Ease of Doing Business in IndiaPaper Presentation-By Prakhar Jain

What does“Ease of

doing business”

mean?

LITERAL MEANING:

The ease with which an entity, whether it be an individual or a large corporation, can start and run a business to earn profit.

For Example….

TECHNICAL ANGLE

• “EASE OF DOING BUSINESS” is an INDEX. Just like….• It is an index that is used to compare all the different

countries in the world, with respect to the regulations that govern a business in that country, and their impact on the “ease” of doing business there.

• It is based on the deep and systematic study of the Laws and Regulations that businesses have to comply in each country, And 185 countries are assigned a RANKING from 1-185

Why “Ease of doing business” is considered so important for an economy?• “Business” is the single most important

factor for an economy.• Businesses provide jobs, pay taxes to the

government, contribute to the GDP of the country etc.

• If “Doing Business” is made easy, more people will be motivated to start new businesses and existing businesses will make additional investments.

• Easy to comply law/regulations also attract foreign investors and lead to increase in FDI.

Why it has become a very hotly debated and trending discussion matter nowadays?Two-Fold Reason:1. The first is the coming of the Modi

Government, which is seen as a reformist govt. The govt. had clearly expressed its intentions to improve the ranking, but this didn’t garner much attention, because it was mere talks.

2. The second and more prominent reason is the event that occurred on the October of 2015…..

“India ranks 130 in ease of doing business”, - World Bank report• It may have become easier for Indian

businesses to start a business, but their access to credit and ease of paying taxes has worsened, India now ranks 130 out of 189 countries.

• In the areas that India’s performance has improved, the biggest improvement was under the head of ease of ‘access to electricity’, where it moved up 29 spots to No. 70

Here is an extract of the report in the Indian Express Newspaper:

DOING BUSINESS IN INDIA (A Layman’s

perspective)

….AN ANECDOTE….

HE SAID – “REMEMBER DAVID…..”

1. Meetings - No meetings on or even near holidays.

2. Punctuality for meetings is not a priority of Indians

3. The meetings should first start off with some type of casual, non-important conversation. Do not expect to get straight into business, otherwise you will be considered a psycho.

4. In a meeting, handshake is perfectly OK for greeting a male, but not recommended for greeting a female. Instead, it is SAFER to use NAMASTE.

So, if we step into David’s shoes, doing business in India is pretty difficult.The story is actually indicative of the cultural differences in different countries of the world, and it is an important aspect to be considered.But as we had seen earlier, cultural differences are not taken into account for the “Ease of Doing Business” is index. It is more of a technical index.

How the World Bank Calculates a Nation’s Ranking..A nation’s ranking on the “Ease of Doing Business” index is based on the average of 10 subindices, which are as follows:-

1. Starting a business 2. Dealing with construction permits

3. Getting electricity4. Registering property

5. Getting credit

6. Protecting Minority investors

7. Paying taxes 8. Trading across borders

9. Enforcing contracts10. Resolving insolvency

All countries of the world are compared with each other & ranked under the 10 subindices.

A weighted average of the 10 ranking gives us the overall position.

CONTROVERSIES IN THE INDEX• The index was criticized by the “International Trade Union

Confederation” because it favoured flexible employment regulations.

• Earlier, the easier it was to dismiss a worker for economic reasons in a country, the more its rankings improved.

• From the point of view of a business, it is very fair and square. If a company’s management feels that there is neither a need nor the resources to keep a particular employee, then it is best that he be fired.

• But from the point of view of employees, it will lead to job insecurity. So, trade unions and labour organizations protested against this and, succumbing to the pressure, the World Bank has subsequently removed this criteria from the rankings.

THE FIRST SUB INDEX - STARTING A BUSINESS

ONE OF THE BEST – “Canada” ranks 3rd In Canada there is only 1 procedure required to start a business which takes on average 5 days to complete. There cost is 0.4% of the ”Gross National Income” per capita.ONE OF THE WORST - “Chad” ranks 181st out of 189 9 procedures required to start a business taking 62 days to complete. The official cost is 202% of the gross national income per capita.

Where does India rank under this criteria?INDIA RANKS 155TH OUT OF 185 in “Starting a Business”

So, as per World Bank, it is really difficult to start a business in India, as compared to others.

Do you agree?

Lets analyse Ourselves….. 155th

IMPORTANT ASSUMPTION• By “Starting a Business”, we don’t mean opening

up a small retail “Provision Stores” kind of shop in your local neighbourhood.

• It is assumed that you are starting a ‘Corporate Entity” and laws & regulations are analysed accordingly.

• Another thing to be kept in mind is that, a Private Limited Company is the most popular form of business entity used by Foreign Investors in India.

Checklist for starting a business in India1. Obtain a Digital signature2. Obtain a Director Identification

Number3. Reserve the company name, pay

stamp duties , file all incorporation forms and documents online

4. Obtain the certificate of incorporation5. Company seal and stamp 6. Obtain PAN

Contd….

7. Open a bank account 8. Register with EPF & ESIC9. Register with VAT department10. Obtain a TAN 11. Register under shops and establishment act12. Register under Profession tax

The whole procedure described above requires a minimum of 29 days to complete, that too when all the steps are undertaken simultaneously!!

A LOOK AT ANOTHER CRITERIA – PAYING TAXES• India ranks 157th as far as taxation is concerned. • Surprised? One shouldn’t be…• Our Tax system is so complicated, even

chartered accountants have a hard time in staying updated of the latest amendments

• Even if we look at the sheer number of taxes that are to be paid by a business, it would be quite clear why the harsh ranking has been given to India.

List of taxes imposed in India1. Income tax2. Income tax surcharge3. EC4. SHEC5. VAT6. Central sales tax7. Excise8. Customs Duty9. Special Additional Duty (SAD)10. Countervailing Duty (CVD)

11. Service Tax12. Swach Bharat Cess (SBC)13. Krishi Kalyan Cess (KKC)14. EPF & ESIC15. Dividend Distribution Tax16. Property Tax17. Stamp Duties

And many more…..A business has to-

1. Pay the above taxes in time2. File the respective returns in time3. Respond to any departmental inquiries and notices

PROTECTION OF MINORITY INVESTORS – INDIA IS CHAMP HERE

This sub-index is measured based on:-

1. The extent of disclosure of related party transactions.

2. Prevention of Conflicts of interests.3. The extent of responsibility and

accountability of directors.

India ranks 8th in this sub-index, ahead of many developed economies including the US, Germany and Japan. China is ranked much lower at 134th

The reason of good ranking is the strong rules made under the Companies Act, stringent regulations under the SEBI act and the accessible grievance redressal mechanism available to the shareholders.

AN OVERVIEW OF INDIA’S RANKINGS

MEASURES UNDERTAKEN BY THE GOVERNMENTPrime Minister Narendra Modi had set an ambitious target on the September of 2014. He said that India’s ranking could be improved to the 50th position by making government regulations easier.Whereas the intentions of the government are noble, The question is: are we improving faster than the rest of the nations? Because “Ease of Doing Business” is a comparative Index.Lets see what important steps the government has taken to improve India’s rank in this index

I. UNION BUDGET • The Union Budget focused on an

efficient and effective government, rationalization of taxation, de-stressing the rural economy with an infusion of funds, soft and hard infrastructure with more than Rs.2.2 trillion in allocations for railways, roads, airports and waterways.

• Clearly, accelerating investments in infrastructure, both hard infrastructure and soft infrastructure, stands out as a key priority for the budget. This is a critical enabler for ease of doing business.

II. Various Central government initiatives1. The Make in India Scheme to

promote foreign Direct Investment (FDI) in India.

2. The StartUp India scheme which is based on an action plan aimed at promoting bank financing.

3. The “Mudra” scheme, whose purpose is to provide funding to the non corporate small business sector.

III. OTHER IMPORTANT MEASURES• Easier company registration, removing the

provision of minimum capital for starting a business and doing away with the requirement of company seal.

• Physical submission of documents for export and import no longer required; they can be submitted electronically using digital signatures

• And the number of documents required reduced From six to three.

• Certainty in the transfer pricing regime• Backtracked on its stand of levying minimum

alternate tax on foreign portfolio investors• Minimizing the interface between the tax

department and the taxpayer.

CONCLUSION• If we compare our position today with the

position one decade ago, India has come a long way in improving “Ease of Doing Business”.

• In last year’s revised ranking, India jumped by 8 positions in the index. India is currently ranked 130th in the index. But that is still not a good position.

• Some very important measures like implementation of the GST regime can give a huge boost to Ease of doing business

I would love to connect with you via-• WhatsApp: 84588-55570• Facebook: Prakhar.Jain.355• Email: prakharjain2244@gmail.com

Also, I blog at- 0prakharjain2244.wordpress.com