This article is written by Bhumi Agrawal, from New Law College, BVP, Pune.
Many economies function in the world but what does it take to distinguish any economy from the other? How does any economy stand at a better place than the other?
The Gross Domestic Product growth rate of India in the year 2018 was 6.8% and there is still a long way to go to achieve the denotation of a developed nation. In 2019, a report was released by the World Bank for ease of doing business amongst 190 countries, India stood at the 63rd position and leaped growth as it stood at 77th Position in 2018, New Zealand and Singapore being at first and second position respectively. How do these countries stand in a better position than India, considering the human and monetary resources? What are the amendments required in the current legal framework to match up to these economies?
With the outbreak of the COVID-19 pandemic in march 2020, it has become more difficult for India to improve its economy. The country has been locked down due to which the business has slowed down and the economy has come to a rest. The Hon’ble Prime Minister, considering the plight of the nation, announced ‘Aatmanirbhar Package’ of 307.6 billion dollars (20 lakh crore) to uplift the economy with the motive to make India Self-reliant.
The top 20 countries have easier regulations for online filing of tax, procedures for getting construction permits, international transactions, workers and investors protection, procuring credit, and believes in a higher degree of transparency. India has emerged as a hotspot for doing business in South Asia. The major areas in India where the constraints lie in doing business are ease of enforcing contracts, faster resolution of commercial disputes, ease of registration of property, etc. It has been mentioned in the World bank report 2020 that India is amongst the economies that have shown significant progress in the past years.
The world bank has set certain benchmarks for the ranking of these economies. The benchmarks are as follows:
- Starting Business
In India, the Prime Minister has announced the Make in India campaign and the Aatmanirbhar Package, which enhanced the competitiveness in the private sector, attracting many foreign investments in the Country. Even after all these efforts, the country is not a feasible place to start a business it is because of the tremendous amount of documentation required. On the other hand, in Singapore and New Zealand, little documentation is required and the procedures are also very accommodating. That is why it is said, it is easier to do business in India than to start it.
- Dealing with Construction Permits
The process of getting construction permits in India is tedious and tiring whereas it is cheaper and easier in New Zealand and Singapore.
- Getting Electricity
The world bank considers the performance of four parameters for getting electricity, (i) Number of procedures; (ii) time for obtaining a commercial electricity connection; (iii) Cost for obtaining a commercial electricity connection up to 140 KVA; and, (iv) Reliability of power supply. Efforts have been made by the government to reduce such procedures and cost but the focus is always given to the cities whereas, it is not always feasible to start a business in cities and therefore due to lack of reliable supply of electricity in backward areas, India is not always opted for doing business.
- Registering Property
India ranks at 154th position globally in the registration of property index by the world bank, it is mainly because of the huge documentation, time, and cost required. Whereas, New Zealand and Singapore stand at 2nd and 8th position globally, with the easier registration procedure.
- Getting Credit
Earlier it was difficult to procure credit but as per the Aatmanirbhar Package, the micro, small and medium enterprises are given credit collateral-free and the guarantee will be taken by the Government. Steps are being taken to encourage business in India for the citizens but legislations are required to make it easy for foreign investors also.
- Protecting Minority Investors
Various initiatives such as Know Your Customer (KYC), foreign portfolio investor (FPI), etc are taken by SEBI and Many legislations have been incorporated like the companies act 2013, Securities Contracts (Regulation) Act, Consumer Protection Act, Depositories Act, etc to protect the minority investors interest. The minority shareholders can move to the national company Law tribunal in case of any oppression or mismanagement. SEBI in corporate Governance norms,2012 has emphasized the fiduciary duty of controlling shareholders towards minority shareholders. Therefore, there are ample laws in India to safeguard their interest.
- Paying Taxes
The payment of taxes must be done transparently to avoid even the slightest chance of corruption. In India, legislation is required to make the filing of taxes simpler, and online filing has to be encouraged.
- Trading across Borders
India has always been a country that has supported import-export relations with other countries post the New Economic Policy,1991. India made trading across borders easier by enabling post-clearance audits, integrating trade stakeholders in a single electronic platform, upgrading port infrastructures, and enhancing the electronic submission of documents.
- Enforcing Contracts
In India, according to surveys, it takes almost four years to enforce a contract and is ranked in 178th position globally whereas, in New Zealand and Singapore, it takes six months and 150 days respectively. The total cost of enforcing the contract in India is 39.6% of the claim as compared to only 25% in Singapore.
- Resolving Insolvency
India is ranked at 136th position in resolving insolvency globally due to which many old laws have been scrapped and the Insolvency and Bankruptcy Code,2016 is constituted to gain the trust of moneylenders. Under the Insolvency and Bankruptcy code, the 2016 amendment has been made in 2019 providing that the Corporate Insolvency Resolution Process must be completed within 330 days from the date of its commencement. Also, amendments have been brought to empower the Committee of Creditors (CoC) to decide whether to liquidate or to rehabilitate the corporate Debtor (CD). Although more amendments are required to strengthen the code.
Impact on the Economy Post Covid-19
With the outbreak of the pandemic, the Prime Minister to stabilise the economy realised the need to promote the idea of localisation being vocal for local and therefore, introduced the Aatmanirbar Package which provides for various schemes that encourage micro, small scale industries in the country. Localisation refers to encouraging the use of products made in the home country rather than opting for foreign-made products. The idea of globalisation will not be very successful during the COVID period as economies are trying to prevent the spread of the disease. There must be a ban on the import of unessential goods and services, the idea of localisation must be encouraged amongst the citizens. The laws must be enacted that provide flexibility to the Indian investors and entrepreneurs, and provide easy credits to them. India has the human resources which were earlier utilised by the MNCs, now is the time for India to utilise it for their good. These start-ups will not only boost the Indian Economy but will also create employment opportunities for the citizens.
For any economy to prosper and lure investors, it is very important to consider how friendly the laws of the country are. The laws must be such that they do not put any burden on the entrepreneur. With the introduction of Goods and Services Tax (GST), taxation was supposed to make simpler and uniform taxation throughout the country but the act was not implemented properly, the act failed to segregate properly between goods and services which gives a benefit of doubt to the taxpayer to evade tax, resulting in higher input tax credit malpractices (ITC) and lesser tax income in the hands of the government. The tax filing process has been made more complex which defeats the whole idea of a simpler tax-paying system.
Considering the condition of the economy, the legislation came up with Competition Amendment act, 2020 which strives to strengthen the principal competition act of India, realizing the faster need of dispute resolution and providing the Competition Commission of India (CCI) with greater powers thereby, emphasizing to reduce litigation rates in India. There are certain loopholes in the amendment act as it is silent on the procedure for compounding of offenses by the NCLAT and the precedential value of the orders made by CCI.
Two other areas must be considered before doing business are the guideline on utilizing workers and contracting with the administration. In India, there is ample room for the labour force and makes it the duty of the government to protect the interest of such individuals. India has many labour laws, many of which are outdated with minimal amendments made in them. Such many laws make it difficult for the employer to employ the labour with constant fear to abide by all such laws. It is needed to implement one uniform law and to arrive at a balance that protects the interest of labourers and attracts the employer to do business in India. There is a constant tussle between promoting business and protecting the interest of labourers. To enter into government contracts is a bit of a task in India. The parties have to go through a hectic documentation procedure and is very time consuming, as all the contracts are made public.
The central government has proposed to decriminalize dishonour of cheque mentioned under section 138 of the negotiable instrument act, 1938, all these steps are taken to relieve the businessman from facing legal complexities during the times of pandemic.
The ordinance titled, insolvency and bankruptcy code (amendment) ordinance,2020, inserted Section 10A which has given relaxation to companies, a corporate insolvency resolution process cannot be initiated against a corporate debtor on or after 25th March 2020 for a period of six months. This step has been taken to protect the interest of such corporate debtors in the times of lockdown and to encourage them to do business. This amendment can be used in a mala-fide manner too, by the companies but this step is necessary for the time to encourage Indian businesses to prosper.
Due to lacuna in data protection laws in India, it becomes very difficult to reduce documentation and implement documentation processes online, thereby hampering transparency. The use of Artificial intelligence (AI) for taxation, auditing, and dispute resolution can be very helpful. The impact of Artificial intelligence is boosting the economy is commendable, various developed countries have inculcated the use of AI in their day to day activities. There are no laws in India that deal with Artificial intelligence.
India must encourage alternative dispute resolution (hereinafter, ADR) for faster dispute resolution, this will not only provide prompt resolution to the problems but also will relieve the court from pendency of a huge number of cases. Indian legislation provides for arbitration and Conciliation Act,1996 and time, and again amendments are brought in the same to make India an arbitration-friendly nation. Pre-litigation mediation is made mandatory in commercial cases which is a positive step taken towards promoting ADR. Due to pandemic, Indian courts have started resolving disputes using technology introducing the concept of virtual courts. Online dispute resolution has started getting prominence in pandemic times for faster dispute resolution. Lack of awareness still acts as a stoppage in the promotion of ADR.
The majority of the population in India is youth, that gives bounteous brains to the country in fostering growth. It is time for India to become self-sufficient first and then focus on doing business at a global level. To become self-sufficient during the times of pandemic, Indian legislation must implement laws that are entrepreneur-friendly and take more such steps that give relaxation to industrialists already operating in the country. For the reason that of the absence of rigid laws and a ton of political issues in the nation, numerous speculators falter in putting resources into the nation. Doing Business requires regulation that encourages competence and supports liberty to do business. India is in dreadful need to implement changes, with its abundance in resources it is very much likely for India to emerge as a stronger and dominant nation. It is time to analyse the working of other countries and to learn from them as to how they emerge so successfully and where we go wrong.
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