We have, we can… we must

Gautam Mehra

Gautam Mehra
Partner and Leader,
Tax and Regulatory Services, PwC India

“Economies tend to reform when they must, rather than when they can” (extract from the earlier Doing Business Report 2018). The storyline is that Governments are more likely to reform when their economy is experiencing a fiscal crisis (remember India in the 90’s?) rather than when it is business as usual. From an Indian perspective, a move in ranking from 130 to 77 in two years is no mean task, but not one that has been pushed on the back of any economic crisis. The icing on the cake is that India ranks 5th on the list of the countries with most improvements, and apart from Djibouti, the only country to have made it to the Top 10 list of countries with most improvements consecutively in the last two years. The research uses 10 parameters for arriving at the score (a 11th one on labour is used for reporting), and inputs are taken from Governments themselves, experts, World Bank representatives and a reading of the relevant laws. India has significantly advanced on two indicators of Dealing with construction permits and Trading across borders – scores of 181 and 146 respectively last year have come down to 52 and 80 this year. Further, the indicators of Getting credit, electricity and Protecting minority investors are very healthy at below the 30 score last year as well as this year. Power sector reforms, a focused move to ease the documentation on cross border trade and changes in the corporate law granting protection to minority shareholders have all supported the scores on those three fronts being positive.

We have.

While that is half the battle won, work needs to be done on five other indicators where scores are relatively negative (over 100) and need some serious improvement if one has to aim for moving to the Top 50 and beyond. Registering a property has the lowest score at 166, with the indicator measuring the procedure, time and cost to transfer a property and the quality of the land administration system. Block chain has been spoken about of late in digitizing land records and transfers, and that would be one way of ensuring some progress on this front. Enforcing a contract ranks the second lowest with a score of 163, but this may require an overhaul of the judicial system to reduce the time and cost to resolve a commercial dispute which is a key measurement criteria for this indicator. It was good to see the indicator of Starting a business move positively from a score of 156 last year to 137 this year, and while the Registrar of Companies has already quickened the process of company set up by making processes online, what may need to be looked into is reducing the number of registrations with other authorities for starting up a new limited liability company. Paying Taxes is hovering around the 120 mark since last year. The benefits of use of technology in GST should overshadow the pain next year, and a move ahead on the reduction of the income-tax rate to 25% as indicated would help in reducing the total tax and contribution rate for a firm which is measured under this indicator. Further, e-assessments may improve post filing processes, but it would aid if the evaluation parameters of tax officers are enhanced beyond just revenue collection targets, since the post filing process is the other piece which gets measured. Lastly, the groundwork has already been done for the indicator of Resolving Insolvency in terms of introduction of the legislation. The benefits should hopefully start flowing in after the initial settling in issues are resolved. The Report has acknowledged that Governments around the world have embraced and nurtured advances in information technology to reduce bureaucratic hurdles and increase transparency. India has made significant advances in the use of technology in various departments and public interface with some great results, and a continued focus on this should help in making progress even on the indicators listed above.

We can.

Research quoted by the Report suggests that an improved ease of starting a business helps in alleviation of poverty and unemployment. With advancements of technology putting an ever increasing pressure on fresh recruitments, this is a good way to blunt the sword of unemployment rates in India, which could get acute given the large workable population, and is also aligned with the Governments initiatives around encouraging Startups and Skill India, amongst others. With the globalization wave swinging towards localization, and with competition increasing amongst countries to attract financial capital (even the US has significantly reduced base income tax rates to around 20%), the need for speed on this front is more than ever before. And lastly, entrepreneurship abounds in India, and an ease in doing business is likely to be capitalized here better than elsewhere.

We must.

The article first appeared in Business Standard as 'Well begun, but only half done' on 25 November 2018.

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Gautam Mehra

Partner and Leader, Tax and Regulatory Services, PwC India

Tel: +91 22 6689 1155

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