Ease of Doing Business with India Afaq Hussain Bureau of Research on Industry and Economic Fundamentals (BRIEF) New Delhi, India

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 institutions Getting 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 Protecting Minority Investors: India strengthened minority investor protections by requiring greater disclosure of conflicts of interest by board members, increasing the remedies available in case of prejudicial related-party transactions and introducing additional safeguards for shareholders of privately held companies. This reform applies to both Delhi and Mumbai. 

Ease of Doing Business – India Report Card 2013 131 2014 140 2015 142 Ease of Doing Business – India Report Card Overall Ranking 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 Protecting Minority Investors 7 21 14 Paying Taxes 154 Trading Across Borders 126 122 -4 Enforcing Contracts 186 No change Resolving Insolvency 135 Protecting Minority Investors: India strengthened minority investor protections by requiring greater disclosure of conflicts of interest by board members, increasing the remedies available in case of prejudicial related-party transactions and introducing additional safeguards for shareholders of privately held companies. This reform applies to both Delhi and Mumbai.  Source: The World Bank – Ease of Doing Business

Best Global Performance Where does India stand? 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 19 143 122 Korea Register Property 121 37 138 12 97 127 Georgia Get Credit 36 71 89 52 Protect Minority Investors 7 132 35 100 17 78 Pay Taxes 177 49 UAE Trade Across Borders 126 98 123 155 Enforce Contracts 186 14 46 148 Resolve Insolvency 53 55 65 39 125 Finland Source: The World Bank – Ease of Doing Business

FDI inflow to India 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 Drugs and Pharmaceuticals IT and Software Telecommunications Source: UNCTAD,  Department of Industrial Policy and Promotion, Ministry of Commerce and Industry

Dealing with Construction Permits What are the challenges? Starting a Business 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. Dealing with Construction Permits 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. Getting Electricity 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

Enforcing Contracts and Resolving Insolvency … Challenges for Investors Registering Property 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. Taxation 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. Enforcing Contracts and Resolving Insolvency 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

Stories of Clashes and Bargains 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. And others.. Called for a corrective action to make India a ‘Must Invest’ destination 1 Old proceedings being taxed as per the new rules 

SO WHY SHOULD YOU DO BUSINESS WITH INDIA?

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 India – natural resources - coal (fourth-largest reserves in the world), iron ore, manganese, mica, bauxite, rare earth elements, titanium ore, chromite, natural gas, diamonds, petroleum, limestone, arable land Economy - India averaged 5.83 percent from 1951 until 2014, reaching an all time high of 11.40 percent in the first quarter of 2010 With 356 million 10-24-year-olds, India has the world’s largest youth population despite having a smaller population than China

India Modi-fied: Fixing the Flight Starting a Business 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 Land Acquisition 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

India Modi-fied: Fixing the Flight Taxation Policy 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. Labor Laws 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.

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

Courier Services, Test Marketing Navigating FDI Caps and Restrictions Sector Previous Policy 2014 Revised Policy 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 ) Railways N/A 100% Defense Production 49% Above 49% Automatic Government Telecom Services Up to 49% Above 49% and up to 74% Above 49% and up to 100% Courier Services, Test Marketing 2013’s FDI amendments are now being further augmented under the new Narendra Modi administration, with several sectors significantly increasing the amount of foreign investment permitted. Of particular interest are the hikes that will be seen in the insurance and railway sectors; the former rising from 26% to 49%, and the later from 0% to a massive 100%.

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 Doing business in India just got easier – new de-licensing and deregulation measures are reducing complexity, and significantly increasing speed and transparency

Single window clearance for Central and State level approvals. 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.

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

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