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Regulatory reform fails to cut red tape: NITI Aayog

LiveMint logoLiveMint 28-08-2017 Asit Ranjan Mishra

New Delhi: The big push by central and state governments to ease the regulatory environment notwithstanding, the perception of most business enterprises is that little has changed on the ground, a new survey has found.

The nationwide survey of the organized manufacturing sector was conducted jointly by the NITI Aayog and IDFC Institute, a Mumbai-based think tank, to monitor the business environment in the country. It surveyed 3,276 enterprises, including 141 early-stage firms, across 23 categories.

Not only do the survey results serve as a wake-up call to the government and a reminder that the legacy of red tape is far more difficult to undo than what has been thought so far, it also reveals that the experience of regulatory reform has not been uniform across the country.

The results released on Monday showed that for a majority of respondents, parameters such as setting up a business, land and construction, environment, labour, water and sanitation, taxes, and access to finance remained the same compared with a year ago; on legal matters, they reported that things had worsened. The survey was conducted in 2016.

To be sure, a little over a third of the respondents did say that there was an improvement in ease of doing business, while about a fifth said procedures had deteriorated.

While 38% of the enterprises said that the regulatory environment for setting up a business had improved, the same proportion claimed nothing had changed and 21% said it had worsened. A large proportion (44%) of the enterprises said the regulatory framework for getting environment clearances had stayed the same while only 17% said it had worsened. Around 36% of the enterprises said that legal processes for resolving disputes had worsened while only 25% said they had improved. About 46% of enterprises said that access to finance had stayed the same while 36% said it had improved.

The World Bank, in its Doing Business survey report released last year, offered a plausible explanation. “The experience of implementing reforms based on doing business data has demonstrated to the government the significance of establishing clear stakeholder feedback mechanisms to close the gaps between policy formulation and implementation,” it said.

India’s ranking in the World Bank’s annual Doing Business survey improved by just one notch to 130 in its 2017 report from a revised rank of 131 last year. India is targeting a 40-notch jump in ranking in the upcoming survey, which is expected to be released in October.

The NITI Aayog-IDFC Institute survey also found that a substantial chunk of the enterprises surveyed were not aware of many of the improvements undertaken both by the Union and state governments.

On average, only about 20% of manufacturing start-ups were using the single-window facilities introduced by state governments for setting up a business. Even among experts, only 41% had any knowledge of the existence of these facilities. “Therefore, there is a clear need for creating greater awareness. In cases in which the lack of use is due to poor functioning of the service, the functioning must be improved,” the survey recommended.

Conceding that there was a communication gap, a person involved in overseeing the survey said that “every single company needs to be told about the changes taking place”.

Based on the results, the survey recommends more flexible labour laws to allow businesses to gain economies of scale. It also makes a strong case for states to open up their power distribution sector to private competition to lower costs and improve reliability.

Some analysts disagreed with the findings, claiming that the business climate has actually improved. “The robust inflow of foreign direct investment (FDI) despite volatile global macroeconomic situation reflects the overall improvement in ease of doing business in India,” said N.R. Bhanumurthy, a professor at the National Institute of Public Finance and Policy, a think tank.

FDI inflow in the April-June quarter jumped 37% to $10.7 billion compared with $7.6 billion received in the same period a year ago.

Commerce and industry minister Nirmala Sitharaman, who released the survey along with information and technology minister Ravi Shankar Prasad, said improving ease of doing business is getting the central government’s full attention.

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