Do We Have Business Environment For Start-Ups?

Do We Have Business Environment For Start-Ups?

Lavleen kaur kapoor

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Published :Tuesday, 20 October, 2015 10:57 AM

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Do We Have Business Environment For Start-Ups?

Soon after winning the 2014 general elections, the Indian Prime Minister (PM) asked the countrymen particularly the youth to gear up for manufacturing boom. He also asked at least one youth in a family to start a manufacturing unit irrespective of its size. In his Independence Day speech, the PM also announced a new campaign ‘Start Up India, Stand Up India’ to promote bank finance for the start-up companies ultimately to promote entrepreneurship which would give a boost to the job creation.

The most important challenge for the country is to provide a gainful employment to the millions of youth being added every year to the workforce. Since agriculture is already overburdened with labour pressure, the new jobs have to be created in the industrial and service sector. For that matter, government is relying on boosting the manufacturing activity in India through two pronged strategy. On one hand inviting the foreign countries to establish manufacturing bases in India by ‘make in India’ drive and secondly creating enabling environment for the countrymen for entrepreneurship through ‘Start Up India, Stand Up India’ campaign.

However, announcing programmes from the ramparts of Red Fort and ensuring them at the ground level are two different things. Let’s take a look at how India ranks among the countries on various procedures required for doing a business. According to the Ease of Doing Business rank (out of 189 economies)brought out by World Bank, India was dropped two places from 140 in 2014 to 142 in 2015.

For a starting up too, India’srank fell from 156 in 2014 to 158 in 2015. Before making the ‘Start Up India, Stand Up India’ a reality, government realise India’s rank in various procedures for starting a business. For instance, on the ease of getting a commercial electricity connection, India was ranked at 137, on property registration 121, tax formalities 156, enforcing contracts 186, trading across borders 126, Construction permits 184 and on resolving insolvency it was ranked at 137 among 189 countries. In a so called business friendly city Mumbai, one had to go through 13 procedures to start a business while in South Asia, average numbers of procedures are 7.9 and in OECD countries, it is 4.8.    

If we compare the Indian business environment with that of Denmark, which was ranked 5th on Ease of Doing Business in the world and first in Europe, one can start a business within few hours after registering and paying at a single window system. The flexible labour laws by virtue of unique flexicurity system (labour security along with flexible labour laws); businesses in Denmark can quickly reorganize and respond to any new opportunity or challenges. In contrast, in India, the World Bank revealed that it is virtually impossible for a prospective entrepreneur in India to obtain a full checklist of permits, registrations and no-objection certificates from any state.The system of land records is not efficient either to gain a guaranteed title.

The procedural hassles in India are of such a nature that any potential entrepreneur may get demoralized even before starting a business and start looking for a job under someone who had already done all the formalities. Nevertheless, some small steps have been initiated by the government to inculcate the feeling of competitiveness among various states in order to cultivate a business friendly environment. Department of Industrial Policy and Promotion (DIPP) has drawn up a list of best practices to be emulated by every state.It includes the practices initiated by some states to improve business environment like Madhya Pradesh's work on easing construction permits, inspection reforms by Gujarat, Maharashtra and Delhi and the single-window clearance system in Punjab. Gujarat had topped the listof ease-of-doing-business rankings in India with a score of 71.14%.

Punjab scored the highest with 81.4% for setting up a business by starting an online single-window system for registrations and licenses that cover most of the regulatory services in the country. Gujarat had a 100% score for complying with environment procedures, while Jharkhand got 100% for complying with labour regulations.The assessment DIPP reveals that on average, only 32% of the proposed reforms have been implemented in India.

Providing an enabling environment for the businesses is responsibility of both central government and states. Innumerable checks, inspections and certificates only make the process complex. Tax reforms with rolling over of Goods and Service Tax (GST) is imperative for the business as it will do away with the need for filing various indirect taxes of central and respective state governments.

Even the Constitution of India has provided the right of freedom of trade and commerce and intercourse by virtue of Article 301. With more than 70 years of post-independence experience, it is quite clear that agriculture is not competent enough to provide a gainful employment to the vast majority of labour and they have to be absorbed be secondary and tertiary sector.

For that matter, country’s manufacturing base has to be increased and a compound growth in secondary and tertiary sector can only be achieved by providing enabling environment, easy credit and improved infrastructure and on all these parameters, there is enormous scope for the country to improve.  

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