Cut red tape

Prime Minister Narendra Modi has rightly pointed to the need to clear the “jungle of archaic laws” to make governance smooth and transparent. Recently, the Law Commission in its interim report called for the repeal of 72 laws and said it may identify another 260 laws over the next month that could be scrapped. These laws cover labour, land and taxation and, perhaps worst of all, matters of procedure. Administrative reforms can play a role in kickstarting growth changes and are not politically controversial unlike effecting big ticket changes in land acquisition and labour laws. For instance, a major deterrent to investment is India’s inability to enforce contracts, thanks to a maze of laws and procedures and an ill-equipped judiciary. As the World Bank report ‘Doing Business 2014’ points out, it can take up to 1,400 days in India to obtain a legal remedy for non-enforcement, which is not just higher than the OECD countries’ average of 529 days but also way above the South Asian average of 1,075 days. The cost can run up to 40 per cent of the claim.

To sort out this problem, we need, not just an integration of similar laws and the elimination of useless ones, but also a concerted effort at judicial reform. Researchers point out that of the backlog of about 32 million cases, 24 per cent have been pending for about five years and 9 per cent for more than a decade. The US has 108 judges for a million people, against 12 in the case of India. It remains to be seen whether the proposed judicial appointments committee helps fill vacancies in the high courts and lower courts in particular. Delays arising out of procedural formalities can be addressed by outsourcing some tasks to private firms; this could check corruption in the court administration.

While enforcing contracts is a nightmare, the delays and costs involved in starting a business, paying taxes and shutting down a business are no better. According to the World Bank report, India has brought down the number of days it takes to start a business from about 90 in 2004 to 27 now, but it is still behind the world norm of a week or less. Documentation for imports and exports can prove daunting for small units; they spend a great deal of their time and money at the offices of the Directorate General of Foreign Trade. An average Indian firm forks out 33 types of taxes, amounting to 63 per cent of its profit, while its OECD counterpart makes 12 such payments amounting to about 41 per cent of its profit. Litigation on service tax issues is on the rise, due to ambiguities in the law. It hardly helps if the Government remains vague on issues like retrospective taxation. Our insolvency norms are a mess; it can take five years for a firm to shut down, against the global norm of about six months. There’s a lot of red tape to be shredded; the Prime Minister should walk the talk.

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