Undertaking reforms in key aspects of doing business in India critical to restoring growth trajectory: CII-KPMG Report on Ease of Doing Business in India.

CII released a report titled “Ease of Doing Business in India” in partnership with KPMG, India in Chennai today. Despite being one of the fastest growing economies in the world and potential investment hub, India lags behind in terms of ease of doing business. Taking cognizance of this anomalous situation, CII and KPMG have jointly prepared a report aimed at improving India’s position in the World Bank’s Ease of Doing Business rankings, where India has repetitively been ranked India low compared to 184 other economies. 

The report identifies key areas for reform which will enable doing business in India, including setting up of business, land acquisition, taxation and contract enforcement.

According to the report, despite two decades of economic reforms, India continues to falter on various sub-indices such as starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across border, enforcing contracts or resolving insolvency. In fact, the latest rankings place India 134^th among 185 countries; lower than all its BRIC counterparts. Therefore, there is an urgency to focus on improving the business environment and arrest the decline in relative performance against various determinants of investment attractiveness. 

On release of the report, Mr Chandrajit Banerjee, Director General, CII said, “CII hopes that the findings of this report would help bring the issues to the fore and also serve as a reference point for the imminent need to pursue reforms in business practices and processes. Indian industry hopes that the new Government would accord due importance to this extremely important and urgent agenda that would help churn the wheels of investment and growth.” 

The report is based on a survey conducted amongst Indian industry followed with extensive primary and secondary research to assess the prevailing business regulatory environment in the country. Key issues highlighted include lack of an effective land acquisition process, unfavorable taxation regime, high cost of starting a business, complicated and time consuming contract enforcement process. 

Commenting on the findings of the report Richard Rekhy, Chief Executive Officer, KPMG in India said, “Having an environment that facilitates entrepreneurship, promotes investments productivity and growth is critical for improving business climate in India. The ease with which this is achieved can be a source of strategic advantage. The vulnerability of our country’s current standing in the Doing Business index means that reforms in these areas have become critical.”  

Key issues and recommendations 

Survey identifies key issues against the four parameters studied, and suggests recommendations to arrest the rapid decline in ease of doing business. 

Parameter Studied	Issues	Recommendations
Land Acquisition Process	Average time taken to acquire the land is 14 months and often        could take longer 58% of the respondents feel the number of visits made to each department to obtain the permission pose major obstacles in the approval process 69% of the respondents feel that there is a lack of effective land acquisition process 83% of the respondents feel that unsecured land titles generate uncertainty Land mutation process is considered complex and time-consuming Setup large designated industrial zones with pre-clearances and ready to move in Single window registration and mutation process Move from a deed based registration to Title based registration(Torrens System) Streamlined process for land use conversion A market-based pricing system, where price is determined by an independent body
Starting a business	Approvals related to environment clearances, land procurement, construction permits, industrial safety permits and power connectionare top five obstacles in starting a business 85% of the respondents feel that the time required to obtain such clearances is not reasonable 78% of the respondents who feel the number of windows/ministries one has to visit is not reasonable Reduce approval turnaround – make eBiz portal more effective Wider and effective adoption of Deemed approval principle Automatic approval for power, water and sewerage Moving away from Department centric approach to Business centric approach Labor reforms Continuous skill development Access to funds for Micro Small and Medium Enterprises (MSME)
Taxation	90% of the respondents are in favor of reduction in tax rates. 92% of the respondents feel that there are challenges in transfer pricing assessments relating to distribution / agency 90% of the respondents believe that the tax authorities are not proactive in promoting investments 60% of the respondents feel that the neutralization of tax decision by Supreme Court through retrospective amendment has had damaging effect on investment sentiments More than half the respondents have faced delays in obtaining service       tax refund	Implement Goods & Service Tax (GST) Reduce the number of taxes and the ambiguity / discretionary nature of taxes, especially in Transfer pricing cases Efficient, effective and time-bound taxation related dispute resolution Ensure taxation does not hinder free flow of goods Implement independent Grievance Redressal Cell Operational reforms required to get the tax base right Administration reforms required for consistency and increased efficiency in approach to taxation
Contract enforcement	Time taken from filing to final judgment seems unreasonable to most of the respondents and poses major obstacles Costs involved (costs for engaging and retaining lawyers, miscellaneous costs, during the interim stage, enforcement costs) also pose significant obstacles 84% of the respondents have indicated that a review of laws & regulations needs to be taken up urgently Create a centralized contract repository with Non-repudiation Effective implementation of e-courts Increase number of courts and tribunals More international treaties for increasing “reciprocative territories” Update antiquated laws Recognize and update laws keeping in mind the trends of higher technology updation, greater trade based on IPR and greater global trade

 

CII Proposes 100-Day Agenda for New Government

Unveiling the CII action theme for the year as ‘Accelerating Growth, Creating Employment’, Mr Shriram noted, “With slowing growth and high inflation adversely impacting employment, CII will urge the nextGovernment to focus on reviving growth and generating new jobs.”

In his press conference, Mr Shriram added that CII has proposed a strong 100-day action agenda for the new governmentto boost growth. “A strong economic revival package and right implementation of policies by a fresh Government can help create as many as 150 million jobs in the next ten years,” he stressed. “Industry is looking for top policy steps such as introduction of GST, easing of interest rates by 100 bps, keeping subsidies at 1.7 per cent of GDP, and restructuring of labour laws to promote mass manufacturing.”

CII further stated thatwithcontinuing robust reforms, GDP growth could be taken back to the 8 per cent level in the next three years. “Amarket-friendly environment is required that would proactively promote investments, business and entrepreneurship,” said Mr Shriram. Mass manufacturing sectors and labour-intensive services sectors need to be encouraged, he continued.

Key priorities for CII in the coming year will be in the following ten areas: education, skills, economic growth, manufacturing sector growth, investments, ease of doing business, export competitiveness, legal and regulatory architecture, labour law reforms and entrepreneurship.

CII has strongly called for implementation of the following policies, among others, in the first 100 days by the next Government:

–          Introduction of GST

–          Containment of subsidies and fiscal consolidation

–          Monetary easing – reduction in the repo rate by 100 bps

–          Maintenance of a competitive exchange rate

–          Fast-tracking stalled projects and increasing public capital investments

–          Timely implementation of DMIC and NIMZs

–          Setting up of state level mechanisms similar to Project Monitoring Group which will review and monitor projects at state level

–          A strong inter- Ministerial co-ordination group to resolve sticky issues like mining, raw material securitisation for sectors like Steel, etc

–          An institutional mechanism to renegotiate the terms of concession in Public Private Partnership Contracts to salvage stranded investments

–          Expansion of e-governance & technology based initiatives to simplify processes and online monitoring of application forms

–          Time-bound approvals by introducing ‘deemed approvals’ in case of delays beyond prescribed limit

–          Restructuring labour laws including introduction of Fixed Term Employment for industry to hire manpower on short term assignments

CII would continue to provide inputs in the areas of direct and indirect taxes to help India emerge as an attractive destination for business.

In agriculture, CII’s Food and Agricultural Center of Excellence (FACE)is studying the impact of Agricultural Produce Marketing Committee Act (APMC) which needs to be revamped to delist perishables. CII will also undertake a study on gas pricing and its impact on end-users, macro-economic indicators and the investment environment.

In manufacturing, it will work with concerned Ministries and State Governments on delayed projects and also on specific policies, particularly for labour-intensive sectors. CII has called for quick implementation of the National Manufacturing Policy and would bring out a report on Mass Manufacturing policy.For MSMEs, CII plans to launch a Finance Facilitation Centre and initiatives to link Indian SMEs with global value chains.

In services, CII will constitute National Services Competitiveness Council and develop a sectoral strategy for doubling of services export by 2025. It has targeted several sectors such as Tourism and Hospitality, Financial Services, Telecommunications and Professional Services for export promotion.

For better quality higher education, one of the CII interventions will be to launch the 100-100 program where 100 CII member companies will create 100 Faculty Sabbaticals who will spend two/ three months in industry to explore multi-level partnerships like research, curriculum, and skills development. In skills, CII will help implement the National Skill Qualification Framework (NSQF) and continue to work on Sector Skills Councils.

In labour laws, CII will create platforms for sharing best practices from industry which have helped in fostering better industrial relations within the current framework. In addition, it will work with its membership, Trade Unions, Central and State Governments for creating consensus on various issues.

To improve the ease of doing business in India, CII will present to the government best practices in the states which can be emulated in the areas of land acquisition, contract enforcement and taxation. CII has been strongly underscoring the need for a reduction in transactions cost of exports to overcome difficult business conditions abroad. In this context, CII has constituted a task force on transactions costs which proposes a framework for building an efficient trade facilitation mechanism in India.

In order to support entrepreneurship, CII will significantly expand its PPP initiative “India Innovation Initiative” to select the most innovative entrepreneurs through a pan-India competition. 

Comprehensive Tax to Subsume All Indirect Taxes

CII has made a strong push for rapid action on the Goods and Services Tax (GST) to impart impetus to economic growth. GST is one of the most awaited reform measures on the table and industry hopes that political developments would not overshadow its progress.

Based on the work of the Empowered Committee of State Finance Ministers, the Empowered Committee has met three times in recent months. There have been positive developments on issues like compensation to states for Central Sales Tax, exemption list and Dispute Settlement Authority.

CII stated that issues such as threshold limit, compounding scheme for small traders, taxation of inter-state trade and others still need to be discussed by the Empowered Committee. The final design of the GST model would depend on resolution of these pending areas. 

CII Business Outlook Survey (Jan-Mar 2013)

An Unchanged CII Business Confidence Index in 1QFY14 Belies Hopes of an Early Turn-around

CII Business Confidence Index (CII-BCI) remained almost unchanged at 51.2 for April-June 2013 quarter as compared to the previous one. The reading for the January-March 2013 quarter had risen above the psychological 50-level mark to 51.3, after dipping to 49.9 in the October-December 2012 quarter. This ‘status-quo’ in the index value mirrors the air of uncertainty that is still lingering among industry regarding the present business prospects and also throws into question the hopes of an early turn-around.

In the survey, domestic economic/political instability, high levels of corruption and infrastructure & institutional shortages emerged as the top three concerns of most firms, while risk from exchange rate volatility was ranked as the lowest concern for businesses at this moment.

The survey indicates that most of the respondents (47.8 per cent) expect GDP growth to improve and come in a range of 6.0-6.5 per cent for the current fiscal as compared to 5.0 per cent in 2012-13. This is in line with CII’s expectations for GDP to lie between 6.0-6.4 per cent for the current year. However, in an indication that the downside risks to growth have not abated yet, 36 per cent of the respondents expect GDP to grow below 6 per cent in the current year.

Worryingly, as far as WPI inflation is concerned, most of the respondent firms (40 per cent) expect it to lie above 7 per cent for the current fiscal which is way higher than CII’s forecast of 5.5-6.0 per cent for the year. This is however in line with another result of the survey, which showed that most of the respondents (43 per cent) expect crude oil prices to increase in the current year as compared to last fiscal.  Additionally, 33 per cent of firms also expect WPI inflation to lie in a range of 6.5-7.0 per cent for the current year.

The rise in WPI inflation forecast for the current fiscal is certainly not good news for the economy as moderating trend in inflation would have given RBI the legroom to ease interest rates in order to spur growth

The twin deficits- fiscal and current account have emerged as key policy concerns lately. The survey reveals that almost 60 per cent of the respondents expect fiscal deficit to lie in a range of 4.5-5.5 per cent of GDP in 2013-14 as against budgeted 4.8 per cent of GDP for the year. However, 23.3 per cent of respondents also see the fiscal deficit breaching the 5.5 per cent mark in the current fiscal. On the current account deficit front, the survey does not paint a very rosy picture, with majority of the respondent firms (51 per cent) expecting it to lie in a range of 4.0-5.0 per cent of GDP, while 33.3 per cent expect it to exceed 5 per cent. This is way higher than the 2.5-3.0 per cent range deemed sustainable by RBI.

In an encouraging sign, majority of the respondents in the survey expect improvement in their sales, new orders, exports and value of production in the first quarter of 2013-14 from the levels of previous quarter. Further, nearly half (48.3 per cent) of the respondents also expect their capacity utilization to reach as high as 75 -100 per cent in the first quarter of the current fiscal. All these indicators point towards the likelihood of revival in economic prospects of firms in the current quarter, however these could be too early to predict as other indicators don’t look so propitious.

Another disquieting factor, however, is the continued upward pressure on the cost of production from likely rise in electricity & fuel, wages & salaries, raw material cost and low value of rupee in the April-June 2013 quarter. An exception to this is the cost of credit, which relatively a larger proportion of respondents (18.7 per cent) expect to decline as compared to the previous quarter, mainly due to monetary easing being pursued by RBI currently including a 25 basis points (bps) cut in repo rate in early May 2013.  As per the survey, most of the respondents expect both repo rate and CRR to be cut by 50 bps during the current fiscal.

The 83^rd Business Outlook Survey is based on the responses from 180 members. Majority of the respondents (57.1 per cent) belonged to large-scale firms, while the rest were from the MSME sector. Further, 60.9 per cent of the respondents were from manufacturing sector while 36.6 per cent and 2.5 per cent were from.