THE EXCHANGE. Towards true ease of doing business

Country rankings on ease of doing business stand declared. India has in one year done much that the Government can take pride in, having jumped up 30 places. Along with due appreciation, Indian business has been gently adding that real ground realities for day-to-day business need to keep pace — since formal rankinga are mostly of use to those seeking to invest in India.

At Ficci’s AGM in December 2014 I had mentioned: “While we advocate progress on ease of doing business, our opinion is that cost of doing business is the critical factor requiring confrontation. National, sector-agnostic competitiveness to global criteria is central to our growth.”

It is important to believe that desi sentiments, experiences and concerns significantly motivate or deter entrepreneurship and can influence the investment climate.

The formal indicator of ease by its very design does not reflect these. Simple ranking or incidental indicators must not take sole place of pride even if they help maintain pressure in the larger ecosystem for improvements that support enterprise. True ease of doing business relates to routine and ground-level factors and conditions that Indian businesses face. How well they can do this with minimum pain and lasting certainty reflects in their financial well-being and risk/investment appetite.

Some key indicators in the formal survey are ease of starting a business, electricity, construction permits, registering property, minority protection, enforcing contracts and resolving insolvency. One can candidly concur that some of these areas are not of make-or-break consequence for conducting business in India. However, some generic areas where improvement is welcome include: (a) respect for timelines in administrative matters and judicial resolution; (b) regulatory/policy certainty; and (c) avoiding intrusiveness and micro management through regulation.

A crying need is to willy-nilly institutionalise sensitivity to value of time, the squandering of which has unpredictable financial and operational implications. This needs a revolution in administrative mindsets and cultural evolution across the entire civil spectrum. This is work already in progress for government, but much more is needed faster. The ratings appraise laws and procedures as written but cannot really evaluate implementation. Multifaceted rules, procedures, approval or occasional scrutiny can literally drag on. Other than select digital interactions (including tax payments) with government, the concept of time-bound processes, decisions and outcomes remains hazy.

Even where law prescribes certain timelines, it is not uncommon for queries or notices to trigger another cycle and stretch matters. The fact that a much-later allegation on a decision can cast aspersions and/or confound careers/reputations before verification of guilt is also a deterrent to decision-making. Besides seeding inaction, this can in theory foster rent-seeking.

It is not unknown for civil litigation — the core of contract enforcement — to drag on for more than a decade. In the absence of rapid judicial outcomes, alternative dispute resolution mechanisms like arbitration must deliver. Recent developments make this possible, but efficient timelines are not entrenched. Fast judicial/alternate resolution is central to contract enforcement or insolvency. Delays only help those gaming the system.

On legal or policy certainty, India has a slightly blemished reputation. Much negativity arises from creative application of, and occasional arbitrariness in, tax and other laws/rules, and what may be lightly termed judicial overreach. Nothing in the formal rating captures these risks.

Regulatory pressures on banks/lending institutions, broad-brush negative portrayal of borrowers, and inability of banks to recover monies queer the pitch for borrowers. Lenders’ liquidity is not an issue anymore but subtle tweaks to terms/conditions and over-cautiousness in decisions will keep real credit flow restrained even to “in-principal-willing” businesses. All in all, in its ranking for getting credit, India seems to be boxing above its true weight. Businesses risk evaluation cannot truly account for look-in-the-past or activist crusades which are without pre-validation or are based on mere allegation. Eradicating doubts and risks on this count needs significant willpower and actions from the leadership.

We trail many competing nations in enforcing timelines and demonstrating policy/judicial consistency and certainty. A critical evaluation of risks caused by changes in policy direction or its intrusiveness needs to be made. In the extreme, the well-being of some sectors can either be damaged or can be seriously threatened. In the sincere eagerness to provide a better world , the present could hypothetically be consigned to history - whether our economy can weather resulting storms is the real question.

In our political economy, priorities assigned to business and commerce usually get relegated; if not in real terms, they do in the share of leadership’s mind space and in positive references. Trust between government, society and enterprise (and people of means) is a casualty.

In these circumstances profit must not even potentially become a bad word and the concept of return-on-capital-invested must not be neglected. These risks can deeply disturb anyone seeking to invest capital for a decade or more. A ranking cannot capture such hazards. India competes for investments and so will need evaluation via formal rankings. Establishing and scoring on India’s own metrics in sync with its own priorities and realities will only reinforce this. All credit and encouragement is due to the leadership and administration for bringing the subject centre-stage and pursuing it with sustained vigour. Private investment is a major component of our economic future. Government resources are required elsewhere and cannot substitute lack of private resources. Vibrancy and competitiveness of private enterprises are essential to national interest.

The core proposition at this time is to more effectively balance efforts between formal rankings and cultivating true ease of doing business. A phrase attributed to Ralph Waldo Emerson — “build a better mousetrap and the world will beat a path to your door” — may not hold true automatically.

This column explores ideas and opinions on Indian enterprise and economy. The writer is an entrepreneur and former president of Ficci. The views are personal

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