By Aman Thakker —
Print ship in Jaipur, India. Source: Asian Development Bank’s flickr photostream, used under a creative commons license.
Status: Not Started — While the Indian government has attempted to reduce the amount of time it takes to set up businesses and obtain permits from the government, it still lags behind its self-appointed goal of providing central government permits in ten days, and through a single window.
Medium Difficulty: Regulation, Light Opposition — 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 governments.
This is the fifteenth installment in a new series of articles on the India Reforms Scorecard: 2019-2024 by the staff and experts at the Wadhwani Chair in U.S.-India Policy Studies. The series seeks to provide analysis on why reforms marked as “Incomplete” or “In Progress” have not been completed, and the impact such reforms can have on specific sectors or the economy at large.
On October 24, 2019, the World Bank announced its latest rankings under the “Ease of Doing Business Index 2020”. The latest report not only notes that India has risen fourteen places (from 77thth to 63rd position), – its highest rank yet – but also that India is one of 10 countries with the “most notable improvement” in the index’s rankings. However, despite the rise in rankings, India remains slow to implement two key reforms that will significantly improve the business environment. Namely, ensuring business owners receive permits in 10 days or less, and establishing a one-stop shop for new business clearances.
Business Permits in 10 Days or Less
According to the World Bank’s “Ease of Doing Business” (EODB) rankings, India ranks 136th in the world in ease of starting a business. The World Bank found that, on average, it takes 18 days to register a new firm and receive business permits in India. While this timeline marks a significant improvement 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. Other studies, such as the 2017 IDFC Institute-NITI Aayog Ease of Doing Business Enterprise Survey, indicate much longer periods for starting a business — often in excess of 100 days.
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 Sri Lanka, Afghanistan, Bhutan, Maldives, and Pakistan. Moreover, India underperforms the regional average in South Asia of 14.5 days, taking around three days longer to issue business permits despite launching a new online portal in September 2018, which promises to incorporate limited liability partnerships in less than ten days.
One-Stop Shop for Clearances
Another key reform that remains incomplete in India that can improve the business environment is establishing a one-stop shop for all business clearances. The 2020 EODB rankings by the World Bank note a total of 10 procedures to set up a business in India, a marginal improvement from requiring 12.9 procedures in 2017. Further, compared to the regional average of 7.63, India continues to underperform and is ranked last among South Asian countries, as it has 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 as 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, goods and services tax departments, as well as banks, and other vendors.
While the government led by Prime Minister Narendra 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 on the agenda. 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 an Adjunct Fellow (Non-resident) with the Wadhwani Chair in U.S.-India Policy Studies at CSIS and the J.B. and Maurice C. Shapiro Scholar at St. Antony’s College at the University of Oxford. Follow him on twitter @AmanThakker.
