'Corruption, contract enforcement major hurdles for ease of business'

Fear of signing closure of big contracts has put businesses on back foot, say participants at India Economic Summit

Though the government has made significant strides easing regulations and processes in various areas, corruption and fear of persecution among the bureaucrats and enforcement of contracts continue to remain major hurdles for businesses in India.

The issues were raised by participants during a discussion round in a session titled ‘India Means Business’, at the India Economic Summit, jointly organised by CII and World Economic Forum.

 Kanika Dewan, President, Bramco, an international firm that deals in construction projects, design and supply of raw materials especially stone, granite apart from mining and quarrying activities, explained how corruption at every level was the key reason why most public-private-partnership projects (PPP) are stalled in India. She referred to a couple of airport projects her firm has worked on and said how cost-overruns are directly related to corruption, which triggers a vicious cycle of more corruption.

 

 The last 20 per cent of project value never gets cleared, she said driving away businesses from airport projects. She cited corruption as the primary reason why her firm stayed away from government airport projects.

Adding to these comments, Neelam Dhawan Head, Global Industries and Strategic Alliances, APJ Region Hewlett Packard Enterprise India said there is a fear among senior officials in the government to sign off on large projects. “There is a fear of accepting closure of large projects,” Dhawan said adding, “it is extremely difficult to do business. The last 20 per cent is probably more than the profitability of the project”.

Participants argued that the if the government needed third party clearances, independent audits before clearing the final payment, these needs to be clearly stated in the contract so that companies get a clear idea of what they are getting into.

Ramesh Abhishek,  secretary, Department of Industrial Policy and Promotion, who was part of the panel said while he cannot comment specific projects mentioned, disagreed with the notion that corruption was the reason behind every stalled project. “There could have been design issues, people might have projected their revenue aggressively. It needs to be examined case by case.”

On the issue of fear among bureaucracy stalling closure of projects, Abhishek welcomed such feedback and assured to take these up at appropriate levels.

Mitesh Shah of Louis Dreyfus, an international commodities player, raised the issue of contract enforcement which his company often faces in its day-to-day activities. “It takes ages to get anything substantial,” Shah said adding that India’s rank is at 186 among 189 countries.

Abhishek responded by saying that the parliament has enacted the law for commercial courts and these benches are in the process of being set up in various high courts across the country. He pointed out how setting up of these courts is one of the parameters in the state rankings for ease of doing business. These commercial courts are expected to accelerate the contract enforcement cycle in India.
 

Sri Rajan, Chairman, Bain & Co India said, while the government has done a pretty good job in improving entry of companies, difficulty of doing business is still significant. “A lot of it doesn’t have much to do with the central government. A lot of discretionary powers at local levels, makes it difficult for businesses to navigate,” Rajan said.

Relaxation of FDI regime, the introduction of bankruptcy code and GST roll out are among the factors that are likely to ease doing businesses further in the coming days, panelists felt.