(Morati Kelly Molelekeng is a final year student at Jindal School of International Affairs)
One of the immediate
challenges for the Indian economy is to improve the ease of doing business across the country. The role of the state
is of critical importance in combating this challenge, prepare a solution model
which points out at the tangible measures including policy initiatives that
will help in improving the process of starting
up and doing business
across the country (not only in concentrated regions).
Every
country’s government plays a critical role in shaping and directing the economy
and its sectors to the desired growth rate. Over the years, India has shown
some improvements in a few parameters with regard to the study on “Easy of
Doing Business”, shows a report by the World Bank. The report assess how easy
or difficult it is for an entrepreneur to set up and operate a business in a
particular country. The study covers 189 countries. . Going by the study, in
India, there still remains an enormous room for improvements. The central
government and states governments need to spearhead policy reforms and provide
policy guidance for India’s ranking to improve.
For the purposes of this essay I will, put forward a solution model which points out at tangible
measures including policy initiatives that will help in improving the process
of starting up and doing business in the manufacturing sector in India.
Introduction
Manufacturing forms an important base
for a country’s economic progress; no major economy has managed to blossom
without the development of its manufacturing sector. According to Assocham[1], manufacturing activity, as a share of
India’s Gross Domestic Product (GDP), plunged to 15.2 per cent during the
financial year 2012-13 and it is expected to fall below 15 per cent in the
current fiscal. Its share to the GDP in 2010-11 was 16.2 per cent and 15.7 per
cent during 2011-12. The drop comes amidst government’s target to achieve
25 percent contribution to the total economic activity by 2020. On the
contrary, the trend is certainly moving in the reverse.
Drawing from the above, it can be said
that manufacturing sector has been moving at a slower pace than the overall
economy for some time now. As a result, the sector’s contribution to GDP has
declined marginally. It is also no surprise that the growth rate within the
sector itself is on a declining trend.
The Government of India has
announced a National Manufacturing Policy (NMP)[2]
with the objective of enhancing the share of manufacturing in GDP to 25 per
cent within a decade and creating 100 million jobs. Arun Maira[3]
argues that change is necessary in many areas for India's manufacturing sector
to reach its goals. These improvements must happen widely around the country,
not only within the proposed Investment and Manufacturing Zones, for the
country to realise its aspiring overall growth and employment targets.
Drawing from the above, India needs to
transform some of its business processes in order to have a significant
transformation of the sector. Ajay Shankar[4]
emphasized while addressing the Manufacturing Excellence Conclave (MEC)
organized by Confederation of Indian Industry (CII)[5],
“Adopting
Manufacturing Excellence as a national mission is the only way to get India rid
of the vast poverty and to help it achieve all inclusive growth. We need to
build a strong Consensus amongst all stakeholders including Central & State
governments and agencies, institutions, NGOs, industry bodies like CII and the
society as a whole to make India world leader in manufacturing.
To achieve this goal, there is a need
for a national effort that is implemented across all states and with the same
urgency if manufacturing is to be revived to its desired growth rate and
increase its contribution to GDP.
However, it is worth noting that the governments has drawn some
initiatives to try and revive the sector, for example, different policies on Foreign Direct Investment (FDI),
Goods and Services Tax (GST) and Land Acquisition Bill have been formulated in
the recent years but it is their implementation that still remains an enormous
challenge.
One
Stop Shop
When looking at the 2014 Doing Business
Report[6],
starting a business in India just got harder. Currently the country is ranked
179 out of 189 countries, a movement down in ranking from the 177 position it
held in 2013. This indicates that the procedures needed by an individual to set
up a company need to be reformed and improved. Usually the process is made
lengthy by moving from one government department to the next and each with a requirement
of its own.
For this to improve, the government
need to take centre stage and make the environment conducive for starting and
operating a Manufacturing company. Each
state government needs to set up a One
Stop Shop that will mostly carter to the needs of international investors
as well as local entrepreneurs who want to establish a manufacturing business. A
One Stop Shop reduces the amount of time an investor takes to access all the
documents and procedures that are needed to start a business. The One stop Shop
can be housed in the department responsible for trade issues as most of the
procedures involve this department. For example, Singapore which is ranked 1st
in the Ease of Starting a Business parameter, has established an online One
Stop Business service portal called BIZFILE. According to the website[7],
BizFile
(www.bizfile.gov.sg) is Accounting
and Corporate Regulatory Authority (ACRA)’s award-winning online filing
and information retrieval system. BizFile offers close to 300 e-services,
serving as a one-stop facilitator for businesses. With the integration of
e-services with multiple agencies such as the Singapore Customs, Inland Revenue
Authority of Singapore, Spring Singapore and Singapore Government Network
Information Centre, business owners can now be GST-registered, reserve their
web domain name or activate their customs account, among other business
processes. You can also do a search for registered entities, purchase
information, and file business transaction, etc on BizFile.
The government of India can take this
Singaporean model and make it part of its e-governance project and custom made
the model to suit the requirements of different states with regard to setting
up a business entity.
Infrastructure
Infrastructure could be said to be the
heart beat of an economy. Due to this relationship, infrastructure and economic
growth appears to run in both directions and the need for investment in
infrastructure never goes away. The maintenance and expansion of infrastructure
are important dimensions of supporting economic activity in a growing economy.
Delmon, an infrastructure specialist with the World Bank, wrote the following:
“Poor infrastructure impedes a nation’s economic growth and international
competitiveness (The World Bank, 2006).
There is a need for India to up its game
when it comes to infrastructure development especially in states that have
manufacturing as their base.The PwC report[8]states
that,
“India is one of the world’s most attractive markets for companies in
the infrastructure business. But India’s difficult business environment has
sapped the enthusiasm of many foreign investors. Among other things, they
complain about unpredictable regulations; bureaucratic delays in approving
projects; endless struggles to secure land rights; and the government’s stalled
attempts at reform”
This clearly shows that
more needs to be done by both the central and state governments to bring back
the investor confidence for the infrastructure segment. The PwC Report[9] also state that several manufacturing
companies in states like Karnataka and Tamil Nadu don’t get power for several
hours a day. Therefore, they’ve installed their own generators. But that power
is about twice as expensive. This makes the manufacturing sector unattractive
to investors, hence the need to act with much urgency to mitigate these
challenges.
Traditionally, highway and expressway
construction and maintenance are conducted by states governments, which in turn
pose significant pressure on their fiscal budgets. However, this is avoidable. The
central government can take a cautious decision to explore and maximise the
degree of private investment in the ‘Build Operate Transfer’ model across
states. According to Menheere, Sebastiaan C.M., and Spiro N., Pollalis[10],
the Build Operate Transfer
approach (BOT) is an option for the government to outsource public projects to
the private sector. With BOT, the private sector design, finances, constructs
and operates the facility and eventually, after a specified concession period,
the ownership is transferred to the government.
This model can be applied
to many projects such as electricity power generation, building and maintaining
road networks within and between states and high-speed rail program that can
free track capacity for freight logistics. Electricity is very central to the
manufacturing sector and India has been experiencing power shortage problem
across the country. This BOT model can be used to explore the nuclear power
generation sector which is capital intensive. This will also pose an
opportunity to explore the local technology present in the nuclear sector
within the country.
Land Use Policy
Land is one of the factors
of production that any business cannot operate without, whether it is through
ownership or leasing. Therefore, the land policies in any country are very
vital in attracting investment in any sector especially manufacturing sector
which usually needs hectors of land to operate large scale production. There is
need for India to formulate a National Land Policy (NLP) that state governments’
can draw from which promote the cut down on the number of clearances for
projects.
Jones Lang LaSalle[11] report
states that
“Developers face the greatest challenges in obtaining a clean, bankable
title to a contiguous land parcel of sufficient dimensions to develop projects
in India. Another issue they face is the loss of control on cost during
acquisition, since the cost of acquisition after completion of the entire
process is often so high that any development becomes prohibitively expensive”.
This clearly shows that
procedures involved in land acquisition need to be revised and cut down so as
to reduce the costs of involving lawyers and middle men. The recent court cases
in states government allocation, where petitioners have taken government to
court for allocating huge chunks of land to big companies just heighten the
problem. For example, The English daily Times of India[12]
reported that, the allocation of land by
state governments, including to Mukesh Ambani-promoted Reliance Industries in
Punjab and Haryana and Anil Ambani-run Reliance Energy in Uttar Pradesh, for
developing SEZs are under scrutiny. Another example according to the PwC
Report[13] is Tata Motor’s land acquisition in Singur, West
Bengal had an in-principle approval but later ran into hurdles and political
opposition leading to major production delays. Eventually, the company pulled
out of the project. Noting that these problems are taking place still with
the new 2006 National Land Policy in place, evidently, there is more that needs
to be done within the policy.
In recognition of all these
problems, an Article on issues related to land acquisition in India[14] suggest
that only a clear National Land Policy with
more proactive laws for the process of acquisition, as well as for resettlement
and rehabilitation can provide a clear mitigation strategy against all the
problems that companies meet. The
Government should devise a mode to provide title security, and laws need to be
made in a manner that ensures that old laws do not have an overhang on the land.
Indeed more transparent and clear laws need to be at the centre of the National
Land policy.
Better Business Regulatory Governance
A poor regulatory
environment undermines business competitiveness and citizens’ trust in
government, and it encourages corruption in public governance. India has gone
an extra mile in developing and setting up business facilitation and investment
promotion entities at both the national and state level and even extended
further to create dedicated special economic zones. However, such efforts have not been concerted
and are not being undertaken in adequately planned and monitored way,
especially, when it comes to reforming the business regulatory environment
across the country.
It is against this backdrop
that the central government needs to spearhead a review of the existing
regulations, with a view to streamline and reduce the burdens associated with
policies, regulations and praxis that (adversely) affect business performance.
Such burdens could be of purely economic nature like excess administrative cost
or incidence of undue cost over doing business.
Conclusion
In conclusion, the
government should become a catalyst and create laws and policies that will make
the manufacturing industry more competitive. For India to remain a major player
worldwide there is a need for reduction in bureaucratisation of procedures and
formulation of laws that will ease the procedures of doing business in the
country rather than obscure them. Most importantly, the central government and
states governments have to take centre stage and drive the process through
better business regulatory governance.
Reference
[1]The Associated Chambers of Commerce and Industry of India (ASSOCHAM)http://www.assocham.org/about/aboutus.php
[2] Department of Industrial Policy and Promotion http://dipp.nic.in/English/policies/National_Manufacturing_Policy_25October2011.pdf
[3]New Manufacturing
Policy: Why India needs a blueprint to boost manufacturing
[4]Member Secretary, National Manufacturing Competitiveness Council
(NMCC),
[5] Ajay Shankar, Manufacturing Excellence not a choice, but dire need
for India
[6] The World Bank, Doing Business Report: www.doingbusiness.org.
[7]Accounting and Corporate Regulatory Authority, http://www.acra.gov.sg/Quick+Links/Guide_to_Bizfile/About+BizFile.htm
[10] Case Studies on Build Operate Transfer/ Rick Huijbregts 211 p. 23
cm. ISBN 90-9010335-X
[11]Core issues related to land acquisition in India, http://www.moneycontrol.com/news/real-estate/core-issues-related-to-land-acquisitionindia_844031.html?utm_source=ref_article
[12] Supreme Court asks Haryana to apprise it about land allocated to
RIL http://timesofindia.indiatimes.com/business/india-business/sez-supreme-court-asks-haryana-to-apprise-it-about-land-allocated-to-ril/articleshow/29257914.cms
[13] PwC Report: Point of view
National Manufacturing Policy, 2012 available
from https://www.pwc.in/en_IN/in/assets/pdfs/industries/industrial-manufacturing/national-manufacturing-policy-pov.pdf
[14] Core issues related to
land acquisition in India, September 20 2013
Figure 1: http://www.moneycontrol.com/news/real-estate/core-issues-related-to-land-acquisitionindia_844031.html?utm_source=ref_article
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