A blog that highlights the importance of global competition and shows the way forward to achieve prosperity
Economic liberalization coupled with the irrelevance of socialistic ideologies having been established, technological advancements, and the ever-evolving business ecosystems across the world have been propelling parameters for the integration of global markets. Cross-border harmonization of regulatory practices (like anti-money laundering, taxation, and other basic legal architecture) has necessitated harmonizing international business practices. India cannot afford to live in isolation. The advent of the concept of market/business aggregation use of cluster and shared infrastructure facilities have changed the way business is conducted worldwide and will eventually culminate in negating the existence of geographic frontiers for business operations.
India’s legal and regulatory mechanisms need to be washed clean and cloaked in new attire, primarily to adapt and assimilate international global themes and foreign investments and promote entrepreneurial participation in nation-building. Though not a panacea for all corporate evils, E-Governance plays a vital role in achieving higher ease of doing business, simultaneously compelling culture of clean, corporate compliance.
India was way down at 116 out of the 155 countries surveyed in 2006. The report hinged their findings on parameters such as degree of regulation, tax compliance, time and cost to enforce a contract, legal protection of property, labor flexibility, investor protection, and ease of trade across borders. Obtaining a license would take the longest in India in the South Asia region. Compared to around 270 days in India, in Pakistan, it would take 218 days, and in Sri Lanka, 167 days. The Maldives processed licenses in the least time at 131 days. France took the least time at 56 days, while New Zealand and Denmark entrepreneurs faced minor procedural delays.
Now, in contrast, India is ranked at the 63rd position. “Alfaro and Chari (2014) examine the effects of India’s ‘License Raj’ reform on the firm size distribution and resource reallocation. The authors find that the number of small firms increased in industries with easier start-up rules. They also observe an increase in the productivity of these sectors, suggesting a reduction in resource allocation distortions over the same period.”
Harmonization of law and regulations in any ecosystem is a natural fallout of global jurisdictional regulatory competition. Reforms pave the way for such harmonization and must result in a reduction of the burden of compliance. More importantly, such harmonizations also need to cater to the interests of state revenue and systemic risks. Laws having potent systemic implications need to be enforced mercilessly, and the enforcement mechanism should be swift, straight, sure, effective, and accurate. Simultaneously, rules and regulations resulting in prohibitive compliance costs have to be reworked intelligently to make them more friendly, practical, and emphatic. An optimization approach needs to be followed by lawmakers to cater to India’s competitiveness in a global regulatory environment.
“Overall, South Asia was the region with the highest share of economies implementing trade reforms in Doing Business 2020. Trade reforms demonstrate the importance of cross-border cooperation in ensuring easy customs clearance procedures, harmonization of compliance rules, and border control efficiency. Nepal, for example, decreased the time to export and import by opening a new joint border crossing point with India.”
Today, India is one of the most important emerging markets in the world. It is the second most populated nation in the world, too. The country attracts foreign investments, and during the last few years, the infrastructure, defence, and renewable energy sectors are being given great thrust. Tremendous opportunities await investors in emerging India. It needs to update its regulatory and legal mechanisms to do what it takes to build its entrepreneurs and develop its economy. If capitalizing on diversity and competitive benefits, India’s prosperity would be much above its global competitors.
1) How did India improve its global ranking on the ease of doing business?
Under the leadership of Prime Minister Mr Narendra Modi, the Government of India has taken several measures to improve the approval systems and made several processes online. The single window concept for multiple approvals has also been introduced. The bureaucracy has also been revamped to be more proactive towards business.
2) What are the advantages for Indian MSMEs if the ease of doing business rankings is improved?
The hassles that SMEs undergo because of the bureaucratic processes established by the colonial era are enormous. Though meant to attract foreign investors and businesses, the improvement in the ease of doing business rankings has also benefited the Indian SMEs.
3) What is the impact of legal and compliance architecture in India on SME businesses?
Although the present central government has made several improvements, several legacy issues need to be addressed from simplifying the legal processes for SMEs.