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THE PRESENT STATUS OF THE “EASE OF...

August 2016 - Corporate & Commercial. Legal Developments by Global Jurix.

More articles by this firm.

...DOING BUSINESS (EoDB) IN INDIA!

PRELUDE: --- The Ease of Doing Business (EoDB) is undoubtedly one of the most impressive and significant factors associated with smooth and profitable businesses, fast and huge industrial and economic growth, and large and regular FDI into the country specified. Hence, greater and better EoDB is immensely important especially to the developing countries of the world over, inseparably including India. For India, the importance of better and lavisher EoDB is utmost, keeping in mind the desired success of its highly ambitious and historic “Make in India” campaign, innovative ‘Start-Up India’ initiative, and so on.As per the latest Doing Business 2016 reports, India found 130th place among 189 economies of all across the world, in respect of EoDB, recording a laudable jump of 12 spots in its status in this regard, as compared to its position in the DB 2015 ranking. Substantial credit for this achievement certainly goes to the NDA Government, which has been taking a series of effective measures for remarkable improvement in the business regulations in India, especially since the launch of its flagship program “Make in India” in September 2014. Still, the Government of India is working extensively to achieve the set target by Hon’ble Prime Minister Shri Narendra Modi to bring India among the top 50 economies of the world over the next three years, in respect of the EoDB in India. Robust emphasis has been put on simplification and rationalization of the existing rules and regulations concerned with businesses in India, and also on introduction of information technology to make business governance and regulation faster, more convenient, and highly favorable to companies engaged in all economic sectors. This concise article offers very informative and useful stock of information about the decisive factors to the EoDB Rankings of the World Bank Group, and the present status (till May 31, 2016; the cut-off date for Doing Business 2017 Rankings) of India in respect of the EoDB.

 

WHAT IS “EASE OF DOING BUSINESS (EODB)”?

According to ‘Doing Business’ publication of the World Bank Group, the Ease of Doing Business (EoDB) in a country, represents the overall simplicity, ease, and safety related with starting and smooth running of a business in any sector, facilitated by the business-friendly rules and regulations available in that country. Thus, a higher EoDB ranking implies, better regulatory environment including stronger protections of the property rights, which is more conducive and constructive to the starting and conduction of a business located in the specified country. To decide the EoDB statuses in different economies, Doing Business has selected eleven critically influential factors, which are described in the section just below. Based on intelligent examination and discerning analysis of these all factors related with the regulatory environment in each of the considered economies, declared is the comparative ranking of these countries. This ease of doing business ranking is also termed as the ease of doing business index. Higher rankings depicted by low numerical values, indicate better ease of doing business in the countries concerned. For example, in the Doing Business 2016 ranking, Singapore achieved the top rank (i.e. Index 1) among 189 economies of the world. This means that, the business regulations in Singapore are the most favorable and the best for doing a business in Singapore by the domestic and foreign investors/companies, as compared to those inall other 188 economies of the world over.

WHAT IS ‘DOING BUSINESS’ OF WORLD BANK GROUP?

‘Doing Business’ is the flagship publication of the World Bank Group, for measuring the contemporary regulatory quality and efficiency in individual countries worldwide every year, mainly for the purpose of declaring the ranking of these countries in respect of doing better business in any economic sector. The very first annual Doing Business Report (named as the Doing Business 2004 Report) was published in September 2003, and thus, the Doing Business Report 2016 was the 13th in this series. In general, the Doing Business reporting presents annual quantitative indicators and data on the main and pivotal business rules and regulations in each country, together with the ease of doing a business and getting protection to one’s property rights in that country. Broadly, this annual reporting of World Bank Group measures the regulations which support and enhance business activities,and also those which constrain easy and smooth businesses. The latest Doing Business 2016 Report (which was published on October 27, 2015; and had covered data till June 01, 2015) ranked 189 economies ranging from Afghanistan to Zimbabwe. As per this 2016 Ranking, India was given 130th place, in respect of the overall ease of doing business; however, this ranking was based on the findings in its two mega cities of Delhi and Mumbai. Here, it may also be mentioned that, the Doing Business 2015 Report (published on October 29, 2014) had measures business regulations till 1st June 2014 in 189 economies, according to which India had ranked at 142 (adjusted ranking 134 in the year 2015). The ranking indexes of this annual reporting, used to be based on the study and analysis of the business rules and regulations in each country, after getting honest and insightful inputs and verifications by around 10,000 Government officials, business consultants, professional lawyers, chartered accountants, and other related professionals (who used to advise on or administer legal, regulatory, and commercial requirements in the individual countries).

Since the publication of its first report in 2003, the Doing Business team has constantly been making many methodological improvements, expanding the gamut of regulatory areas to be measured, and expounding the great depth and relevance of the selected indicators. So far, the areas of the life of a local business in any specific country, selected by the Doing Business have been eleven. The annual reporting measures rules and regulations affecting the business in these areas, and based on the final measure and analysis, the final Ease of Doing Business Index (EoDB Index) is assigned to the concerned country. Here, relevant also is to mention that the Doing Business 2016 reporting had not covered the area of Labor Market Regulation, for final indexing or ranking of the economies. These 11 Areas covered by the Doing Business studies are the following: ---

Starting a Business – Under this topic or area measured are the quality and efficiency of the procedures involved, time-taken, the total cost, and the minimum paid-up capital required, for the purpose of starting a new business in the specified country.

Registering Property – Assessed are the rules and regulations associated with the procedures, time,and cost for getting one’s commercial real estate property registered in the given country, together with measuring the overall quality of the land administration system.

Construction Permits – Measured in this area are the procedures followed, time-duration, and expenses to complete all the formalities to construct a warehouse, together with ranking the overall quality control and safety mechanisms in the construction permitting system in specific country.

Getting Electricity – Measured are the procedures, time-duration, and the total cost required for a business to get permanent electricity connection for its newly constructed warehouse, together with assessing the reliability of the electricity supply, and the cost of electricity consumption.

Getting Credit – Under this head, measured are the quality and sufficiency of the movable collateral laws and the credit information systems in the given country.

Paying Taxes – In this sphere, calculated are the total tax payable as share of gross profit, the number of taxes paid, and the time spent in paying taxes and preparing tax returns, etc.

Trading Across Borders – Calculated are the number of documents, time-duration, and the total cost required for a company to export from or import into the concerned country.

Protecting Investors – Assessed are the rights of shareholders, especially the minority shareholders/investors, in the entire corporate governance, and also in the related-party transactions.

Labor Market Regulation – Evaluated are the flexibility in the employment rules and regulations, and aspects of job quality.

Enforcing Contracts – Assessments are made of the time and cost involved for resolving a commercial dispute, and the quality and efficiency of the judicial processes.

Resolving Insolvency – Examined are the time-duration, cost, outcome, and the recovery rate (%) for a commercial insolvency, and the strength of the legal structure for bankruptcy or insolvency.

 

At this juncture, it must be noted that the studies of ‘Doing Business’ measure rules and regulations which affect a local business primarily and directly. This EoDB Index does not cover matters related with the macroeconomic stability of the country, market size, its proximity to large markets, infrastructural quality, level of corruption or inflation, quality and competency of the labor force, security, export or import tariffs and subsidies, state of the financial system, personal income tax rates, etc.

INDIA’S CURRENT STATUS IN RESPECT OF ‘EODB’

In Doing Business 2016 Rankings, India found 130th place or rank, recording a remarkable jump of 12 places over a year, as compared to its ranking in the DB 2015 reports. Data for the DB 2016 rankings were collected till June 01, 2015 from its two mega cities of Mumbai and Delhi, and the factor/parameter of ‘Labor Market Regulation’ was not taken into account for the purpose of the comparative ranking of economies. Undoubtedly, the credit for this notable rise in India’s status in respect of EoDB goes to Narendra Modi Government, which had been taking strong and effective measures since May 2014 for making the business regulations in India better and more efficient. Betterment of the EoDB in India was considered as being one of the pivotal and most significant steps for making the visionary “Make in India” campaign a success, which was launched in September 2014. Here, it may be just noted briefly that the main objectives of magnificent and historic “Make in India” campaign are to make India the top and globally popular destination for industrial manufacturing in near future surpassing China, USA, and Japan, and to attain a steadfast economic growth rate of over 8-10% in future decades, along with creating millions of new jobs and remarkable growth in exports from India. Again, Prime Minister Modi had set the target to place India among the top 50 economies of the world in respect of EoDB over the next three years. In order to achieve the target all concerned departments/agencies were directed to implement promptly the measures for regulatory reform. The areas covered for regulatory reforms were almost all the areas/dimensions which are measured by the Doing Business of World Bank Group for publishing the yearly rankings. Now, after May 2016, the cut-off date for DB 2017 rankings, the NDA (National Democratic Alliance) government is naturally anxious to see the impact of its efforts made so far towards improvement in the EoDB in India. However, Modi Government is still working extensively on improving further the status of EoDB in India and achieve the set target, particularly in Delhi and Mumbai.

The following are the bulk of the noteworthy improvements made so far (till May 31, 2016) for making businesses easier, faster, and safer in India: ---

STARTING A BUSINESS: --- Under this ranking criterion, India had already made notable improvement since June 2014 and thereby became successful in reducing the total time taken for starting a business in India to just 29 days, and thus attained a ranking of 155 on this parameter in the DB 2016 reports (the cut-off date for which was June 01, 2015). Many other measures to simplify and expedite the start-up process were still in the pipeline till the cut-off date. The DB 2016 reports had said that there were 132 countries in the world over where starting a business took a period of less than 20 days. The following are the most of the steps taken so far by the Central and State Governments to simplify and speed up the procedures for starting a business in India: ---

The Companies (Amendment) Act of 2015 discarded the requirement of the minimum paid-up capital and the common seal for companies. This amendment Act also eliminated the need for getting the certificate for commencement of business after incorporation, saving five days of business founders. The repealed prescribed minimum paid-up capital of INR One Lakh for getting a local limited liability company registered, was equivalent to 111% of the income per capita.

Registrations with Employees State Insurance Corporation (ESIC) and Employees Provident Fund Organization (EPFO) have been made easier and faster, and the need of a bank account made optional.

More convenient and rapid procedures for registrations of PAN, TAN, VAT, etc. have been put into practice.

Provisions of Composite Application Forms Integrated and one-time payment, have been launched to facilitate convenient and faster dealing with multiple Ministries or Departments, such as the INC-29 with 7 Services; INC-7 with 5 Services; and the Form for 5 Registration Services under the Ministry of Labour and Employment (MoL&E).

e-BIZ IT Platform (Online Single Window): --- To eliminate multiple visits to various concerned Ministries or Departments of the Central Government of India, the e-BIZ IT Platform (Online Single Window) offers services related with the following tasks or matters, including 14 different services delivered from diverse ministries of Andhra Pradesh and Odisha: ----

Industrial Licenses (ILs) and Industrial Entrepreneur Memorandum (IEM) [DIPP]

Name Availability, DIN, Certificate of Incorporation, etc. [MCA]

PAN, TAN, etc. [CBDT]

Advanced Foreign Remittance (AFR), Foreign Collaboration-General Permission Route (FC-GPR), Foreign Currency-Transfer of Shares, etc. [RBI]

Importer Exporter Code License [DGFT]

Employer Registrations [EPFO; ESIC]

Labor and Employment related Registrations [MoL&E]

Issue of Explosive Licenses [PESO]

And, Few more Services.

This e-Biz Portal serves also as a one-stop destination for the entrepreneurs and the investors to know all about the investment opportunities available in the country, and information about the licenses and approvals required for their objectives from diverse governmental agencies. Well enabled on this online platform are features like Online Payments, SMS Alerts, Status Tracking, Helpdesk Support, etc.

Vide Press Note 4 (2014) of DIPP, the NIC Code NIC 2008, which is an advanced version of industrial classification recognized worldwide, has been adopted.

To help investors during the entire life-cycle of a business, the Investor Facilitation Cell has been set up.The DIPP website contains detailed information about industrial licenses.

The requirement of environmental clearances has been waived for 36 White Industries. Educational Institutions and Industrial Sheds have also been made exempt from Environmental Clearance (EC). Again, in general cases, the validity of EC has been increased to 7 years from 5 years earlier. The brisk online applications are now available for getting environmental/forest/wildlife clearances. Now more powers have been granted to the State Governments regarding quick environmental or forest clearances. Also, as per Vide Press Note 3 issued by DIPP (Department of Industrial Policy and Promotion), parts, components, castings and forgings forming a large number, have been excluded from the purview of industrial licensing in India. Moreover, the Vide Press Note 5 (2014) declared that the period of initial validity of the industrial license would be three years (raised from the term of two years). Lastly, the SEZ Units now allow removing of goods for repair, testing, replacement, calibration, and R & D, based on self-attestation.

To simplify and rationalize further the regulatory environment, DIPP has sent many guidelines and suggestions regarding business clearances and compliances, including the six best practices identified by Accenture Services (P) Ltd., to Secretaries of Government of India and Chief Secretaries of the States/Union Territories. These guidelines to be followed on priority, cover the following: ---

All returns should be filed online through a unified form

A single electronic register will replace all registers to be maintained by a business

The web portal of any Department related with business compliances, must publish a check-list of the required compliances.

 

A system of self-certification will be introduced in the cases of all non-risk and non-hazardous businesses

CONSTRUCTION PERMITS: --- The measures launched by the Government towards betterment in obtaining construction permits by the business founders, are still in progress and are expected to be completed only by October 2016. These measures cover implementation of the online construction permits, expediting other related procedures, and alleviating/eliminating the red tape and corruption in these matters, especially in Mumbai and Delhi (the two mega cities of India which were evaluated for ranking in this respect in the DB 2016 reports). According to the DB 2016 reports, for obtaining construction permits the time elapsed was nearly eight months and five months in Delhi and Mumbai respectively, till last year. Consequently, India was ranked 183 on this parameter in the 2016 ranking among 189 countries.

TRADING ACROSS BORDERS: --- Now, The Central Board of Excise and Customs (CBEC) has taken many measures to make the procedures involved in exports and imports easier and faster, in order to improve India’s position of 133th in this respect (as per DB 2016 rankings).These measures relate witheasier and faster Custom Clearances, Inspections, Delivery of Goods, and quality and efficiency of various Trading activities. The improvements made include implementation of the online Single Window Interface for Facilitating Trade (SWIFT) on Custom’s ICEGATE Portal, which is also well-equipped with the online message exchange system; reduction of documents needed to only three (as per the notification issued on 12th March 2015 by DGFT); Customs’ Clearance Facilitation Committee; use of e-Form 13; expanded customs clearance facilities; online facilities for import and export declarations; and electronic messaging system between Shipping lines and Custodians. The DB 2016 reports had pointed out that in India the time taken for receiving necessary clearance from the authorities at ports and borders for exporting goods from India was almost five days, while this in connection with importing goods into the country was nearly eleven days.

ENFORCING CONTRACTS: --- There have been made many refinements for easier and faster settlement of commercial disputes in India, especially in Delhi and Mumbai, after the publication of the DB 2016 report, which ranking of 178 in this respect.The Indian Arbitration and Conciliation Act of 1996 has been amended to shorten the time for arbitration proceedings. Again, now Bombay and Delhi High Courts have separate Benches for Commercial Division and Commercial Appellate Division. Previously, for enforcing a contract the usual time taken in Mumbai and Delhi was almost four years.

GETTING CREDIT: --- Now, the amended SARFAESI (Central Registry) Rules of 2011, record security interests on all movable, immovable, and intangible categories of property.

PAYING TAXES: --- Though the payment of almost all taxes has been moved to the brisk online payment platform, the burdensome multiplicity of the indirect taxes is still a problem. However, strict implementation of the Goods and Service Taxes (GST) will create a remarkable improvement under this parameter, and is likely to lift India’s position in this respect from 157 (as was in the DB 2016 reports).

RESOLVING INSOLVENCY: --- In the Doing Business 2016 rankings, India had the ranking of 136 under this parameter. The Insolvency and Bankruptcy Code Bill equipped with the provisions for easy and faster exits, has now been passed in the Indian Parliament to improve the flawed things further. The passed Insolvency and Bankruptcy Code proposes to bring down the time taken for resolving an insolvency issue in India from over four years (at present) to less than one year.

It may be noted that under the criterion of Protecting (Minority) Investors, India had ranked in the top 10 in the DB 2016 rankings, its best ranking across all measuring parameters. India’s 8th ranking in this respect was attributed to the strong protection given by its law to the minority shareholders against conflicts of interest, and in support of their due rights in the corporate governance.

PRESENT STATUS OF ‘EODB’ IN MUMBAI AND DELHI

The present statuses of Delhi and Mumbai in respect of the EoDB, are described briefly in paragraphs below, under some of the significant parameters used by the ‘Doing Business’ for comparative ranking of economies, including the areas of GETTING ELECTRICITY, CONSTRUCTION PERMITS, and ENFORCING CONTRACTS. These business facilitations and regulatory refinements available in these cities, are additional to the business facilities and regulations mentioned above.

DELHI

To make getting electricity easier and expeditious, the utility in Delhi abolished the task of internal wiring inspection by the Electrical Inspectorate; and thus, now there will be only one such inspection instead of two. Again, only one procedure now combines both the external connection works and the final switching on of electricity.

Implemented are the brisk facilities for Online VAT Registrations, and Delhi VAT Sewa App

The unified building Bye-laws have been notified, and the Municipal Corporation of Delhi (MCD) has implemented a fast-track approval system for construction permits (for the residential, industrial, and commercial buildings), well-equipped with features like ---- common online application form (allowing digital signatures); online transfer of application and receipt of NOC; and integration of this online system with Airport Authority of India (AAI), Delhi Urban Arts Commission (DUAC), Delhi Metro Rail Corporation (DMRC), and the National Monument Authority (NMA).

Now, well-established are the Commercial Divisions and Appellate Divisions in the Delhi High Court, for faster resolution of commercial disputes.

MUMBAI

The utility in Mumbai has now substantially reduced the number of procedures and the time required for getting a new electric connection by businesses to 3 (from 7 procedures earlier) and 21 days (from 67 days), respectively.

Made simpler and faster are registrations under the Shops and Establishments Act of Maharashtra,through elimination of the task of making inspection.

Integrated into a single process are the VAT registration and Professional Tax registration. The VAT registration certificate is obtainable within 24 hours.

The Mobile App has been permitted for payment of Property Tax (downloadable from apps.mgov.gov.in.).

For faster resolution of commercial disputes functioning are the Commercial Divisions and the Appellate Divisions in Bombay High Court.

The full-fledged fast-track approval system for construction permits of the Municipal Corporation of Greater Mumbai (MCGM) is equipped with the following features ---- common online application form allowing digital signatures; online transfer of application and receipt of NOC; and online integration of this with the Airport Authority of India (AAI) and the National Monument Authority (NMA).

The total cost and time-duration involved in getting construction permit in Mumbai, has now been reduced by nearly 80% and 132 days, respectively.

To promote faster and safer construction, implemented now are the Online Auto DCR system, AutoCAD based scrutinizing software, and risk based assessment framework.

Prompt permission for removal of trees can now be obtained from the single window application system of MCGM.

Let’s hope to see higher ranking of India in respect of the ease of doing business in the Doing Business 2017

Rankings and subsequent yearly rankings! Here, it may again be iterated that better EoDB in India (the thirdlargest and fastest growing economy of Asia) will be immensely favorable for the desired success of “Make in India” initiative, further economic growth and prosperity, and bright future of India in the global landscape!!

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