MACROECONOMICS

PRESENTATION

EASE OF DOING BUSINESS IN INDIA

Group 10 Neha Malhothra Kajol Makwana Santhi Krishna Prativa Biswas Sathish Kumar

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• The ease of doing business index is an index formulated by the World Bank Group which indicates the ease of doing business in a country.

• Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

• Empirical research funded by the World Bank to justify their work show that the effect of improving these regulations on economic growth is strong.

• The index is based on the study of laws and regulations, with the input and verification by more than 9,600 government officials, lawyers, business consultants, accountants and other professionals in 185 economies who routinely advise on or administer legal and regulatory requirements.

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• Doing Business measures the ease of starting

and operating a business by recording all

procedures officially required by an

entrepreneur to start up and operate a

company.

Number of procedures to legally start and operate a company

Time required to complete each procedure

Cost required to complete each procedure

Paid-in minimum capital

A procedure is defined as any interaction of the company founders with external parties (for example, government agencies, lawyers, auditors or notaries).

• The measure captures the median duration that incorporation lawyers indicate is necessary in practice to complete a procedure with minimum follow-up with government agencies and no extra payments.

• It is assumed that the minimum time required for each procedure is 1 day.

Cost is re orded as a per e tage of the e o o y’s i o e per apita. It i ludes all official fees and fees for legal or professional services if such services are required by law

The paid-in minimum capital requirement reflects the amount that the entrepreneur needs to deposit in a bank or with a notary before registration and up to 3 months following incorporation and is recorded as a percentage of the e o o y’s i o e per apita. The a ou t is typi ally spe ified i the o er ial code or the company law

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The index is calculated as the ranking on the simple average of its percentile

rankings on each of the 10 topics namely

Starting a business

Dealing with construction

permits

Getting electricity

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across borders

Enforcing contracts

Resolving insolvency

Employing Workers 6

7

125

130

135

140

145

2011 2012 2013 2014 2015

India's ranking

India's ranking

DOING BUSINESS 2015 is a World Bank Group flagship publication measuring the

regulations that enhance business activity and those that constrain it. Doing Business

presents quantitative indicators on business regulations and the protection of

property rights that can be compared across 185 economies

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20

21

Bangalore

Chennai

Mumbai

Pune

Indore

Bhubaneswar

Coimbatore

Ahmedabad

Nagpur

Kochi

Chandigarh

Hyderabad

Mangalore

Vadodra

Jaipur

Calicut

Noida

Kolkata

Gurgaon

Navi Mumbai

Vishakhapatnam

Ranking

of Cities

in 2015

source:Report of GIREM and DTZ

1. The olle ted data refer to usi esses i the e o o y’s largest usi ess city and may not be representative of regulation in other parts of the economy. To address this limitation, sub national Doing Business indicators were created.

2. The data often focus on a specific business form—generally a limited liability company of a specified size—and may not be representative of the regulation on other businesses.

3. Transactions described in a standardized case scenario refer to a specific set of issues and may not represent the full set of issues a business encounters.

4. The measures of time involve an element of judgment by the ex-pert respondents. When sources indicate different estimates, the time indicators reported in Doing Business represent the median values of several responses given under the assumptions of the standardized case.

5. The methodology assumes that a business has full information on what is required and does not waste time when completing procedures

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Starting a business requires 11.9 procedures, takes 28.4 days, costs 12.2% of income per capita and requires paid-in minimum capital of 111.2% of income per capita

Records the procedures, time and cost for a business to obtain all the necessary

approvals to start business

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Previous

Year: 156th

Rank

• PROCEDURE: India still follows the same number of 12

procedures making no changes since 2004.

TIME: India takes 29 days, New Zealand ranks

first as it takes only a day to complete

registration process.

COST: In India, it is somewhere around 12.2% of per

capita income. The cost of completing the procedure

has reduced significantly from 80% in 2007 but it is

still above average

PAID-IN MINIMUM CAPITAL: amount that has to be

deposited in the bank or with notary before

registration or within 3 months of registration. In

India, paid-in minimum capital is around 111.4% of

per capita income. Though there has been a drastic

reduction in the amount to be paid but this is still

much higher

Dealing with construction permits in India

requires 25.4 procedures, takes 185.9 days and

costs 28.2% of the warehouse value

Records the procedures, time and cost for a business to obtain all the necessary

approvals to build a simple commercial warehouse

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Previous

Year: 183rd

Rank

Getting electricity there requires 7.0

procedures, takes 105.7 days and costs

487.7% of income per capita

Records all procedures required for a local business to obtain a permanent electricity

connection and the time and cost to complete them

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Previous

Year: 134th

Rank

Registering property in India requires s 7.0

procedures, takes 47.0 days and costs 7.0% of the

property value

Records the full sequence of procedures necessary for a business to purchase property

fro a other usi ess a d tra sfer the property title to the uyer’s a e

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Previous

Year: 115th

Rank

Assesses the sharing of credit information and the legal rights of borrowers and

lenders with respect to secured transactions

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Previous

Year: 30th

Rank

Measures the stre gth of i ority shareholder prote tio s agai st dire tors’ use of corporate assets for personal gain—or self-dealing

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Previous

Year: 21st

Rank

* DATA SOURCE : WORLD BANK REPORT ON DOING BUSINESS

WHERE INDIAN ECONOMY STAND TODAY?

•On average, firms make :

33 tax payments a year.

Spend 243 hours a year filing.

Preparing and paying taxes and pay total

taxes amounting to 61.7% of profit.

*Threshold is the highest total tax rate among

the top 15% of economies in the ranking on

the total tax rate. Calculated yearly basis. 24

Previous

Year: 154th

Rank

* DATA SOURCE : WORLD BANK REPORT ON DOING BUSINESS

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Exporting a standard container of goods

requires 7 documents, takes 17.1 days and

costs $1332.0. Importing the same container

of goods requires 10 documents, takes 21.1

days and costs $1462.0

Previous

Year: 122nd

Rank

TRADING ACROSS BORERS

Measures the efficiency of the judicial system in

resolving a commercial dispute before local courts Contract enforcement takes 1420.0 days, costs 39.6% of

the value of the claim and requires 46.0 procedures

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How India and Comparator

economies rank on the ease of

enforcing contracts

Previous

Year: 186th

Rank

• A judiciary can be improved in different ways.

• Higher-income economies tend to look for ways to enhance efficiency by

introducing new technology.

• Lower-income economies often work on reducing backlogs by introducing

periodic reviews to clear inactive cases from the docket and by making

procedures faster

Source: Doing Business Report, World Bank

Diagrammatic Presentation-Comparison

Indicators India South

Asia

OEDC

TIME 1420 1069 539

Indicators Indi

a

South

Asia

OEDC

COST 39.6 30.4 21.4

PROCEDURE 46 43.3 31.5

0

500

1000

1500

Time

India

South Asia

OEDC

0

10

20

30

40

50

Cost Procedure

India

South Asia

OEDC

• Technology can be proven and pioneered in court procedure

• Floppy disks / CD drives used to save the case files

• Electronic case management system can be used to make it more efficient and used friendly

• Implementing electronic case file system enabling the following

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• In terms of TIME – New services like

• Electronic submission

• Registration

• Service notification

• Access to court documentation

• In terms of PROCEDURE - making it

• Secure

• Timely

• Transparent

• Just

• In terms of COST - implementing

• E-court services

• A robust bankruptcy system functions as a filter, ensuring the survival of economically efficient companies and reallocating the resources of inefficient ones.

• By improving the expectations of creditors and debtors about the outcome of insolvency proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable businesses and thereby improve growth and sustainability in the economy overall.

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How India and comparator

economies rank on the ease of

resolving insolvency

Previous

Year: 135th

Rank

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TIME: Time taken

to resolve

insolvency has

been constant at

4.3 years since

2004 and there

has been no

change till today.

• COST REQUIRED TO RECOVER DEBT: includes court fees, lawyers’ fees and other related fees and for India it is around 9% of de tor’s estate.

Source: Doing Business report World Bank

• RECOVERY RATE: measures the cents

on the dollar

recovered by

creditors, present

value of debt

recovered etc. In

India, the cents

recovered on the

dollar are less i.e.

25.6 cents.

• Assistance from World Bank

• World Bank Group has worked with more than 70 countries to assist reform

programs aimed at improving the regulatory environment for businesses in areas

covered by the Doing Business project, such as business registration, construction

permitting or insolvency reforms

• Encouraging small and medium size entrepreneurship

• By Implementation of more business friendly regulatory environment for domestic

companies

• Amendments in companies act

• Amendments to be made considering specifically to the doing business parameters

• Going for concern sale

• Regarding outcome recovery rates are higher in concern sale than that of piecemeal

liquidation which is true in case of India according to the Board of Industrial And

Financial Reconstruction

Minimum wage for a 19-year-

old worker or an apprentice

over time

Min

imu

m W

ag

e (

US$

Pe

r M

on

th)

36

0

20

40

60

80

100

120

140

160

180

200

South Africa

China

Russian Federation

Brazil

India

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• Retrospective taxation means old proceedings are being taxed as per the new rules. It has the undesirable effect of creating major uncertainties in the business environment and constituting a significant disincentive for persons wishing to do business in India.

• Taxation of overseas M&A deals: The Indian Tax Authorities have in recent past questioned the Indian tax impact of overseas M&A deals involving transfer of shares of an Indian company. The matters are being fiercely litigated.

• India is perceived to have a relaxed attitude towards intellectual property rights, creating uncertainty for foreign firms.

• The Indian exchange control regulations contained in the Foreign Exchange Management Act, 1999 govern cross-border transactions involving movement of foreign exchange into and out of India

• While Current account transactions are freely permitted unless restricted, Capital account transactions are generally restricted in India unless specified.

• Neighbouring State Governments have vastly differing legislations on labour, land

acquisition, commercial taxes, priority sector categorisation for incentives, and intrastate

movement of goods.

• The risk of an uncertain regulatory environment.

• Foreign investment policy : FDI caps/approval/condition apply for certain sectors

• FDI is not permitted in certain sector such as real estate, lottery, gambling, atomic energy,

etc

• The process of land acquisition in India has proven unpopular with the citizenry. The

amount reimbursed is fairly low with regard to the current index of prices prevailing in the

economy. Furthermore, due to the low level of human capital of the displaced people, they

often fail to find adequate employment. There have been a rising number of political and

social protests against the acquisition of land by various industrialists.

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• India’s chronic infrastructure and logistics deficit with inefficient transport networks makes it tough for manufacturing companies to achieve just-in-time production.

• Rigidity in labour laws imposes significant cost due to provisions in Industrial dispute act.

• Bureaucracy makes regulatory procedures and systems in India particularly complex, meaning that foreign managers must spend time learning about how things work.

• Lack of Directors Liability in areas such as paying back profits and damages to shareholders in case of wilful damage.

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• Vodafone and Nokia encountered tax dispute with the Indian Income Tax Department.

• Motorola Mobility has closed down its India website and is reducing headcount in the

world’s second largest mobile phone market in terms of subscribers amid rising operational costs.

• Tata Motors pulled out of Singur where the proposed Nano factory was planned due

to controversy generated by land acquisition

• Tata Motor’s Jaguar Land Rover (JLR) opened its first plant $1.78-billion in Changshu,

China.

• Delta Airlines Inc., United Airlines Inc. and Chrysler Group Llc decided to shift its call

centre operations from India to the US.

• Number of Indian enterprise technology companies are now shifting base out of the country

to grow faster. Lack of sufficient risk capital, not enough profitable exits for investors and

fewer customers willing to experiment with technology are making hordes of entrepreneurs

take this decision.

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• External Commercial Borrowing (ECB) policy liberalized to include the payment for

import of service, technical know-how and license fees as part of import of capital goods by

the companies for use in the manufacturing and infrastructure sector, subject to compliance of

certain conditions.

• Recently, the Government of India has announced the reforms in the FDI policy by listing out

FDI relaxation in various sectors including telecom, petroleum & natural gas refining,

defence, single brand retail trading, multi brand retail trading, courier services, asset

reconstruction companies, commodity exchanges, power exchanges, stock exchanges and credit information companies. It also allowed e-auction of coal mines.

• The policy is liberalised to allow trade credit to companies operating in all sectors up to 5

years for import of capital goods as classified by Director General of Foreign Trade (DGFT).

• The Factory Act 2013 introduced enhanced corporate governance standards particularly in

relation to the e-governance, independent directors, audit, accounts, Corporate Social

Responsibility, mandatory valuation, private placement of securities, small company concept,

cross-border mergers, class action suits, related party transaction etc

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• The 2013 land acquisition Act focuses on providing not only compensation to the land owners, but also extend rehabilitation and resettlement benefits to livelihood looser from the land, which shall be in addition to the minimum compensation. The minimum compensation to be paid to the land owners is based on a multiple of market value and other factors laid down in the Act.

• The Apprenticeship Act has been updated to facilitate increased private participation in vocational training, compliance requirements for central labour laws have been simplified and forest- and labour-related clearances are being moved online.

• GST single goods and services tax that would replace the complex system of nearly 20 different taxes and levies imposed on commodities by different states.

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• India has set a target of making it to the top 50 countries in the World Bank's 'Ease of Doing Business' index by 2016.

• Approving a three to six month timeframe for various government ministries/departments to implement a slew of regulatory reforms, aimed at making India an attractive investment destination.

• DIPP has been designated as the nodal agency for removing the barriers, has identified a list of issues from various ministries/departments, which need to be addressed to improve India's ranking.

• A comparative study of practices followed by the States for grant of clearance and ensuring compliances was conducted, six best practices were identified, important bottlenecks faced by industries and important steps required to improve the business environment in States.

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• Application forms for Industrial Licence (IL) and Industrial Entrepreneur Memorandum (IEL) have been simplified and has been made online

• Certain Defence products has been excluded from the purview of industrial licensing

• Initial validity period of Industrial License has been increased to three years from two years.

• MHA has stipulated that it will grant security clearance on Industrial Licence Applications within 12 weeks

• Checklist with specific time-lines has been developed for processing all applications filed by foreign investors in cases relating to foreign investments.

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• An Investor Facilitation Cell has been created in ‘Invest India’ to guide, assist and handhold investors during the entire life-cycle of the business.

• The registration with Employees Provident Fund Organization (EPFO) and Employees State Insurance Corporation (ESIC) have been automated.

• DIPP has requested all Secretaries of Government of India and Chief Secretaries of the States/UT to simplify and rationalize the regulatory environment.

• DIPP is implementing the eBiz project which will create an investor centric hub-and-spoke online single window model for providing clearances and filing compliances.

• NIC Code NIC 2008 will allow Indian businesses to be part of globally recognized classification that facilitate smooth approvals/registration.

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Transnational entrepreneurs (TEs) are individuals that migrate from one

country to another, concurrently maintaining business- related linkages

with their former country of origin, and currently adopted countries and

communities.

A recent study by the World Bank on the Remittance Market in India Box 1

Remittances from the Indian Diaspora 3 has pointed out that remittance

inflows into India are some 4% of GDP and have surpassed both foreign

aid flows and foreign direct investment (FDI).

While India received nearly $21 billion from overseas Indians in 2003, the

figure jumped to $64 billion in 2011

Transnational entrepreneurship contribute to the economic development of their

country of origin.

Support for entrepreneurs and small businesses in the country of origin.

Unique combination of ownership advantages, which extend from their expertise

and the networks they have established at different places, to their ability to

forecast new developments in the country of origin.

They have better knowledge and relationship opportunities that other investors

lack.

Combine this knowledge with the skills, knowledge and networks they have

cultivated abroad, yielding important synergistic advantages.

Not only by profit motives but also by long run considerations of establishing a base

in the countries of their origin.

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