With the coming up of the Companies Act, 2013, which replaced the old 1956’s Act, comes an attempt to boost up the Indian Economy in a modular way. But it also invited the more stringent ways to do business in India and had resulted in a setback to its implications. Due to various loopholes in the 2013 Act, the Government issued a number of amendments, circulars, and notifications, making compliance more and more complex. Due to such complexity in the compliance procedures, it has disheartened the incorporation of the new companies. It’s quite apparent that it’s a lot more difficult to start a new business in India than it is to remain engaged in doing an existing one. The companies, whether private or public, have to follow a number of statutory requirements, including certain filing requirements, maintenance of registers, disclosure requirements, along with rigorous penal provisions which include hefty fines and imprisonment which may extend to seven years. So these are the hurdles which the companies in India are facing due to the Companies Act.
1 Different law structures of states
The governmental framework in India is imposing hurdles in the way of effective business due to different law structures in different states. This unique framework is the challenge that most of the multinational companies face in India and is badly intertwined between the Central and State structures. It is not uncommon in India that even the neighboring states have vastly different legislations over the same product.
Let’s take the example of Alcohol; it is allowed in State like Maharashtra, but if you cross the borders of Maharashtra towards Gujarat, it is illegal. This is just a single example and there are a lot many products whose legality, pricing, production, distribution, etc depends on the regulations of each state. This has resulted in the complexity of market access and therefore the scale of benefits is often low. This also affects the investment planning of companies in different states.
2 Hurdles in International Trade
Now coming to the law regulating the import and export in India. It is often a time seen that the importers and investors face a non-transparent and unpredictable regulatory and tariff regimes. The government had made many attempts to improve the international trade, but nothing much fruitful is gain by the regulations. There are still various hurdles in the import and export business in India. Custom duty rates in India may vary from 0% to 150%, which may be specific (rupees per unit) or ad valorem ( percentage of value). Apart from this, there are various charges like landing charges, countervailing duty, educational cess, etc. To move goods efficiently is a challenging task in India and the importers also have to file a list of documents before moving goods across borders. Over the last three years, there has been a steady increase in the import tariff in the name of ‘Make in India’, which undoubtedly has demotivated the foreign investments in India. It is high time that the Government should understand that the objective of ‘Make in India’ campaign is to make India self-sufficient and not to hand out high cost, inferior products in the market.
3 Investment Climate of India
Speaking at the Massachusetts Institute of Technology, Abhijit Banerjee, co-recipient of the Nobel Prize for Economics, shared his concerns about the Indian Economics and said that the Indian Economy is ‘doing badly’. There is a need to revive the investment climate in order to revive the Indian Economy. A recent OECD study has shown that corporate taxes in India are very high amounting to almost 48% when the dividend distribution tax and surcharges are taken account of. If large investments have to be attracted, then the reduction should have been general and the scaffolding approach can only disincentive the companies to grow bigger and better. This only discourages companies from becoming larger. While the Economic Survey is eloquent about the need to transform the ‘dwarfs into giants’, the various measures taken in the Budget to incentivise the MSMEs amount to reiterating that ‘small is beautiful’.
The fall in vehicle registration, despite of the festival season, which fell by 12.9% in September 2019 is another concern for the government which shows the inefficiency of the laws and the budget made to boost up the economy. With regard to the foreign investments in doing business in India, investors can now invest directly in India without prior approval of the Indian Government in most sectors, but there are few sectors where prior approval is still required. Convincing the government about the usefulness of the project is still a big hurdle in foreign investments.
4 Poor Infrastructure
Apart from the laws and regulations, India’s poor infrastructure shown by poor energy supplies, unpaved roads, etc also imposes a big challenge to start a business in India. Investment in sectors that require continuous interface with various regulatory authorities exposes the investor to delays in implementing the project thus affecting their profitability. Foreign investors also face the challenge of dealing with rampant bureaucracy at various levels of federal, state and local governments. All of these together are therefore coaching as an obstacle in the way of businessmen for their proper growth.
Recent Trends Favoring Business in India
No doubt, the Indian government had made a lot of efforts to improve the business structure in India. In six years of the Narendra Modi government, India’s ranking improved 79 places from 142nd in 2014 to 63th in 2019 in World Bank’s Ease of Doing Business Rankings, a record for a major economy. The World Bank said India conducted four reforms in the 12-month period to May 1. “Among other improvements, India made the process of obtaining a building permit more efficient. Obtaining all permits and authorizations to build a warehouse now costs 4% of the warehouse value, down from 5.7% the previous year. In addition, authorities enhanced building quality control in Delhi by strengthening professional certification requirements. Importing and exporting also became easier for companies with the creation of a single electronic platform for trade stakeholders, upgrades to port infrastructure and improvements to electronic submission of documents,” it added.
If you look at the brighter side, India is progressing day by day and have been able to cope up with the challenges of doing business in India. But, we all know there is a long way ahead and being a major economy, India is still not in the top 50 countries of Ease of Doing Business Rankings. It is still a major concern for the Indian Government and we hope in the near future, it will be able to cope up with all these challenges.
Anmol SyanCo-founder, Author
A candid writer, sociable soul, ever-enthusiastic boy and a man full of composure. He is the heart, soul and a proud member of team Law Circa. For any clarifications, feedback, and advice, you can reach him at firstname.lastname@example.org