Ease of doing business is key to entrepreneurship, innovation and wealth creation. India has risen significantly in the World Bank’s Doing Business rankings in recent years, but there are categories where it lags behind – Starting a Business, Registering Property, Paying Taxes and Enforcing Contracts.
This chapter focuses on these parameters and compares India’s performance with both its peers and with the best-in-class. It also explores the density of laws, rules and other statutory compliance requirements faced by a manufacturing or services business.
India needs to improve on Starting a Business, Registering Property, Paying Taxes, and Enforcing Contracts to achieve the best international standards.
- Starting a business: It takes an average of 18 days to set up a business in India, down from 30 days in 2009. On the other hand, It just takes half-a-day with a single form and minimal cost to set up a business in New Zealand.
- Property registration: The number of procedures has increased over the years. It takes nine procedures, at least 49 days, and 7.4-8.1 per cent of the property value to register one’s property in India. New Zealand has only two procedures and a minimal cost of 0.1 per cent of the property value.
- Paying taxes: India takes 250-254 hours per year to pay taxes, New Zealand spends just 140 hours a year.
- Enforcing contracts: India takes 1,445 days to resolve an average dispute, New Zealand takes approximately one-seventh of it, i.e., 216 days. This is one of the biggest constraints to ease of doing business in India.
- The density of legislation in the manufacturing sector: Manufacturing units in India have to conform with 6,796 compliance items, which is a tedious and time-consuming task.
- Regulatory hurdles in the service sector: According to the National Restaurants Association of India (NRAI), a total of 36 approvals are required to open a restaurant in Bengaluru, Delhi requires 26, and Mumbai 22.
- Inefficient logistics pathways: Compared to Bangladesh, China, and Vietnam, which have more than 80 per cent of the market value of exports by large enterprises, India has 80 per cent by small enterprises. The Indian supply chain ends up with a large number of small consignments clogging already inefficient logistics pathways.
- Trading Across Borders: India takes 60-68 and 88-82 hours in border and documentary compliance for exports and imports respectively, Italy takes only one hour for each. Moreover, the cost of compliance is zero in Italy. In India, it costs US$ 260-281 and US$ 360-373 for exports and imports respectively.
- Inordinate delays in loading and customs processes in Indian sea-ports.
Case Study of Electronics:
- The time is taken for exporting electronics from Bangalore to Hong Kong, with and without AEO registration. Once the shipment is ready at the factory in Bangalore, it takes three hours to transport it to Kempegowda Airport. At the airport, it takes one hour to enter exports terminal. So far, there is no difference between AEO and non-AEO.
- However, the total time spent at the airport for Customs and examination process is just two hours for AEO-T2 operators. The Non-AEO operators take 6 hours.
After AEO implementation, the total time spent in India (six hours) is less than that spent in Hong Kong (seven hours). This shows, with the help of right policies, India can achieve international standards.
Authorised Economic Operator (AEO) is a programme under the aegis of the World Customs Organization (WCO) SAFE Framework of Standards to secure and facilitate Global Trade. The programme aims to enhance international supply chain security and facilitate the movement of goods. AEO is a voluntary programme.
AEO status: An entity with an AEO status is considered a ‘secure’ trader and a reliable trading partner. It enables Indian Customs to enhance and streamline cargo security through close cooperation with the principal stakeholders of the international supply chain.
Who is entitled to AEO Certification?
- Anyone involved in the international supply chain.
- Include exporters, importers, logistics providers (e.g. carriers, airlines, freight forwarders, etc.), custodians or terminal operators, customs house agents and warehouse owners.
- Close coordination between the Logistics division of the Ministry of Commerce and Industry, the Central Board of Indirect Taxes and Customs, Ministry of Shipping and the different port authorities.
- Individual sectors such as tourism or manufacturing require a more targeted approach that maps out the regulatory and process bottlenecks for each segment.
Ease of doing business requires a more targeted approach that maps out the regulatory and process bottlenecks for each segment. Once the process map has been done, the correction can be done at the appropriate level of government - central, state or municipal.
Also read: Growth Rebounding To 6% - Economic Survey