Ease of Doing Business

Ease of Doing Business

This article deals with ‘Ease of Doing Business.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


What is Ease of Doing Business Report?

  • Ease of Doing Business is an index released by World Bank to measure how easy or difficult it is to run a business in a given country. 
  • It ranks country based on 10 parameters like 
    1. Construction permits required.
    2. Documents required to start a firm.
    3. Provisions for enforcement of contracts.
    4. Trading across the country.
    5. Getting credit.
    6. Getting electricity connection.
    7. Ease in paying taxes. 
    8. The process to resolve insolvency.
    9. Registering new property. 
    10. Provisions for protection of minority investors.


Ranking

Ease of Doing Business

What is the government doing in this regard?

  • Labour Laws have been rationalized from 44 Union Labour laws to 4 codes to make compliance easy. 
  • The government is promoting the Self Certification Regime Promotion through steps such as Shram Suvidha Portal.
  • Insolvency and Bankruptcy Code passed for efficiently resolving insolvency.
  • FDI limits have been liberalized, and more sectors have been opened.
  • GST Reform has rationalized the indirect taxation system.
  • The government has made incorporating new companies easy.
  • Investor Facilitation Cell has been created under Invest India Program to guide, assist & handhold investors.
  • Judiciary: Commercial Courts have been set up to deal specifically with cases of commercial nature.
  • Protecting Minority Investors: India has strengthened minority investor protections by increasing the remedies available in cases of prejudicial transactions between interested parties.
  • Simplifying the process to pay statutory dues such as provident fund contributions and corporate taxes.
  • Introduction of paperless court procedures and systems including e-fling, e-payment, e-summons etc. 
  • Record of rights of lands has been digitalized. 


What more can be done?

  • Enforcement of contracts now takes longer than it did 15 years ago. (Wayout: Fast Judiciary)
  • Registering property is still difficult. (Wayout: Computerization of land records)
  • Paying taxes is still difficult in India.
  • Trading across borders is still difficult. (Wayout: Infrastructure building like ports + Computerization at Customs)
  • There is still no legislation for Land Acquisition.


Side Topic: Indian State’s Ease of Doing Business

  • Department of Industrial Promotion and Internal Trade (DIPIT) publishes this report with the help of the World Bank.
  • 4th such report was published in September 2020, and top-ranked states wrt Ease of Doing Business were 
    1. Andhra Pradesh
    2. Utter Pradesh
    3. Telangana


Economic Survey (2020) Topic: Overregulation and Uncertainty in India

According to Economic Survey (2021), India suffers from over-regulation. For example, the time to settle a commercial dispute in India is 1445 days compared to just 120 days in Singapore.

civilspedia.com 
120 Days 
1445 Days

Moreover, there is policy uncertainty in India. In such a situation, Government officials like CAG, CBI etc., create a number of rules to save themselves as these rules can be interpreted in several ways. It gives an opportunity for corruption and nepotism to the officials.


Solutions

1. Doctrine of Business Judgement Rule

  • This doctrine assumes that the company’s board of director and higher officials has taken all the decisions in good faith. Hence, officials willn’t be presumed guilty unless the contrary is proved.

2. Doctrine of Minimum Government and Maximum Governance

  • Government should reduce the number of regulatory bodies and rationalize the obsolete statutes.

3. Rationalize the Tribunals

  • Government should rationalize the number of Tribunals. In this regard, the government is already working on explaining the number of tribunals. The government has abolished tribunals such as the Film Certification Appellate Tribunal and various tribunals under the Customs Act, Patents Act, Airport Authority of India Act etc. 

4. TORA 

  • Government should implement the Transparency of Rules Act (i.e. TORA), under which all the organizations will have to publish the rules and regulations on their websites. Any rule not published on the website will not be applicable. 

Economic Survey (2019) Topic: Ease of Doing Business – Timely Justice

The process to enforce the contracts in India needs improvement. For example, the time to settle commercial cases in India is 1445 days.  

Delays and pendency of economic cases have led to stalled projects, mounting legal costs & reduced investments.

Time to settle commercial cases

Reason of pendency and delays of economic cases

  1. High Courts have extensively interpreted the provisions of Art 226 & 227 of the constitution (Writ Jurisdiction) liberally, leading to a substantial increase in cases.
  2. Some High Courts retain a unique original jurisdiction, under which the High Court, and not the relevant lower court, transforms into the court of the first instance for some civil cases. Delhi and Bombay High Courts have original jurisdictions that occupy nearly 10-15% of their workload. 
  3. Expansion of Special Leave Petition (SLP) Jurisdiction of Supreme Court
    • The number of SLPs accepted by the Supreme Court is abnormally high in India= 40% in 2016. 
    • USA = 3%
  4. Recourse to Injunctions & Stays: Due to injunction, 60% of cases are being stayed, whose average pendency is 4.3 years.

Cost of Delays

  • Projects currently stayed due to legal disputes are valued at Rs. 52,000 crores in six infrastructure ministries. 
  • In many cases, the project costs were predominantly debt-financed, which increased the project cost by around 60%.  
  • It has also led to a spiralling of legal expenses of corporate houses.
  • It has also led to increased NPAs in the Banks.

Steps already taken

  • Scrapping of over 1000 redundant legislations.
  • Rationalized the Tribunals.
  • Amended the Arbitration and Conciliation Act 2015.
  • Passed the Commercial Courts, Commercial Division & Commercial Appellate Division of High Courts Act 2015.
  • Reduced intragovernmental litigation.
  • Advancing prospective legislative regime for legal consistency.

Way forward

  • Expansion in the judicial capacity in the lower courts and reducing the existing burden on the High Courts and Supreme Courts.  
  • Need to substantially increase expenditure on the judiciary and its modernization (and digitalization). Legislations must be accompanied by judicial capacity and public expenditure memorandums. 
  • The tax department should exercise greater self-restraint by limiting appeals given the low success rate. 
  • Improving the Courts Case Management: Initiatives like the Crown Court Management Services of the UK may be considered. 
  • Constituting Dedicated subject matter Benches-Such benches ensure that the Supreme Court speaks in one voice and there is continuity & consistency of legal jurisprudence.