To get the economy up and running

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Laws signalling a new framework for land, labour and insurance should be passed at the earliest

If we were to gauge the prospects of the Indian economy from the interest evinced by global investors as well as domestic business, the future holds a lot of promise. To translate this potential into a high growth trajectory, we need a facilitating mechanism for industry to thrive and contribute to the growth and development of the nation.

The regulatory framework in place to manage the business environment assumes significance. In particular, the goal of ‘Make in India’ to transform India into a global manufacturing hub and broadbase job creation can be actualised through enabling regulations. In the long term, this can help reduce red tape, foster transparency and attract investments.

Update archaic laws

India is ranked 142 out of 189 countries in the World Bank’s Ease of Doing Business Index 2015 which leaves room for significant improvement. This makes a strong pitch for implementing business regulations that are conducive to industrial growth, which can improve ease of doing business in India with a cascading effect on attracting investments.

An urgent review of 105 archaic laws and business regulations is warranted to align them better with the existing business scenario.

Restrictive labour practices in India have led to formal sector employment stagnating at 16 per cent. Liberalised labour laws will improve vibrancy in the labour market, leading to better employment opportunities.

A multitude of labour laws — 44 at the Centre and 160 at the State level — can be grouped into four categories: industrial relations, wages, employment standards and social security. Rules for rationalisation of workforce and factory closure can be eased to create a favourable business climate.

Parliament must enact reforms oriented Bills like the Insurance Laws (Amendment) Bill, 2008, and the Factories (Amendment) Bill, 2014, among others during the ongoing winter session and signal its commitment to a business friendly agenda of governance.

The Land Acquisition, Rehabilitation and Resettlement Act, 2013, can be reviewed in consultation with State governments to make the land acquisition process simpler. Land banks can be created by the States to address the severe constraints with land acquisition for industrial development.

Progressive tax regime

A progressive tax regime can lead to efficient resource allocation and provide a fillip to the manufacturing sector. An NCAER study has shown that a 0.9 to 1.7 per cent increase in GDP and 3.2 to 6.3 per cent year-on-year gains in exports can be accrued from a comprehensive rollout of the Goods and Services Tax (GST).

The Fiscal Responsibility and Business Management report has estimated a 2 per cent increase in the tax-GDP ratio owing to GST. A nationwide rollout of uniform GST is thus imperative through a consensus with all the States. A reoriented Direct Taxes Code that allays industry concerns should be also implemented.

According to the CAG, taxes worth ₹1 trillion are locked up in indirect taxes litigation. Steps to create a transparent dispute resolution mechanism such as e-courts and online resolutions can substantially boost investor sentiment. Similarly, retrospective application of tax laws must be avoided. An advance ruling mechanism for cross-border transactions should be further strengthened to reassure foreign investors, in particular.

According to Unctad, during 2004-13, India received net FDI inflows of $258 billion compared to $251 billion received byr Mexico and $1.65 trillion by China. It is estimated that every 1 per cent increase in FDI flows can lead to 0.4 per cent increase in India’s GDP growth.

Centre-State coordination has to be improved to bring about clarity in FDI-FII policy across all sectors and help unleash India’s huge potential to attract FDI. Debt and equity capital markets for both corporate as well as structured instruments must be deepened to facilitate higher inflows of FII.

A single-window clearance mechanism must be instituted in all the States to rationalise procedures and approvals to start a business in India. The ongoing eBiz project of DIPP can serve as a template for adoption at the State level. It should be stipulated that inter-ministerial consultations for projects should be concluded within two weeks.

Enhancing the 4 Ps

Another development model with tremendous potential and a proven track record in some sectors is people-public-private partnership, which needs to be enhanced by empowering relevant city or State agencies to authorise key investment projects. An institutional set-up should be in place to address grievances of the project stakeholders and provide avenues for renegotiations on account of unforeseen circumstances.

The recent emphasis on e-governance is an encouraging step that can help bring about much needed transformation in the way the government interfaces with business and industry. The efforts should translate into specific projects by incorporating best practices from the IT and ITeS sectors for efficient delivery of public services.

Legislative reforms in India must go in tandem with the robust administrative machinery, focused on building trust, transparency, consistency and predictability in business regulations.

A strong and stable policy environment will go a long way in reinvigorating the Indian economy, boosting investor confidence and helping realise the vision of the ‘Make in India’ initiative.

The writer is the president of Assocham and MD and CEO of YES Bank

Published on December 16, 2014
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