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MACROECONOMICS

PRESENTATION

EASE OF DOING BUSINESS IN INDIA

Group 10
Neha Malhothra
Kajol Makwana
Santhi Krishna
Prativa Biswas
Sathish Kumar
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• The ease of doing business index is an index formulated by the World
Bank Group which indicates the ease of doing business in a country.

• Higher rankings (a low numerical value) indicate better, usually simpler,


regulations for businesses and stronger protections of property rights.

• Empirical research funded by the World Bank to justify their work show
that the effect of improving these regulations on economic growth is strong.

• The index is based on the study of laws and regulations, with the input and
verification by more than 9,600 government officials, lawyers, business
consultants, accountants and other professionals in 185 economies who
routinely advise on or administer legal and regulatory requirements.

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• Doing Business measures the ease of starting
and operating a business by recording all
procedures officially required by an
entrepreneur to start up and operate a
company.

Number of procedures to legally start and operate a company

Time required to complete each procedure

Cost required to complete each procedure

Paid-in minimum capital


A procedure is defined as any interaction of the company founders with external
parties (for example, government agencies, lawyers, auditors or notaries).

• The measure captures the median duration that incorporation lawyers indicate is
necessary in practice to complete a procedure with minimum follow-up with
government agencies and no extra payments.
• It is assumed that the minimum time required for each procedure is 1 day.

Cost is re orded as a per e tage of the e o o y’s i o e per apita. It i ludes all
official fees and fees for legal or professional services if such services are required
by law

The paid-in minimum capital requirement reflects the amount that the
entrepreneur needs to deposit in a bank or with a notary before registration and
up to 3 months following incorporation and is recorded as a percentage of the
e o o y’s i o e per apita. The a ou t is typi ally spe ified i the o er ial
code or the company law

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The index is calculated as the ranking on the simple average of its percentile
rankings on each of the 10 topics namely
Starting a business
Dealing with construction
permits
Getting electricity
Registering property
Getting credit
Protecting investors
Paying taxes
Trading across borders
Enforcing contracts
Resolving insolvency
Employing Workers
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India's ranking
145

140

135
India's ranking
130

125
2011 2012 2013 2014 2015

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DOING BUSINESS 2015 is a World Bank Group flagship publication measuring the
regulations that enhance business activity and those that constrain it. Doing Business
presents quantitative indicators on business regulations and the protection of
property rights that can be compared across 185 economies
Vishakhapatnam 21
Navi Mumbai 20
Gurgaon 19
Kolkata 18
Noida 17
Calicut 16
Jaipur 15
Vadodra 14
Mangalore 13
Hyderabad 12
Chandigarh
Kochi 10
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Ranking
Nagpur
Ahmedabad 8
9
of Cities
Coimbatore 7
Bhubaneswar 6 in 2015
Indore 5
Pune 4
Mumbai 3
Chennai 2 source:Report of GIREM and DTZ
Bangalore 1
1. The olle ted data refer to usi esses i the e o o y’s largest usi ess
city and may not be representative of regulation in other parts of the
economy. To address this limitation, sub national Doing Business
indicators were created.
2. The data often focus on a specific business form—generally a limited
liability company of a specified size—and may not be representative of
the regulation on other businesses.
3. Transactions described in a standardized case scenario refer to a specific
set of issues and may not represent the full set of issues a business
encounters.
4. The measures of time involve an element of judgment by the ex-pert
respondents. When sources indicate different estimates, the time
indicators reported in Doing Business represent the median values of
several responses given under the assumptions of the standardized case.
5. The methodology assumes that a business has full information on what
is required and does not waste time when completing procedures

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Records the procedures, time and cost for a business to obtain all the necessary
approvals to start business
Starting a business requires 11.9 procedures,
takes 28.4 days, costs 12.2% of income per
capita and requires paid-in minimum capital of
111.2% of income per capita

Previous
Year: 156th
Rank
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• PROCEDURE: India still follows the same number of 12
procedures making no changes since 2004.
TIME: India takes 29 days, New Zealand ranks
first as it takes only a day to complete
registration process.
COST: In India, it is somewhere around 12.2% of per
capita income. The cost of completing the procedure
has reduced significantly from 80% in 2007 but it is
still above average
PAID-IN MINIMUM CAPITAL: amount that has to be
deposited in the bank or with notary before
registration or within 3 months of registration. In
India, paid-in minimum capital is around 111.4% of
per capita income. Though there has been a drastic
reduction in the amount to be paid but this is still
much higher
Records the procedures, time and cost for a business to obtain all the necessary
approvals to build a simple commercial warehouse
Dealing with construction permits in India
requires 25.4 procedures, takes 185.9 days and
costs 28.2% of the warehouse value

Previous
Year: 183rd
Rank

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Records all procedures required for a local business to obtain a permanent electricity
connection and the time and cost to complete them

Getting electricity there requires 7.0


procedures, takes 105.7 days and costs
487.7% of income per capita

Previous
Year: 134th
Rank

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Records the full sequence of procedures necessary for a business to purchase property
fro a other usi ess a d tra sfer the property title to the uyer’s a e

Registering property in India requires s 7.0


procedures, takes 47.0 days and costs 7.0% of the
property value

Previous
Year: 115th
Rank

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Assesses the sharing of credit information and the legal rights of borrowers and
lenders with respect to secured transactions

Previous
Year: 30th
Rank

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Measures the stre gth of i ority shareholder prote tio s agai st dire tors’ use of
corporate assets for personal gain—or self-dealing

Previous
Year: 21st
Rank

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* DATA SOURCE : WORLD BANK REPORTON DOING BUSINESS
WHERE INDIAN ECONOMY STAND TODAY?
•On average, firms make :
33 tax payments a year.
 Spend 243 hours a year filing.
Preparing and paying taxes and pay total
taxes amounting to 61.7% of profit.

Previous
Year: 154th
Rank

*Threshold is the highest total tax rate among


the top 15% of economies in the ranking on
the total tax rate. Calculated yearly basis. 24
* DATA SOURCE : WORLD BANK REPORT ON DOING BUSINESS
Exporting a standard container of goods
requires 7 documents, takes 17.1 days and
costs $1332.0. Importing the same container
of goods requires 10 documents, takes 21.1
days and costs $1462.0

Previous
Year: 122nd
Rank

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TRADING ACROSS BORERS
Measures the efficiency of the judicial system in
resolving a commercial dispute before local courts
Contract enforcement takes 1420.0 days, costs 39.6% of
the value of the claim and requires 46.0 procedures
How India and Comparator
economies rank on the ease of
enforcing contracts

Previous
Year: 186th
Rank

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• A judiciary can be improved in different ways.

• Higher-income economies tend to look for ways to enhance efficiency by


introducing new technology.

• Lower-income economies often work on reducing backlogs by introducing


periodic reviews to clear inactive cases from the docket and by making
procedures faster

Source: Doing Business Report, World Bank


Diagrammatic Presentation-Comparison

Indicators India South OEDC Indicators Indi South OEDC


Asia a Asia
COST 39.6 30.4 21.4
TIME 1420 1069 539
PROCEDURE 46 43.3 31.5

1500
50
40
1000 India
India 30
South Asia 20 South Asia
500 OEDC 10 OEDC
0
0 Cost Procedure
Time
• Technology can be proven and pioneered in court procedure
• Floppy disks / CD drives used to save the case files
• Electronic case management system can be used to make it more efficient and used
friendly
• Implementing electronic case file system enabling the following

• In terms of TIME – New services like
• Electronic submission
• Registration
• Service notification
• Access to court documentation

• In terms of PROCEDURE - making it


• Secure
• Timely
• Transparent
• Just
• In terms of COST - implementing
• E-court services
• A robust bankruptcy system functions as a filter, ensuring the survival
of economically efficient companies and reallocating the resources of
inefficient ones.

• By improving the expectations of creditors and debtors about the


outcome of insolvency proceedings, well-functioning insolvency
systems can facilitate access to finance, save more viable businesses
and thereby improve growth and sustainability in the economy
overall.
How India and comparator
economies rank on the ease of
resolving insolvency

Previous
Year: 135th
Rank

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TIME: Time taken
to resolve
insolvency has
been constant at
4.3 years since
2004 and there
has been no
change till today.

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• COST REQUIRED
TO RECOVER
DEBT: includes
court fees,
lawyers’ fees
and other
related fees and
for India it is
around 9% of
de tor’s estate.

Source: Doing Business report World Bank

• RECOVERY RATE:
measures the cents
on the dollar
recovered by
creditors, present
value of debt
recovered etc. In
India, the cents
recovered on the
dollar are less i.e.
25.6 cents.
• Assistance from World Bank
• World Bank Group has worked with more than 70 countries to assist reform
programs aimed at improving the regulatory environment for businesses in areas
covered by the Doing Business project, such as business registration, construction
permitting or insolvency reforms
• Encouraging small and medium size entrepreneurship
• By Implementation of more business friendly regulatory environment for domestic
companies
• Amendments in companies act
• Amendments to be made considering specifically to the doing business parameters
• Going for concern sale
• Regarding outcome recovery rates are higher in concern sale than that of piecemeal
liquidation which is true in case of India according to the Board of Industrial And
Financial Reconstruction
Minimum Wage (US$ Per Month)

Minimum wage for a 19-year-


old worker or an apprentice
over time

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0 South Africa

20 China

40 Russian Federation

60 Brazil

80 India
100

120

140

160

180

200

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• Retrospective taxation means old proceedings are being taxed as per the new rules. It
has the undesirable effect of creating major uncertainties in the business environment
and constituting a significant disincentive for persons wishing to do business in India.

• Taxation of overseas M&A deals: The Indian Tax Authorities have in recent past
questioned the Indian tax impact of overseas M&A deals involving transfer of shares of
an Indian company. The matters are being fiercely litigated.

• India is perceived to have a relaxed attitude towards intellectual property rights,


creating uncertainty for foreign firms.

• The Indian exchange control regulations contained in the Foreign Exchange


Management Act, 1999 govern cross-border transactions involving movement of foreign
exchange into and out of India

• While Current account transactions are freely permitted unless restricted, Capital
account transactions are generally restricted in India unless specified.

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• Neighbouring State Governments have vastly differing legislations on labour, land
acquisition, commercial taxes, priority sector categorisation for incentives, and intrastate
movement of goods.

• The risk of an uncertain regulatory environment.

• Foreign investment policy : FDI caps/approval/condition apply for certain sectors

• FDI is not permitted in certain sector such as real estate, lottery, gambling, atomic energy,
etc

• The process of land acquisition in India has proven unpopular with the citizenry. The
amount reimbursed is fairly low with regard to the current index of prices prevailing in the
economy. Furthermore, due to the low level of human capital of the displaced people, they
often fail to find adequate employment. There have been a rising number of political and
social protests against the acquisition of land by various industrialists.

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• India’s chronic infrastructure and logistics deficit with inefficient transport
networks makes it tough for manufacturing companies to achieve just-in-time
production.

• Rigidity in labour laws imposes significant cost due to provisions in Industrial


dispute act.

• Bureaucracy makes regulatory procedures and systems in India particularly


complex, meaning that foreign managers must spend time learning about how
things work.

• Lack of Directors Liability in areas such as paying back profits and damages
to shareholders in case of wilful damage.

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• Vodafone and Nokia encountered tax dispute with the Indian Income Tax Department.

• Motorola Mobility has closed down its India website and is reducing headcount in the
world’s second largest mobile phone market in terms of subscribers amid rising operational
costs.

• Tata Motors pulled out of Singur where the proposed Nano factory was planned due
to controversy generated by land acquisition

• Tata Motor’s Jaguar Land Rover (JLR) opened its first plant $1.78-billion in Changshu,
China.

• Delta Airlines Inc., United Airlines Inc. and Chrysler Group Llc decided to shift its call
centre operations from India to the US.

• Number of Indian enterprise technology companies are now shifting base out of the country
to grow faster. Lack of sufficient risk capital, not enough profitable exits for investors and
fewer customers willing to experiment with technology are making hordes of entrepreneurs
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take this decision.
• External Commercial Borrowing (ECB) policy liberalized to include the payment for
import of service, technical know-how and license fees as part of import of capital goods by
the companies for use in the manufacturing and infrastructure sector, subject to compliance of
certain conditions.

• Recently, the Government of India has announced the reforms in the FDI policy by listing out
FDI relaxation in various sectors including telecom, petroleum & natural gas refining,
defence, single brand retail trading, multi brand retail trading, courier services, asset
reconstruction companies, commodity exchanges, power exchanges, stock exchanges and
credit information companies. It also allowed e-auction of coal mines.

• The policy is liberalised to allow trade credit to companies operating in all sectors up to 5
years for import of capital goods as classified by Director General of Foreign Trade (DGFT).

• The Factory Act 2013 introduced enhanced corporate governance standards particularly in
relation to the e-governance, independent directors, audit, accounts, Corporate Social
Responsibility, mandatory valuation, private placement of securities, small company concept,
cross-border mergers, class action suits, related party transaction etc

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• The 2013 land acquisition Act focuses on providing not only
compensation to the land owners, but also extend rehabilitation and
resettlement benefits to livelihood looser from the land, which shall
be in addition to the minimum compensation. The minimum
compensation to be paid to the land owners is based on a multiple of
market value and other factors laid down in the Act.

• The Apprenticeship Act has been updated to facilitate increased


private participation in vocational training, compliance requirements
for central labour laws have been simplified and forest- and labour-
related clearances are being moved online.

• GST single goods and services tax that would replace the complex
system of nearly 20 different taxes and levies imposed on
commodities by different states.

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• India has set a target of making it to the top 50 countries in the World Bank's
'Ease of Doing Business' index by 2016.

• Approving a three to six month timeframe for various government


ministries/departments to implement a slew of regulatory reforms, aimed at
making India an attractive investment destination.

• DIPP has been designated as the nodal agency for removing the barriers, has
identified a list of issues from various ministries/departments, which need to be
addressed to improve India's ranking.

• A comparative study of practices followed by the States for grant of clearance and
ensuring compliances was conducted, six best practices were identified, important
bottlenecks faced by industries and important steps required to improve the
business environment in States.

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• Application forms for Industrial Licence (IL) and Industrial Entrepreneur
Memorandum (IEL) have been simplified and has been made online

• Certain Defence products has been excluded from the purview of industrial
licensing

• Initial validity period of Industrial License has been increased to three years from
two years.

• MHA has stipulated that it will grant security clearance on Industrial Licence
Applications within 12 weeks

• Checklist with specific time-lines has been developed for processing all
applications filed by foreign investors in cases relating to foreign investments.

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• An Investor Facilitation Cell has been created in ‘Invest India’ to guide, assist and
handhold investors during the entire life-cycle of the business.

• The registration with Employees Provident Fund Organization (EPFO) and


Employees State Insurance Corporation (ESIC) have been automated.

• DIPP has requested all Secretaries of Government of India and Chief Secretaries of the
States/UT to simplify and rationalize the regulatory environment.

• DIPP is implementing the eBiz project which will create an investor centric hub-and-
spoke online single window model for providing clearances and filing compliances.

• NIC Code NIC 2008 will allow Indian businesses to be part of globally recognized
classification that facilitate smooth approvals/registration.

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 Transnational entrepreneurs (TEs) are individuals that migrate from one
country to another, concurrently maintaining business- related linkages
with their former country of origin, and currently adopted countries and
communities.

 A recent study by the World Bank on the Remittance Market in India Box 1
Remittances from the Indian Diaspora 3 has pointed out that remittance
inflows into India are some 4% of GDP and have surpassed both foreign
aid flows and foreign direct investment (FDI).

 While India received nearly $21 billion from overseas Indians in 2003, the
figure jumped to $64 billion in 2011
 Transnational entrepreneurship contribute to the economic development of their
country of origin.

 Support for entrepreneurs and small businesses in the country of origin.

 Unique combination of ownership advantages, which extend from their expertise


and the networks they have established at different places, to their ability to
forecast new developments in the country of origin.

 They have better knowledge and relationship opportunities that other investors
lack.

 Combine this knowledge with the skills, knowledge and networks they have
cultivated abroad, yielding important synergistic advantages.

 Not only by profit motives but also by long run considerations of establishing a base
in the countries of their origin.
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