Monday 5 December 2022
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ViewsArticleImprove Investment Atmospherics

Improve Investment Atmospherics

[dropcap]F[/dropcap]irst the positive news. India’s rank in the World Bank’s index has improved. From 142nd out of a list of 189 countries, India has now reached 130th position, an improvement by 12 places. Next, digest the bitter fact: this year the World Bank has adopted a new methodology for arriving at the data. Such data revision and change in methodology resulted in India’s rank at 134 in 2015, not 142 as was shown in the previous report. Judged by that yardstick, India has improved its ranking just by 4 positions, not 12. In sum, while the improvement is heartening, the scale is not exciting enough.

There are several dark spots for India. Take for instance the ease of starting a business. India’s rank is now 155 — improved by 9 notches from 164 in 2015. In comparison, China’s rank is 136, Russia’s 41 and Mexico’s 65. What is more, neighbour Bangladesh ranks at 117 against India’s 155 out of 189 economies. All the more embarrassing is India’s rank in respect of construction permit. It is 183 — improved by one notch from 184 in 2015. Bangladesh, with an overall rank of 174, is ranked at 118 in dealing with construction permits.

If a construction permit is an embarrassment for India, no less is the issue of enforcing contracts, which measures the time and cost required to enforce contracts through courts and quality of the judicial processes’ index. India’s rank is a low 178 against 7th of China. But busy as the courts are in deciding who will appoint whom, the point may not find much attention here.

The other factor dragging Indian rank lower is the index of paying taxes, which measures the variety of taxes, frequency of filing and payment, tax rates and time required to comply with three major taxes. Here the country ranks a poor 157th; in fact, the rank went down one notch from 156 in 2015.

Arun Jaitley

To improve India’s rank and turn the economy an attractive destination for investors, these worst performing areas need attention. Our judiciary, supported eloquently by the commentariat, is apparently oblivious of such trivial issues like India’s ranking vis-à-vis other competing nations. If not, a perusal of the report by the Honourable Chief Justice will make him think for the nation and act.

Taxation is India’s perennial weak spot, thanks to those who supervise, adjudicate and enact. Dealing with construction permits makes one suffer from similar maladies. Both these factors are helped suitably by various State governments and local bodies so that the nation can never progress. Many components necessary for starting a business in the country get similarly blocked by decision makers at different corners. Most of us have merrily passed on the headache of to Prime Minister Narendra Modi while we may enjoy our beef and pork parties.

Does it mean that the so-called generation next will continue to suffer till a consensus can be reached on development? The saving grace is that the Centre is concerned and busy working on the soft spots. It is said that an estimated $40 billion is stuck in litigation in India. Finance Minister Arun Jaitley is aware of the urgent steps necessary. “There is still an area on enforcement of contracts, easier adjudication of disputes… So have brought out an for a fast-track arbitration procedure,” he said. The government also brought in another ordinance a few days ago for establishing a commercial court in each High Court of the country. Formulation of bankruptcy law was at the last stage. This may be introduced in the forthcoming of Parliament.

Narendra Modi

In order to make the Income Tax Act much simpler, the government announced a committee that would recast some of these provisions. Another committee is working on removing complications in the Companies Act. But there has to be matching efforts from the States. Some States may not be keen to take the cue; they will remain laggards, but as long as cities like Delhi and Mumbai act, the ranking will improve. The World Bank measures these two cities at present.

On his part, Jaitley may take a look at certain issues. He may sign the Foreign Investment Promotion Board (FIPB) minutes with a week of the meeting instead of after 4 weeks as it is at present. He may also remove the role of the Department Of Industrial Policy & Promotion (DIPP) in approving proposals on single-brand or multi-brand retail. Why do we need a havildar posted before the FIPB? He may also check the pro-activeness of the desk officers in various ministries — the DIPP and to begin with. Why do the officers take so much time to process papers?

No less important is the fact that Jaitley may scrap illogical rules: for instance, the sourcing requirement of single brand retail. If Rolex or Apple is keen to set up its own retail outlet, why must we ask them to source 30% of their material from here? In any case, these companies are selling their products through their agents, or Indians are buying their products from abroad legally or illegally. Whose interest are we serving with the restriction? On the other hand, if these brands invest in their own outlets, fresh investments will come, jobs will be created and tax will be earned. Rules must have to be practical, not blind.

The other step the government can initiate is turning more transparent. The moment an application is received, the same must be placed on the website of the ministry, with status updated at a given interval. Unless the babus are forced to come out their closets, they will never work with accountability. They will remain rent collectors as before.

The World Bank report, as its Chief Economist Kaushik Basu had said, is a wake-up call. Instead, if we view it as a disturbance to our peaceful sleep, the nation will be the loser. In Narendra Modi, the country has reposed faith. If the same is belied, Indians will lose trust in democracy.

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Sugato Hazra
Sugato Hazra
Public policy analyst based in Delhi


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