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Ease of Doing Business with IndiaAfaq Hussain
Bureau of Research on Industry and Economic Fundamentals (BRIEF)
New Delhi , India
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Ease of Doing Business – What does it measure?Complexity and Cost of Regulatory Processes
Starting a Business Procedures, time, cost and paid-in minimum capital to start a limited liability company
Dealing with Construction Permits Procedures, time and cost to complete all formalities to build a warehouse
Getting Electricity Procedures, time and cost to get connected to the electrical grid
Registering Property Procedures, time and cost to transfer a property
Paying Taxes Payments, time and total tax rate for a firm to comply with all tax regulations
Trading Across Borders Documents, time and cost to export and import by seaport
Strength of legal institutionsGetting Credit Movable collateral laws and credit information systems
Protecting Minority Investors Minority shareholders’ rights in related-party transactions and in corporate governance
Enforcing Contracts Procedures, time and cost to resolve a commercial dispute
Resolving Insolvency Time, cost, outcome and recovery rate for a commercial insolvency and the strength of the insolvency legal framework
Labor Market Regulation Flexibility in employment regulation, benefits for workers and labor dispute resolution
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Ease of Doing Business – India Report Card
Indicators Rank 2015 Rank 2014 Change
Starting a Business 158 156 -2
Dealing with Construction Permits 184 183 -1
Getting Electricity 137 134 -3
Registering Property 121 115 -6
Getting Credit 36 30 -6
Protecting Minority Investors 7 21 14
Paying Taxes 156 154 -2
Trading Across Borders 126 122 -4
Enforcing Contracts 186 186 No change
Resolving Insolvency 137 135 -2
Source: The World Bank – Ease of Doing Business
2013131
2015
1422014140 Overall Ranking
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Where does India stand?
Source: The World Bank – Ease of Doing Business
How easy is to? India China Brazil Russia South Africa
South Asia – Reg Avg. Best Global Performance
Overall Rank 142 90 120 62 43 - Singapore
Start a Business 158 128 167 34 61 95 New Zealand
Deal with Construction Permits
184 179 174 156 32 118 Hong Kong
Get Electricity 137 124 19 143 158 122 Korea
Register Property 121 37 138 12 97 127 Georgia
Get Credit 36 71 89 61 52 97 New Zealand
Protect Minority Investors 7 132 35 100 17 78 New Zealand
Pay Taxes 156 120 177 49 19 124 UAE
Trade Across Borders 126 98 123 155 100 137 Singapore
Enforce Contracts 186 35 118 14 46 148 Singapore
Resolve Insolvency 137 53 55 65 39 125 Finland
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FDI inflow to India
Source: UNCTAD, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry
FDI Inward
Flow (bn USD)
FDI Stock
(bn USD)
Number of G
reenfield Investm
ents
36206
945
24
225
744
28
227
469
2011 2012 2013
Main Investing Countries (2013, %)Mauritius 37
Singapore 11
United Kingdom 10
Japan 7
USA 6
The Netherlands 5
Main Invested Sectors (2013, %)Service Sector 19
Construction 11
Drugs and Pharmaceuticals 6
IT and Software 6
Telecommunications 6
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What are the challenges?
•The cost of starting a business in India is astronomical, and the procedures involved can be daunting without local knowledge.
•There are 12 procedures to complete in the initial set up of a business costing 49.8% of income per capita.
•It takes almost a month (27 days) to complete the tasks on average, which is well above the OECD average of 12 days.
Starting a Business
•Construction permits are also a costly pursuit, involving 34 procedures and taking 196 days.
•Obtaining Intimation of Disapproval from the Building Proposal Office and paying fees takes around a month, and NOCs must be sought from the Tree Authority, the Storm Water and Drain Department, the Sewerage Department, the Electric Department, the Environmental Department, the Traffic & Coordination Department and the CFO.
Dealing with Construction
Permits
•The cost of getting electricity is relatively cheap in comparison to the rest of South Asia, but the number of procedures involved can be rather daunting.
•What’s more, each procedure is in itself quite time constraining, taking around eight days to receive an external site inspection and three weeks to get externally connected, have a meter installed and conduct a test installation
Getting Electricity
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… Challenges for Investors
•Registering a property requires quite a bit of legwork and can also incur substantial charges.
•Stamp duty of 5% of the property and a 1% charge on the market value of the property incurred at the Sub-Registrar of Assurances are the two fees to look out for, although the lawyer charges and fees at the Land & Survey Office can also pinch.
Registering Property
•Businesses operating in India are required to make 33 tax payments a year, taking 243 hours’ worth of attention.
•The headline corporation tax rate stands at 30%, but companies can also incur charges in the form of a central sales tax, dividend tax, property tax, fuel tax, vehicle tax, VAT and excise duty.
Taxation
•India ranks as one of the worst countries in the world for the ability to enforce a contract, taking an average of 1,420 days.
•It takes 4.3 years to resolve insolvency in India, far longer than the South Asian and OECD average
Enforcing Contracts and
Resolving Insolvency
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Stories of Clashes and Bargains
And others.. Called for a corrective action to make India a ‘Must Invest’ destination
The British telecom giant embroiled in a tax dispute in India because of a retrospective taxation1 rule brought by the previous government.
The dispute between Vodafone Plc and the Indian government - led to negative perception about ease of doing business in the country.
Vodafone called the government to rationalize taxation across industries, including the heavily taxed telecommunications sector.
1 Old proceedings being taxed as per the new rules
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REPOSITORY OF RESOURCES 1.2 BILLION PEOPLE FAST GROWING
ECONOMY
COMPREHENSIVE BANKING NETWORK
EVER GROWING CONSUMER BASE
YOUNGEST POPULATION BASE IN
THE WORLD
BIGGEST POOL OF SKILLED AND CHEAP
LABOUR
DESTINATION OF LARGE FDI & MULTINATIONALS
STRATEGIC LOCATION FOR INTERNATIONAL
BUSINESS
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India Modi-fied: Fixing the Flight
Amendment to Land Acquisition bill The new law facilitates development but balances it with higher compensation, relief and rehabilitation
measures for the farmers. Compensation and RNR package has been made entirely applicable to the thirteen exempted laws
Exempting areas of industrial corridors, social infrastructure, rural infrastructure, housing and defense, from several provisions of current law
No need for consent of 80% of landowners during acquisition Increased likelihood that landowners will be compensated in projects, such as highways and rail
Land Acquisition
Amendment to provisions of the Companies Act to add to the ease of doing business in India - provision to ensure that frauds beyond a certain threshold need to be mandatorily reported by the auditors to the government, relax a number of norms including those pertaining to related party transactions
Amendment to Electricity Act: Choice to buy power from companies of choice
Starting a Business
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India Modi-fied: Fixing the Flight
Bill to amend the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by certain Establishments) Act, 1988
The Bill exempts establishments employing up to 40 workers from filing returns and maintaining registers. Currently the ceiling is 19 workers.
Labor Laws
Rationalizing tax management to end the image of India having an ultra-aggressive tax policy. Resolving of pending disputes through appropriate mechanisms so that tax structures do not become a
disincentive against investments. Giving major tax rebates to the manufacturing sectors which are facing a slowdown.
Taxation Policy
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And the Course Correction continues…
Outlining the vision of cooperative federalism through the creation of successor to the Planning Commission
Building a national consensus and introducing a bill to amend the constitution to implement the Goods and Services Tax (GST)
Opening the gates of investment by raising FDI limits in the insurance, defense and the railways. The FDI conditions in real estate have been liberalized
Giving major boost to tourism by introduction of e-visa
Deregulation of diesel prices and facilitating the opening up of petrol and diesel sector to private investment
Launching flagship programs such as Make in India, Digital India and Skilled India so that the real image and potential of India is explored
Trade facilitation by allowing 24 X 7 custom clearance on 17 airports and 18 seaports
Banking sectors reforms such as recapitalization of banks, professionalizing managements, bringing Government equity to 52 percent, and allowing greater autonomy to banks and financial institutions
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Navigating FDI Caps and Restrictions
SectorPrevious Policy 2014 Revised Policy
Investment Cap Approval Route Investment Cap Approval Route
Commodity Exchanges 49% ( FDI + FII ) FDI Cap: 26% FII Cap: 23%
Government 49% FDI Cap: 26% FII Cap: 23%
Automatic
Insurance 26% ( FDI ) Automatic 49% ( FDI + FII ) Automatic
Railways N/A 100% Automatic
Defense Production 26% ( FDI ) Government 49% Above 49%
Automatic Government
Telecom Services Up to 49% Above 49% and up
to 74%
AutomaticGovernment
Up to 49% Above 49% and up to
100%
AutomaticGovernment
Courier Services, Test Marketing
100% Government 100% Automatic
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Doing Business just got easier: 2014 has been the year of reforms
Validity of Industrial license extended to three years
Process of obtaining environmental clearances made online
All returns should be filed on-line through a unified form
Services of Central Govt. Departments integrated with eBiz – a single window IT platform
Impetus on developing Industrial Corridors and Smart Cities
Make in India - Facilitate investment and foster innovation
New Special Economic Zones
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Incentives in Special Economic Zones (For Manufacturing Units)
Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
100% Income Tax exemption on export income for SEZ units for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back
export profit for next 5 years.
External commercial borrowing by SEZ units up to US $ 500 million in a year without any maturity restriction through recognized banking
channels.
Exemption from Central Sales Tax; Service Tax and State sales tax and other levies as extended by the respective State Governments.
Single window clearance for Central and State level approvals.
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Incentives in Special Economic Zones (For Developers)
Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.
Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.
Exemption from minimum alternate tax
Exemption from Central Sales Tax & Service Tax