Next generation of reforms should focus on reducing cost of doing business – Economic Times

India is showing progress in every dimension of economic reforms. Its commitment to do so is evident from the scale undertaken at the pan-India level since 2014. Policies and schemes developed with the aim of Ease of Doing Business (EoDB) are underpinning Indias development with all, and for all, motto.

Various reforms spanning across the business lifecycle have been implemented by Ministries and States. However, most of them focused on simplification of processes, or rationalisation, digitisation and elimination of compliances. There has been limited focus on implementation of reforms from the purview of reducing Cost of Doing Business (CoDB).

India needs to sharpen its focus on CoDB. Reducing the cost is critical to not only attract Foreign Direct Investment (FDI) but also to accelerate domestic manufacturing activity. The efforts under EoDB exercise resulted in India jumping 79 places i.e., from 142nd rank in 2014 to 63rd rank in 2019 in the World Banks Doing Business Report (DBR). However, as per DBR 2020 India cost for Starting a Business stands at @7.2% of income per capita, highest among BRICS nations as well as higher compared to nations like Vietnam (5.6%) and Indonesia (5.7%). Dealing with a construction permit is nearly 4% of warehouse value in India whereas it is 2.8% in China, 0.5% in Vietnam and 1.3% in Malaysia.

A new approach A bottom-up approach may be looked upon to reduce and monitor the cost in India. Study on the impact assessment of single window systems across States may be conducted to identify bottlenecks leading to physical interventions, a nodal department can be considered to ensure the predictability and standard timeline of policy changes, an accountability mechanism to reduce delays, and fiscal assessment to achieve reasonable standardisation in the statutory cost across States are few critical interventions.

Further, the national level framework shall be developed that spans across the business lifecycle to measure and monitor the CoDB. Such a framework should be adaptive and transparent to provide ground level inputs to states on the cost scenario in their respective states and should have a target driven approach where states thrive to drive reforms to achieve targeted outcomes.

The economic transformation requires trust-based governance which is set to change the culture of regulatory oversight in the country. For example, the magnitude of punishment against procedural lapses and minor non-compliances by businesses affect the cost of doing business which inadvertently impacts the ease of doing business in the country. It is essential to re-look at provisions which are merely procedural in nature and do not impact national security or public interest at large.

India has become the fifth-largest economy in the world. A boost to productivity of businesses through reduction of CoDB will help the economy gear up for the next big leap. To ensure the effectiveness of the next generation of reforms, the spirit of cooperative and collaborative federalism is needed to enable good governance, support from the states is needed to harness the maximum benefits of the various reforms.

(The writer is Partner and National Leader, Economic Development Advisory, KPMG in India)

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Next generation of reforms should focus on reducing cost of doing business - Economic Times