Studies such as the World Bank's 'Doing Business' look quite impressive, but that's about all. | |
| Going by the data in the World Bank's 'Doing Business 2008', India's a very tough place to do business. India is ranked 111th, for instance, when it comes to starting a business; 165th when it comes to the ease of paying taxes, 112th for registering property, 79th for trading across borders, 36th in terms of getting credit, 134th for getting licences, 177th when it comes to enforcing contracts, and so on. That is, India's not much better than sub-Saharan Africa and Afghanistan. India's rank is 120th and countries like Zambia, the Kyrgyz Republic and Kazakhstan have higher ratings. |
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| While the data collection effort is impressive, it loses sight of several important factors. I've tried to list some of these. |
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| Almost all the problems such as buying land or registering a property being talked of are really entry-point problems "" they do not continue to pose problems for doing business over a period of time. An MNC, on entering India, registers the land only once, gets its line of credit and banking relationship at the very start, applies for licenses, and so on ... this does not have to be repeated time and again. And while it is true that the tariff has 500 exemptions (this is one of the reasons for the tax score being so poor), most MNC manufacturers have just one or two lines of products, and so they are concerned with only these exemptions. It does not mater to them that the tariff has 39 exemptions in the chemicals chapter or 66 exemptions on the agricultural side or 25 exemptions for small-scale units. While discussing tax reforms and comparing India with other countries, what really matters to an MNC is the particular rate of duty for its product and a particular exemption which is settled right in the beginning when it starts business. When Hyundai came to India in the early 1990s, the finance ministry provided a clarification on an exemption which the company was supposed to avail of "" once this was done, Hyundai continued to pay the same rate of duty for the lakhs of cars it manufactured by importing parts from abroad. How is Hyundai concerned about the multiple rates of duty in multiple chapters of the tariff book? In any case, a licence is hardly necessary these days since practically everything is under Open General License (OGL). When it comes to labour laws, the report's perception is that one cannot hire and fire in India "" since the US has hire-and-fire, it is ranked the top on this list. Well, in high-paying corporate houses, which is what these MNCs are, hire-and-fire is not a problem. Indeed, the problem is one of attrition. At the slightest hint, highly-trained employees just give up their jobs and get something better. The analysis in the report holds true for brick and mortar industries like jute and cement whereas MNCs are in sophisticated business such as Information Technology, banking, manufacturing consumer goods for conspicuous consumption such as TVs, air conditioners, music systems, telecommunications, and so on. Highly-trained engineers at a low cost are available in India. India has got a store house of highly-trained English-speaking engineers, financial experts and technically qualified people who are many times cheaper than equally qualified workers in the US or Europe. That is the reason why MNCs are coming to India and even to China. Well-trained technical people are obviously not available in Kyrgyzstan or Afghanistan or sub-Saharan Africa. India offers a huge market. So, while it may be true that it's easier to set up business in Singapore or New Zealand, MNCs can't get as big a market there. The so-called entry point problems are really a small part of 'doing business in a country'. Special and favoured treatment to foreign investment in India. Each state in the country goes out of the way to give special treatment to foreign investment. Chief ministers are looking to meet foreign investors these days, The Advance Ruling Authority for direct and indirect taxes gives foreigners a binding decision on tax liabilities though the same is not available to Indians. So MNCs are in a far better position when it comes to doing business in India as compared to Indians. |
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| In any case, there are few instances I can recall of companies coming to India and then going back because of the so-called difficulties. It is surprising that countries like Azerbaijan, Kyrgyzstan and even West Bank and Gaza which have no security at all have been placed higher than India in the ranking on the ease of doing business. Reports such as this one which get good coverage in the media just serve to do damage to India. Surely this is not the intention of chambers of commerce that sponsor such studies? |
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| (The writer is former member, Central Board of Excise & Customs.) |
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