Doing Business in India isn’t Easy

India jumps to 63rd position in World Bank’s Ease of Doing Business 2020 report. Despite the progress in positional change, there are still challenges along the way. Doing business in India isn’t easy, and complexities are encountered everywhere due to the regulatory, financial, bureaucratic, and cultural issues.

With the introduction of the Companies Act 2013 which was enacted in the year 2014, dozens of amendments, circulars, and notifications were issued by the Ministry to mend loopholes in the provisions of the Act. While the law makers had intended to introduce a modular law to the Indian economy, the stringent provisions imposed a setback to implementation. The increase in the compliance burden has to a great extent, curbed the incorporation of companies in India. The increased compliances have disheartened the participants from floating new companies, it has also influenced a trend of de-corporatisation in the country. Whether private or public, a company is bound to comply with statutory requirements, including maintenance of registers, meetings, several filing and disclosure requirements, coupled with rigorous penal provisions, including high fee penalties and criminal action in some cases.

Land acquisition in India remains complex, because of the difficulties in establishing legal ownership and a clean holding for purchase. Litigations due to inheritance, fragmented holdings, and demands by sellers to be paid in cash are still rampant. Establishing true land ownership involves various issues. Further, a laborious court and administration system means it takes on an average, 4.3 years to resolve cases in India, far longer than the South Asian average of 2.6 years or 1.7 years in OECD high income countries. Registering a property can be a time-consuming process, with a bewildering range of charges. The registration fee for property documents is 1% of the value of the property, subject to a maximum of Rs 30,000. Stamp duty is compulsory but different rates of stamp duty are payable in different states depending on the legislation prevalent in that state. Amid all, speculators everywhere have increased the land and building rates which are beyond comprehension of income levels of individuals.

India’s tax structure is complex, taking on an average 218 hours in a year to prepare and pay taxes. Laws, rules, and practices can be confusing. India has among the highest corporate tax rates in the world, but the effective tax liability differs across industries and sectors.

There is much focus on infrastructural development, boosting road transport, creating dependable power generation, and modernising state-owned railways. Roads, ports, railways, and solar energy are vibrant investment opportunities. Whilst the investment is much needed, it will be several years until it comes to fruition. In the meantime, a strain on the existing infrastructure is leading to challenges in distribution and logistics.

Multiple regulators are bringing in multiple regulations from various parts of the world and applying them indiscriminately and this is leading to a significant increase in regulatory costs. Such regulations are made applicable across the corporate sector without any threshold limits, treating SMEs and large companies alike. But, when an issue arises, no regulator takes the onus or responsibility for which the recent PMC Bank issue is a classic example. The life of SMEs have been made difficult with the compliances burden arising out of the Companies Act, Securities Contracts (Regulation) Act, Consumer Protection Act, Depositories Act, and Listing Agreement of the Stock Exchanges supplemented by many guidelines, circulars and press notes issued by the Ministry of Finance, Ministry of Company Affairs and SEBI from time to time. Businesses often face unpredictable regulatory and tariff regimes.

Accessing the right skills can be a challenge, as can staff retention and high levels of employee turnover. Employment laws in India are complex although again, the government is seeking to reduce the legislative hurdles to employ Indians, and foreign nationals. At present, there is a huge variety of laws, ranging from payment of gratuities to gender discrimination.

Companies operating or planning to invest in India face high corruption risks. Although the government has increased efforts to counter corruption, it is still a serious issue.

A low price is rated above the qualities of a product, and Indian consumers are price-sensitive, seeking the cheapest rather than the product with the most attributes. There are many different religious, ethnic, and annual variations on local and national holidays. These need careful investigation before planning business trips and meetings.

Though the government of India has made it easier to register trademarks online by reducing the 13-month review period for trademarks to 8 months, the goal of lowering it to just one month still seems to be quite far. Cutting the average time for addressing pending intellectual property rights applications from more than five years to 18 months also requires a lot of thought for implementation.

Leave a Comment