Why is it tough to do business in India ?
Why has India managed to move only four places from being ranked 134 to 130 in the ease of doing business in the latest World Bank report? The government had expected a better rating and the Ministry of Commerce admits that it is small companies that continue to face the biggest obstacles in the ease with which they do business in India.
But a feedback from both small entrepreneurs and large multinationals tells a story of how companies continue to complain about bureaucratic hurdles and non-supportive policies that have been legislated by subsequent governments.
Virendra Joshi who heads a company called Demand Quasar Enviro providing energy saving solutions to both individual and large consumers believes the biggest challenge he is presently facing is that `there is no money in the market’. `The money inflow situation is very bad and this has put us all in deep trouble. Earlier, I believe the money used to come from a booming real estate market but this is no longer the case. The downtrend in consumer durables has further aggravated the situation,’ Joshi said.
A leading corporate lawyer believes that non-adherence to regulatory norms established by the Indian government has resulted in the flight of manufacturing from India. He cites the example of Nokia which shut down its factory in Chennai after the government asked for increased royalty.
`Production of the Nokia factory has shifted to Vietnam and 5000 of our workers lost their jobs. This should have been a matter of deep concern for the Indian government,’ he said. He further cited the example of the retrospective legislation imposed on Vodafone as another example.
`Vodafone took their case all the way to the Supreme Court and won at which point the law was retrospectively changed. This is extremely problematic for doing business in the country,’ he added.
`Vodafone won the case in the Supreme Court but Minister Arun Jaitley has not repealed the legislation so MNCs are scared to investing big time in the Indian market,’ he added.
The Geneva-based Swiss lawyer Nathalie Bersier, who has been a consultant for Swiss investments in India and vice versa and has worked in India for many years remains pessimistic.
`India is a great market but the struggle that companies have to set up a business is too cumbersome. Everywhere in the world, you can set up a company within four to five weeks. In Singapore, you can start a company in two weeks. In Vietnam also, it takes two weeks or so but in India, it continues to take many months. Labour laws remain complicated especially when my clients want to set up a factory in India,’ said Bersier.
In 2010-11, the Indo-Swiss Chamber of Commerce was very active but businessmen here are now reluctant to invest in India.` In terms of manufacturing, many other options are available to them including Vietnam, Laos, Cambodia and the east European nations where labor is cheap. They no longer want to start manufacturing products because duties in India remain very high,’ she said.
Putting it very bluntly she said, ` India has fallen off the map ‘.
Citing the examples of several joint ventures that Swiss companies had entered into, she pointed out that luxury items being imported into India face very high taxes with Indian customers preferring to buy the same items outside the country.
`Most companies today prefer to set up two to three distributors and that is how they are conducting their business. But that is not going to create jobs for Indians,’ added Bersier.
Business analysts describe India as being an extremely fragmented and price sensitive market. The country needs to cut down on its red tape in order to attract big moolah so that our ratings can rise for the next ease of business report prepared by the World Bank.
The problem is that other economies are introducing even larger improvements in their economies. India dealt poorly with construction permits where it went down one notch to 185th from 184th. On paying taxes, it has come at 172nd. All of this is from a list of 189 countries. Whether Modi can pull us up by our bootstraps is to be seen.