India’s tryst with economic liberalisation and technology boom began in the later part of the 20th century. The economic liberalisation brought about a complete transformation in the approach to business — it encouraged entrepreneurship like never before and business has been growing.
Technology, coupled with a liberal economic policy, has had a far-reaching impact on our society, empowering citizens with a plethora of options at their fingertips. The combination of Flipkarts, Snapdeals and smartphones has empowered customers with reach, speed and choices. Even an artisan who designs potteries in a village has become a global business player!
A robust enabling environment is necessary for business to flourish. It plays a decisive role in determining the preference of investors. Given the global business environment, the regulatory framework for doing business in India has to be aligned with global standards.
Unfortunately, this is an area, where despite a lot having been done, a lot more remains to be done. India’s march to economic supremacy has been slowed by a complicated regulatory environment and the administrative bottlenecks associated with it. While some positive steps have been initiated, India’s ranking on the ease of business index continues to languish. Here are some key issues that must be addressed immediately:
Prospective, not retrospective
Retrospective tax has been the most feared term in the last few years. It has sullied India’s image abroad, and has managed to scare off global investors. Investors and business community thrive in a predictable and consistent regulatory environment.
While the announcement in budget not to resort to such practices in the future is welcome, a lot more needs to be done to alleviate the concerns of the industry. This concept needs to be given a permanent burial unconditionally, and corporates should not be burdened with additional demands. Pending cases should be looked at locally and pragmatically.
Rationalise labour laws
This is an important piece of puzzle which has remained missing for a long time. A conservative approach obsessed with protectionism can be counter-productive. Most labour laws are archaic — they were written in a different economic environment for a different objective. They cease to be relevant in modern times. A long term solution requires a systemic fix through comprehensive labour law reforms.
However, this has a strong dependency on parliamentary approval. And, let us be upfront, it is not easy to predict how the parliament will (or will not) function. In the interim, nothing stops the government from taking small administrative measures like reducing duplication in filing of returns, providing more flexibility in engaging contract workmen, encouraging self-certification and abolishing inspector raj. This can assuage some concerns and build a conducive environment for businesses to thrive in India.
Simplify company law
The new company law (i.e. the Companies Act, 2013) replaced the Companies Act, 1956. It has incorporated global best practices and trends and has significantly raised the bar on corporate governance in India. However, it was rolled out hurriedly and implemented in phases.
There were several challenges in its implementation and the government issued close to 100 circulars and notifications to ease the difficulties in implementation.
But ambiguity and challenges still persist. The report submitted by the Companies Law Committee has earnestly tried to address several contentious issues. The government should, however, take a holistic view with regard to amendments and address fundamental issues. One of the problems in implementation has been the reactive and ad hoc manner in which the amendments have been made. This resulted in multiple, and at times conflicting, provisions.
India is poised to be an economic superpower given its talent and resource potential. And for that, an enabling regulatory framework which aids is needed.