterprises.Moreover, in India it can take 7-10 days toreach a portwhereas in countries likeChina,Bangladesh andVietnam it takes less than aday. Thus, the Indian supply chain ends upwith a large number of small consignmentscloggingalreadyinefficientlogisticspathways.Acomparisonofturn-aroundtime(i.e.,ordertodeliver)isgiveninTable9.

TRADING ACROSS BORDERS

6.27 TheTradingAcrossBordersindicatorrecordsthetimeandcostassociatedwiththelogisticalprocessofexportingandimportinggoods.Globally,transportationbyportsisthemostfavoredfollowedbyrailwaysandthenroads,whereasinIndiaitistheopposite.

6.28 Italy tops the EoDB rankings inTradingAcrossBorders.Table 10 tabulatesits comparison with India. While Indiatakes 60-68 and 88-82 hours in border anddocumentary compliance for exports andimportsrespectively,Italytakesonlyonehourforeach.Moreover,thecostofcomplianceiszeroinItaly.InIndia,itcostsUS$260-281and US$ 360-373 for exports and importsrespectively.

6.29 It must be noted that almost 70per cent of the delays (both in exports and

imports)occuronaccountofportorborderhandlingprocesseswhichessentiallypertainto procedural complexities (number andmultiplicityofproceduresrequiredfortrade),multiple documentations and involvementof multiple agencies for approvals andclearances.Itisalsoobservedthattimedelaysandproceduralinefficienciesenduppushingcost to trade.

6.30 While the government has alreadyreduced procedural and documentation requirements considerably, increasingdigitalization and seamlessly integrating multiple agencies onto a single digital platformcanfurtherreducetheseproceduralinefficienciessignificantlyandimproveuserexperiencesubstantially.Theaccompanyingbox discusses the Authorized EconomicOperators scheme that is being used tosmoothentheprocessforregisteredexporters/importers.


Table 10: Trading across Borders- India vs Italy

Source:WorldBankDoingBusinessReport,2020.Note:IndianumbersareforDelhi/Mumbairespectively,asthesearethetwocentrescoveredbyWorldBankforIndia.

BOX 1: Authorised Economic Operators (AEO)Authorised Economic Operator (AEO) is a programme under the aegis of the World CustomsOrganization (WCO) SAFE Framework of Standards to secure and facilitate Global Trade. Theprogrammeaimstoenhanceinternationalsupplychainsecurityandfacilitatemovementofgoods.AEOencompassesvariousplayersintheinternationalsupplychain.Underthisprogramme,anentityengagedininternationaltradeisapprovedbyCustomsascompliantwithsupplychainsecuritystandardsandgrantedAEOstatus.AnentitywithanAEOstatusisconsidereda‘secure’traderandareliabletradingpartner.AEOisavoluntaryprogramme.ItenablesIndianCustomstoenhanceandstreamlinecargosecuritythroughclosecooperationwiththeprinciplestakeholdersoftheinternationalsupplychainviz.importers,exporters,logisticsproviders,custodiansorterminaloperators,custombrokersandwarehouseoperators,whobenefitfrompreferentialtreatmentfromcustomsauthorities.Benefitsinclude expedited clearance times, fewer examinations, improved security and communicationbetween supply chain partners, andmore. The Circular 33/2016 – Customs dated July 22, 2016providesthestatutoryframeworkfortheAEOprogramme.TherearethreetiersofcertificationinthenewAEOProgrammeforimportersandexporters:

1. AEOT1–Verifiedonthebasisofdocumentsubmissiononly.2. AEOT2–Inadditiontodocumentverification,onsiteverificationisalsodone.3. AEOT3–ForAEOT2holderswhohaveenjoyedthestatusfortwoyearsonlyonthe

basisofdocumentverificationandforAEOT2holderswhohavenotenjoyedthestatuscontinuouslyorhaveintroducedmajorchangesinbusiness,theapplicantissubjectedtophysicalverification.


For logisticsproviders,custodiansor terminaloperators,custombrokersandwarehouseoperatorsthereisonlyonetier:AEOLO–Hereonsiteverificationisdoneinadditiontodocumentverification.Who is entitled for AEO CertificationAnyoneinvolvedintheinternationalsupplychainthatundertakesCustomsrelatedactivityinIndiacanapplyforAEOstatusirrespectiveofsizeofthebusiness.Thesemayincludeexporters,importers,logisticproviders(e.g.carriers,airlines,freightforwarders,etc.),custodiansor terminaloperators,customs house agents and warehouse owners. Others who may qualify include port operators,authorizedcouriers,stevedores.Thelistisnotexhaustive.EligibilityAnylegalentitythatundertakesCustomsrelatedworkcanapplyfortheAEOProgrammeiftheyfulfilthefollowingconditions:

1. Theyhavehandled25ImportorExportdocumentsinlastFinancialYear.2. Theyhavehad theirbusinessactivity for last threeFinancialYear (canbewaived in

deservingcases).3. TheapplicantmusthavebeenFinanciallySolventforthelastthreefinancialyears.4. Theapplicantmustnotbeissuedashowcausenoticeinvolving‘fraud,forgery,outright

smuggling,clandestineremovalofexcisablegoodsorcaseswhereServiceTaxhasbeencollectedfromcustomersbutnotdepositedtotheGovernmentduringlastthreefinancialyears.

AnentitycanapplyforAEO-T1certificationonline,byvisiting:https://www.aeoindia.gov.in/.TableAliststhenumberofAEOcompliantentitiesinIndia.

Table A: AEO Certified Entities in India as on January 17, 2019AEO Tier Number of AEO status holdersAEOT1 2,842AEOT2 491AEOT3 8AEOLO 745

Total 4,086 Source:CentralBoardofIndirectTaxesandCustoms(CBIC).

CASE STUDIES OF INDIA’S PERFORMANCE IN LOGISTICS IN SPECIFIC SEGMENTS6.31 This section presents the results ofcasestudiesandindustrysurveysconductedinOctober-December 2019 by the ‘Quality Council of India’ in order to understand the specific points in the supply-chain thatexperienceinordinatedelaysandblockages.

I. Case Study of Exporting Apparels

6.32 Thiscase study tracksconsignments

fromanapparelfactoryinDelhi,whichisanon-AEO(Box1), that exports itsproductsto Maine, U.S. via India’s largest sea portNhavaShevainMaharashtra,India’slargestseaport.Table11 traces the logisticsof theexportconsignment.

6.33 ThestudyfoundthataftertheshipmentleavesthefactorygateinDelhi,ittakesfivedays to reach Jawaharlal Nehru Port Trust(JNPT). However, six processes in NhavaShevacantakeupto14days,ofwhichadayortwoisspentjuston‘Unloading’depending


Table 11: Tracing an Apparel Export Consignment from Delhi to Maine, United StatesPlace Action Day No. of Days

INDIA

19 D

ays i

n In

dia

Delhi Shipmentreadyatfactory Day1

DelhiHaryanaRajasthanGujaratMaharashtra

Transportofshipmentviatruck/traintoJNPT Day1–5 5 days

NhavaSheva,Maharashtra

ShipmentreachesJNPT Day5

Up to 14 days

a)Unloading Day5/6

b)Customclearance Day6/7-8

c)Stuffingincontainer Day8/9-12

d)Queueforentryintoship Day12/13-17

e)Handovertoshippingline Day17/18

a)DepartureofShip Day18/19

19 D

ays a

t Hig

h Se

as Highseas Shiptravelingatseas Day18/19–Day38 19 days

UNITED STATES

3 D

ays i

n U

.S.

Houston, U.S.

Reachesport Day38

3 days

Clearscustoms(consideringalldocumentation is in place and inspectionsrendersaferesults)

Day38/39

Loading&Departure Day39

Maine, U.S. ReachesbuyerinUS Day40/41Source:QCICalculations.

onspaceavailabilityattheport.Threedaysare then used up in ‘Custom Clearance’,another three days in ‘Stuffing Containers’andup tofivedays are takenupby ‘queue

forentryintotheship’.Thisispartlyduetoinsufficientport infrastructure tohandle theinflow of containers, narrow roads and poorstrengthbearingcapacityoftheroadsattheport.


Table 12: Tracing a Carpet Export Consignment from Mirzapur to New JerseyPlace Action Day No. of Days

INDIA (AEO)

13 D

ays i

n In

dia

Mirzapur,U.P. Shipmentreadyatfactory Day1 1 dayMirzapurtoPiyala,Haryana

TransportofshipmentviatrucktoICDPiyala Day1–3 2 days

Piyala

ShipmentreachesPiyala Day3

4 daysCustom clearance Day3/4

Stuffingincontainer Day4-7DeparturetoMundraSeaPortbyTrain Day7

RailTravel TransportofshipmentviatraintoMundra Day7–10/11 3-4 days

MundraSeaPort(Gujarat)

Queuewiththetrucktoentertheport

Day11(6-7hours)

2 daysLoadingofvessel Day11-13

DepartureofShip Day13

22 D

ays a

t H

igh

Seas

Highseas Shiptravelingatseas Day13–Day35/36 22/23days

UNITED STATES

5 D

ays i

n U

.S. NewYorkSeaPort

Reachesport Day36

4-5 days

Clearscustoms(consideringalldocumentation is in place and inspectionsrendersaferesults)

Day36-39

RoadTravel TransportationtoNewJerseyWarehouse Day39/40

NewJersey Reacheswarehouse Day40

Source:QCICalculations.

However, much of the delay is due to themisalignment of processes that donot allowfor “just in time” protocols.The uncertaintyoftimeneededtocleareachstepmeansthatexportershavetopadupthetimespentwaiting.Thisaddstothecloggingofportspace.

6.34 Once the ship leaves the port, theconsignment travels for 19 days by sea,reaching Houston, U.S. on day 38. Here,Customs take at most a day’s time to clear

the consignment, provided all paper workand regulatory requirements are met. Theconsignment then reaches the buyer’swarehouseinMainewithintwodays.

6.35 In short, of the total 41 days takenby theconsignment fromfactory inDelhi towarehouse inMaine, 19 dayswere spent inIndia,19daysatseaandroughlythreedaysintheUnitedStates.Thereisobviousscopeforimprovement.


II. Case Study of Exporting Carpets

6.36 A similar exercise was done fora carpet manufacturer, who is an AEO,exporting products fromMirzapur inUttarPradeshtoNewJerseyintheU.S.(Table12).

6.37 AftertheshipmentleavesthefactoryinMirzapur, it takes two days to reach theInland Container Depot (ICD) in Piyala,Haryana. At the ICD, the consignment iscleared byCustoms in a day’s time. In thenextthreedaystheconsignmentisstuffedincontainers and sent to Mundra.

6.38 Ittakesthreetofourdaystotransportthe shipment via train toMundra sea port.Another 6-7 hours are used up in queue toentertheport.Thevesselisloadedinthenexttwodaysandtheshipdepartsonday13.Theshiptakesaround23daystoreachNewYorksea port on day 36. Here, Customs takes two-threedaystocleartheconsignment,providedall paperwork and regulatory requirementsaremet.InthenexttwodaystheconsignmentistransportedtothewarehouseinNewJersey.

6.39 To sumup, of the 40 days, 13 daysarespentinIndia,another22daysatseaand4-5daysintheU.S.beforetheconsignmentreaches the final buyer in New Jersey.Although,beinganAEOsignificantlyreducesthenumberofdaysashipmenttakestodepartfromIndia(comparedtothepreviouscase),it still takes an inordinate amount of time withinthecountry.

III. Case Study of Importing Carpets

6.40 Another way to understand theprocess flow of logistics is to look at it inreverse.ThiscasestudytracksthetimelinesinvolvedwhileimportingcarpetsfromMilan,Italy to a warehouse in Beawar, Rajasthan(Table13).

6.41 Once the shipment is ready at thefactory gate in Milan, it takes only 10 Hours to transport the shipment to Naples,

773 kms away. Just two hours are spent incustom clearances and then it takes onlyanhour’s time to load theship.Thismeansthat the consignment spends less than aday from factory to ship. It is possible todo this because ofwell-oiled “just-in-time”processes. The ship then spends 23 dayson high seas, reachingMundra sea port inGujarat on Day 24. The next six days arespent atMundra port, of which, about twodays are used up waiting outside the portfor entry, followed by another two days incustomclearanceandaqueueof6-7hourstoexittheport.Lastly,theshipmentreachesitsfinaldestination-Beawar,RajasthanonDay31,includingthetwodaysoftraveltimebyroad.Thus,ittakes8daysinIndiatoundergoborder compliances and travel time beforetheconsignmentreachesthebuyer.

6.42 To summarize, while it takes onlyone day in Italy to transport, and complete border compliance and documentation, India takes eight days to complete the importprocess(notethattheimporterforthisstudywas an Authorised Economic Operator).Nonetheless, it is interesting to note thatthe importsprocess takes less time than theexportsprocess.

6.43 Theresultsofthecasestudyapproach,by definition, are limited by sample size,but the above results were cross verifiedby QCI by interacting with a wide crosssection of importers and exporters in orderto confirm that the collected data broadlyfitstheirexperience.Thefollowingweretheoutcomes(a)theinordinatedelaysinloadingand customs processes in Indian sea-ports (b) theprocessesfor imports, ironically,arebetter than those for exports (c) the largevarianceinprocess timemeansthatexportsare forced toaccount for theuncertaintybypaddingextrawaitingtime.Thismeansthatitisnotgoodenoughtosimplyimprovethe“average”withoutimprovingreliability.


Table 13: Tracing a Carpet Import consignment from Milan to BeawarPlace Action Time No. of Days/ Hours

ITALY

13 H

ours

in It

aly

Milan ShipmentreadyatfactoryinMilan

MilanBolognaSan MarinoRomeNaples(773km)

TransportofshipmenttoNaples Day1 10 Hours

Naples

Customs clearanceDocumentarycompliances Day1 2 Hours

LoadingDepartureofship Day1 1 Hour

23 D

ays a

t H

igh

Seas

Highseas Shiptravelingatseas Day2-24 23 days

INDIA (AEO)

8 da

ys in

Indi

a

Mundra SeaPort(Gujarat)

ShipmentreachesMundraPortatSeaShore Day24

6 days

Vesselwaitingtimeoutsidetheportbefore entry Day24-26

Unloadingshipmentatport Day26

Custom Clearance

Handlingshipmentat port Day27

Clearing security inspections conducted by port authorities

Day28

Queuewiththetrucktoexitport Day29(6-7Hours)

RoadTravel TransportofshipmentviatrucktoBeawarRajasthan Day29

2 daysBeawar (Rajasthan) ShipmentreachesfactoryatBeawar Day31

Source:QCICalculations.

6.44 Itmustbenoted that the turnaroundtimeofshipsinIndiahasbeenonacontinuousdecline, almost halving from 4.67 days in2010-11to2.48daysin2018-192.Thisshowsthatachievingsignificantefficiencygainsin

thecaseofseaportsispossible.Although,afullcasestudyofChennaiportwasnotdone,partial data suggests that its processes aresmoother than those of the ports discussedabove.

_________________2 SeeEconomicSurvey2019-20Chapter9,VolumeII.


Table 14 (a): Tracing Electronics Export consignment from Bangaluru to Hong Kong (Non AEO)

Place Action Time

INDIA- (NON AEO)

10 H

ours

in In

dia

Bangaluru,Karnataka Shipmentreadyatfactory

WarehousetoKempegowdaAirport,Bangaluru Distance–70Km

TransportofshipmentviatrucktoAirport 3 Hours

ShipmentreachesAirport

ExportTerminalEntry 1 Hour

CustomsRegistration 2 Hours

Examination&LetExportofShippingBill 4 Hours

5 H

our

Flig

ht

Airtravel 5 Hours

HONG KONG

7 H

ours

in H

ong

Kon

g

HongKong ReachesHongKongAirport

Customs Clearance Inspection&PassoutOrder 4 Hours

RoadTravel Transportationfromairporttowarehouse 3 Hours

Source:SurveyCalculations.

IV. Case Study of Electronics

6.45 Although,theprocessesatsea-portsremain very inefficient, those at airportshavedramaticallyimproved.Indeed,acasestudy of an electronics company based in Bangaluru, which is currently AEO-T2certified, found that Indian systems canbeworldclass.ItalsoprovidessomeinsightintohowthebusinessenvironmenthaschangedforsomesegmentsaftertheimplementationofAEOpolicyin2016.

6.46 Tables 14 (a) and (b) compare thetime taken for exporting electronics fromBangalurutoHongKong,withandwithoutAEO registration. Once the shipment is

ready at the factory in Bangaluru, it takesthreehours to transport it toKempegowdaAirport.Attheairport, it takesonehourtoenter exports terminal. So far, there is nodifference between AEO and non-AEO.However,totaltimespentattheairportforCustoms and examination process is justtwohoursforAEO-T2operators.Non-AEOoperatorstake6hours.

6.47 In fact, afterAEO implementation,thetotaltimespentinIndia(sixhours)islessthanthatspentinHongKong(sevenhours).Thisshows,withthehelpofrightpolicies,Indiacanachieveinternationalstandards,orevenbetterthem.


Table 14 (b): Tracing Electronics Export consignment from Bangaluru to Hong Kong (AEO)

Place Action Time

INDIA (AEO T2)

6 H

ours

in In

dia

Bangaluru,Karnataka Shipmentreadyatfactory

WarehousetoKempegowdaAirport,BangaluruDistance–70Km

Transportofshipmentviatruckto Airport 3 Hours


ExportTerminalEntry 1 Hour

CustomsRegistration 1 Hour

Examination&LetExportofShippingBill 1 Hour

5 H

our

Flig

ht

Airtravel 5 Hours

HONG KONG

7 H

ours

in H

ong

Kon

g HongKong ReachesHongKongAirport

Customs Clearance Inspection&PassoutOrder 4 Hours



6.48 Again,theprocessflowwasstudiedinreverse.Tables15(a)and(b)comparethetimetakeninimportingelectronicsfromChinatoBangaluru,withandwithoutAEO.After theshipment is ready in factory at Shenzhen, ittakes twodays to transport it toHongKongairport.

6.49 At the airport, an hour is spent onexport declaration, two hours on customsclearance and another four hours in loadingtheaircraftattheterminal.Afterafivehourairtravel,theconsignmentreachesKempegowda

Airport, Bangaluru. It then takes 14 and11 hours respectively for a Non-AEO andAEOconsignmenttoreachthewarehouseinBangaluru.

6.50 Thecasestudysuggeststhefollowingconclusions:(a)theprocessesinIndianairportsisvastlysuperiortothoseatseaportsforbothimportsandexports;(b)AEOdidsignificantlyimprovetheprocessbutitisreasonablysmootheven for non-AEO operators importing/exportingelectronics(c)Indianprocessescanbeat international standards.


Table 15 (a): Tracing Electronics Import consignment from China to Bangaluru (Non AEO) Place Action Time

CHINA

2 da

ys &

7 H

ours

in

Chi

na

Shenzhen,China Shipmentreadyatfactory

FromwarehouseinShenzhentoHongKongAirport

Transportofshipmentviatruck to Airport 2 days


ExportDeclaration 1 HourCustoms Clearance 2 HoursAcceptancetoflightatTerminal 4 Hours

5 H

our

Flig

ht

Airtravel 5 Hours

INDIA- (NON AEO)

14 H

ours

in In

dia

ShipmentreachesAirportinBangaluru

Bonding/ManifestofCargo 3 Hours

Customs Clearance 6 Hours

CargoDeliveryprocess 1 Hours



Table 15 (b): Tracing Electronics Import consignment from China to Bangaluru (AEO)Place Action Time

CHINA

2 da

ys &

7 H

ours

in

Chi

na

Shenzhen,China Shipmentreadyatfactory

FromwarehouseinShenzhentoHongKongAirport

Transportofshipmentviatruckto Airport 2 days

ShipmentreachesAirportExportDeclaration 1 HourCustoms Clearance 2 HoursAcceptancetoflightatTerminal 4 Hours

5 H

our

Flig

ht

Airtravel 5 Hours

INDIA- (AEO T2)

11 H

ours

in In

dia

ShipmentreachesAirportinBangaluru

Bonding/ManifestofCargo 3 Hours

Customs Clearance 3 Hours

CargoDeliveryprocess 1 Hours




CONCLUSION6.51 This chapter looked at the Ease ofDoingBusinessinIndiafromvariousaspects.First, it compared India’s performance onWorldBank’sEoDBrankingswithitspeersaswellasthebest-in-class.TheanalysisfocusedonthefourparameterswhereIndialagsbehindviz- StartingBusiness Registering Property,Paying Taxes, and Enforcing Contracts.The findings clearly show the large scopefor improvement in all categories.While ittakesapproximately fouryears toenforceacontract in India; New Zealand, Indonesia, ChinaandBrazilrequire0.6,1.2,1.4and2.2yearsrespectively.Witharankof163outof190 nations in Enforcing Contracts, only afewcountrieslikeAfghanistan,Mozambique,and Zimbabwe perform worse than India.Similar comparisons have been shown forothercategories.

6.52 Secondly, the chapter throws lighton themaze of laws, rules and regulationsin manufacturing and services (particularlyrestaurants) sector. While China andSingaporerequireonlyfourlicensestoopen

a restaurant, India requires several moremandatory licenses and approvals: Delhirequires 26, Bangaluru 36, and Mumbairequires 22. In addition, Delhi requires a‘Police Eating House License’ from DelhiPolicethatasksfor45documentscomparedtojust19neededtobuyagun.Thescopeforstreamlining is clear.

6.53 Lastly, a series of case studies andindustrysurveysareusedtoanalysethetimetaken at each stage of the supply chain forspecific merchandise items to travel fromfactorygatetothewarehouseoftheforeigncustomer. These confirmed the following(a) the inordinate delays in loading andcustomsprocessesinIndiansea-ports(b)theprocesses for imports, ironically, are better thanthoseforexports(c)thelargevarianceinprocesstimemeansthatexportsareforcedto account for the uncertainty by paddingextrawaitingtime.Incontrast,however,theimports and exports of electronics throughBengaluru airport was found to be world class.TheprocessesofIndianairportsshouldbe adapted and replicated in sea-ports.

CHAPTER AT A GLANCE Indiahasjumpedup79positionsinWorldBank’sDoingBusinessrankings,improving

from142in2014to63in2019.However,itcontinuestotrailinparameterssuchasEaseofStartingBusiness(rank136),RegisteringProperty(rank154),PayingTaxes(rank115),andEnforcingContracts(rank163).

EnforcingacontractinIndiatakesonaverage1,445daysinIndiacomparedtojust216daysinNewZealand,and496daysinChina.Payingtaxestakesupmorethan250hoursinIndiacomparedto140hoursinNewZealand,138inChinaand191inIndonesia.Theseparametersprovideameasureofthescopeforimprovement.

SettingupandoperatingaservicesormanufacturingbusinessinIndiafacesamazeoflaws,rulesandregulations.Manyofthesearelocalrequirements,suchasburdensomedocumentationforpoliceclearancetoopenarestaurant.Thismustbecleanedupandrationalized one segment at a time.


REFERENCESWorldBank. “DoingBusiness.”TheWorldBank Group. (Various Editions). https://www.doingbusiness.org/en/doingbusiness

DepartmentofCommerce.“LogisticsEaseAcrossDifferentStates(LEADSIndex).”NewDelhi,2019.https://commerce.gov.in/writereaddata/UploadedFile/MOC_637051086790146385_LEAD_Report.pdf

CasestudiesofmerchandiseexportsfoundthatlogisticsisinordinatelyinefficientinIndian sea-ports.Theprocessflowfor imports, ironically, ismoreefficient than thatforexports.Althoughoneneedstobecarefultodirectlygeneralizefromspecificcasestudies, it isclear thatcustomsclearance,groundhandlingandloadinginseaportstake days for what can be done in hours.A case study of electronics exports andimportsthroughBengaluruairportillustrateshowIndianlogisticalprocessescanbeworld class.

Itmustbenoted that the turnaround timeofships in Indiahasbeenonacontinuousdecline,almosthalvingfrom4.67daysin2010-11to2.48daysin2018-19.Thisshowsthatachievingsignificantefficiencygainsinthecaseofseaportsispossible.Although,afullcasestudyofChennaiportwasnotdone,partialdatasuggeststhatitsprocessesaresmootherthanthoseoftheportsdiscussedabove.

The streamlining of the logistics process at sea-ports requires close coordinationbetween the Logistics division of the Ministry of Commerce and Industry, theCentral Board of Indirect Taxes and Customs, Ministry of Shipping and thedifferent port authorities. The simplification of the Ease of Doing Businesslandscape of individual sectors such as tourism or manufacturing, however,requires amore targetedapproach thatmapsout the regulatoryandprocessbottle-necks for each segment. Once the processmap has been done, the correction canbe done at the appropriate level of government - central, state or municipal.

DepartmentofCommerce.“High-LevelAdvisoryGroup(HLAG).”NewDelhi,2019.https://commerce.gov.in/writereaddata/uploadedfile/MOC_637084607407371826_HLAG%20Report%20.pdf

NitiAayog.“EaseofDoingBusiness:AnEnterpriseSurveyofIndianStates.”NewDelhi,2017.https://niti.gov.in/writereaddata/files/document_publication/EoDB_Single.pdf