Key Reforms for India: Improving the Business Permits & Clearances Process

By Aman Y. Thakker —

A local sari shop in Kochi in the state of Kerala, India. Source: Diametrik’s flickr photostream, used under a creative commons license.

  • Status: In Progress – While India’s government has made attempts to reduce the amount of time it would take to set up business and obtain permits from the government, the creation of a single-window for clearances remains slow.
  • Difficulty: Medium – Easing the process to receive permits and the creation of a single-window for clearances does not require legislation. However, it does require significant coordination among agencies and across the central and state government agencies.

This is the eighth installment in a series of articles on the Modi Reforms Scorecard by the staff and experts at the Wadhwani Chair in U.S.-India Policy. The series seeks to provide analysis on why reforms marked as “Incomplete” or “In Progress” have not been completed, and what impact such reforms could have on specific sectors or the economy at large.

On November 1, 2018, when the World Bank announced its new rankings under the “Ease of Doing Business Index” for 2019, Prime Minister Narendra Modi took to Twitter to celebrate “yet another rise in India’s ‘Ease of Doing Business’ rank.” India had risen from 27 points from 100th  to 77th position, its highest rank yet. Despite the rise in these rankings, however, India has remained slow to implement two key reforms that would significantly improve the business environment in India: ensuring business owners receive permits in 10 days or less, and establishing a one-stop shop for clearances for new businesses.

Business Permits in 10 Days or Less

According to the World Bank’s “Ease of Doing Business” (EODB) rankings, India ranks 137th in the world in ease of starting a business. The World Bank found that, on average, it took 17 days to register a new firm and receive business permits. While this does mark a significant improvement when compared to 2017, when it took 26 days to start a business, it remains well short of the target of issuing permits in 10 days or less.

This target, which is in line with the time it takes to start a business in high-income member states of the Organization for Economic Co-operation and Development (OECD), is not the only one that India misses. India ranks fifth among South Asian countries in this indicator, behind Afghanistan, Sri Lanka, Bhutan, and the Maldives. Moreover, India underperforms the regional average in South Asia of 14 days, taking three days longer to issue business permits despite launching a new online portal in September 2018 which promises incorporate limited liability partnerships in less than 10 days.

One-Stop Shop for Clearances

Another key reform that remains incomplete in India that could improve the business environment is establishing a one-stop shop for all business clearances. The 2019 EODB rankings by the World Bank note a total of 10 procedures to set up a business India, a marginal improvement from requiring 12.9 procedures in 2017. However, compared to the regional average of 7.63, India continues to underperform and is tied with Pakistan for the highest number of start-up procedures required in South Asia.

A deeper dive by the World Bank on business clearances in the city of Mumbai shows that, on average, business owners interact with six different government agencies at various levels, as well a number of non-government entities. Central government agencies include the Ministry of Corporate Affairs, the Ministry of Labour and Employment, the National Informatics Center, as well as private vendors hired by various ministries such as MTNL and eMudhra. At the state and local level, business owners need to receive clearances from the local municipal authorities, sales tax departments, and goods and services tax departments, as well as banks and other vendors.

While the government led by Prime Minister Modi has undertaken real reforms that have propelled India’s rise in the World Bank EODB rankings, key reforms that can drastically improve the business environment remain to be undertaken. The government should ensure business owners receive permits in 10 days or less and establish a one-stop shop for clearances for new businesses as it continues to make rising in these rankings a priority.

Mr. Aman Y. Thakker is a Research Associate with the Wadhwani Chair in U.S.-India Policy Studies at CSIS. Follow him on twitter @AmanThakker.


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