Dhanendra Kumar Former Chairman CCI, & Principal Advisor

Indian Institute of Corporate Affairs Ministry of Corporate Affairs, Govt. of India

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The Regulators & Policymakers Retreat 2012 ■ 25th August 2012 ■ Goa

India- Still Attractive Investment Destination?

Investments in and from India

How India ranks on doing business?

Ease of starting a business in India-Concerns?

Efficiency and corruption issues?

Principal Challenges in Doing Business in India- ◦ Policy, Regulatory and Procedural ◦ Law/ policy induced competition distortions ◦ Governance

Way Forward- ◦ National Competition Policy ◦ Improving governance, reducing cost to do business

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Globally, India viewed as an important market-4th.

Source: www.therichest.org

As per the Wealth Report 2012*-

◦ by 2050 the world‟s economic centre of gravity, a

theoretical measure of the focal point of global economic activity based on GDP, will have shifted eastwards to lie somewhere between China and India

◦ China will overtake the US to become the world‟s largest economy by 2020, which in turn will be overtaken by India in 2050

4 Source: *The Wealth Report, 2012 was published jointly by the Citibank and Knight Frank

◦ Fourth largest economy after USA, China and Japan, and growing.

◦ Among the major emerging markets, India ranks second in terms of economic growth with the IMF forecasting a GDP growth rate of 6.9 percent for 2012.

◦ Large market - Second most populous country in the world, thirty percent of 1.2 billion inhabitants reside in urban areas-also huge rural market .

◦ Diverse manufacturing sectors (steel production, oil and gas refining, auto, plastics, textiles) including traditional sectors agriculture, handicrafts, etc.

◦ Services, especially telecom, information technology, business processing/ outsourcing etc. – prominent contributors.

◦ Skilled manpower at all levels.

◦ Demographic dividend – youth population availability as productive workers, also market will further grow with them.

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Investment into India growing, but now moderated: In 2007 - 25 bn USD, grew to 40 bn USD in 2008.

As of 2010-11, inward investments - estimated at 24 bn USD.

India has emerged as a major source of outbound investments: in 2000-2001 – 677 mn USD whereas in 2010-11 – 168.43 bn USD

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Reportedly, India Inc is sitting on a cash pile of Rs 9 lakh crore. Also, dip in inward investments is a cause of concern to Indian economy.

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India‟s rank is 166th (2011-12) in terms of „starting up new businesses„. This needs urgent attention- linked with job creation

This means lesser new enterprises and which (importantly means) less employment.

A study by several experts reveals – The younger companies are, the more jobs they create, regardless of their size..

Critical need - India‟s impending need to create jobs-need of easing

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India ranks 56th in this year‟s World Competitiveness Report .

Among the BRICS, India continues to rank with South Africa (50th) and Brazil (53rd) and ahead of Russia (66th).

The gap with China is, however,widening: ◦ the score difference between the two economies has increased

sixfold between 2006 and today.

Supply of connectivity, transport, ICT, and energy

infrastructure - causes of concerns.

Similar picture in the health and basic education.

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In the past five years, discontent growing in business community about lack of reforms and apparent inability of government to provide a more conducive environment for business.

Corruption (99th) and burdensome regulation (96th) fuel this discontent.

Since 2006, India‟s score in the institutions pillar has plunged from 4.5 to 3.8. Once ranked a satisfactory 37th in this dimension, India now ranks 69th, having dropped 11 places this year alone.

India does possess a number of remarkable strengths in the more advanced and complex drivers of competitiveness. This “reversed” pattern of development is characteristic of India-

◦ boasts a vast domestic market ◦ well-developed and sophisticated financial market (21st) ◦ reasonably sophisticated (43rd) and innovative (38th) businesses.

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Governance issues ◦ Lack of transparency, accountability ◦ Time required for regulatory clearances, complexity ◦ Corruption

Regulatory uncertainty – lack of clarity in

policy direction – leading to lack of investment. ◦ Reportedly, India Inc sitting on a cash pile of Rs 9

lakh crores ◦ Similarly, foreign investors hesitating to invest in

India – need clarity, predictability and assurance.

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Creating a Single National Market – fragmented due to variations in state level business regulations. ◦ Various research studies have revealed that State

Governments (particularly neighbouring) have vastly differing legislations on commercial taxes, labour, land acquisition, incentive for priority sector, and most importantly for intrastate movement of goods and services.

Cost of doing business – regulatory burden – time and cost of complying with procedures

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A classic example - price of automobile.

Currently applicable duty on automobiles, which includes customs duty, CENVAT, excise duty, central sales tax, motor vehicles tax, passenger and goods tax, state sales tax, and additional road user/toll taxes, can mean that one may buy a car manufactured in Gurgaon at a much cheaper price 2,000 km away in Goa or Pondicherry.

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Need for harmonizing business regulation to enable a single national market.

Section 104 of Indian Motor Vehicles Act- allows for temporary permit to private parties in respect of notified areas can be provided only if a State Transport Undertaking has not applied to ply their vehicles on the route.

Impact on competition due to rules can be observed in allocation of airport slots, which are critical for an airline to achieve financial viability.

Discriminatory application of taxes across states has also been found to cause market distortions and has been identified as a major barrier in development of a single national market. Government is already making efforts to address this issues through its uniform code.

Contd……

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The distortion in agricultural produced markets caused by the Agricultural Produce Marketing Committee (APMC) Act - causing huge inefficiency and high marketing costs, besides possibility of possible cartel-like behaviour by licensed traders.

Lack of consistency with respect to competition principles amongst sector regulators vis-a-vis Competition Commission of India - affecting the state of competition.

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Improving governance ◦ Ensuring timely clearances, introduce accountability

◦ Bringing policy clarity across sectors

◦ Policy certainty and predictability

◦ Review impact of regulation- time, cost, rigor- with objectives

◦ Addressing policy/ law induced restrictions

◦ Setting up a facilitation cell in each Ministry/ Department

◦ Use of information technology across sectors to cut: corruption and infuse time efficiency – this will boost investor confidence

Raising education attainment and skill levels ◦ Skill up-gradation – major challenge – need big

push from Government – participation of industry.

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Improving infrastructure – particularly roads, transportation, power and basic services

Leveraging agriculture sector productivity

Implementing National Competition Policy.

Achieving regulatory and policy coherence – proposed in 12th Plan – to avoid self-inflicted wounds.

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Competition Policy – an overarching policy framework - to infuse competition principles across Government measures, statutes etc. More positive and proactive

Relatable more to Govt. Departments/ PSUs, encourages them to adopt competition principles, correct policies with anti-competitive outcomes.

Committee on National Competition Policy

More proactive stance by government agencies, regulatory bodies, state-substate agencies

Greater role, and competition in reforms, in States

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◦ Promote competition - can optimize efficiency – review government policies to check anti-competitive outcomes

◦ Promote economic democracy, restrict rent seeking practices, efficiency in public procurements

◦ Strive for development of markets, and a single national market as fragmented markets impede competition

◦ Ensure wider choices and better quality of goods and services

◦ Synergized relationship among sectoral regulators and/or CCI and prevent jurisdictional grid-locks

◦ Build strong competition culture amongst stakeholders - public officials, business, trade associations, consumers associations.

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Dhanendra Kumar

Email: dkumar1946@gmail.com

M: 09810600018

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