The government should reform labour laws and make them more flexible to make it easier to do business in the country, the NITI Aayog said in an Ease of Doing Business report.
The report, based on an enterprise survey of 3,276 manufacturing firms, was prepared jointly by NITI Aayog and IDFC Institute and released on Monday by Union Minister for Law Ravi Shankar Prasad and Minister of Commerce and Industry Nirmala Sitharaman.
“According to our survey’s finding, firms in labour-intensive sectors find compliance with labour-related regulations particularly onerous. This fact translates into enterprises avoiding the labour-intensive sectors,” according to the report.
The survey found that more enterprises in labour-intensive sectors reported that finding skilled workers, hiring contract labour and terminating employees was a major or a severe obstacle.
Such sectors also reported a significantly higher average time taken for environmental approval and more days lost due to strikes and lockouts, it said.
“…more flexible labour laws will allow enterprises to grow larger and reap economies of scale, generating productivity improvements, jobs creation and higher growth,” it added.
The report pointed out that there is a vast gap between what the enterprises know and what the government officials say they have done to improve procedures related to various permits and clearances. “Information dissemination so that enterprises are aware of ways to ease the compliance burden of regulation…can yield substantial gains in productivity at relatively low costs.”
As per the report, among start ups only 20% report using single window system for setting up business and even among experts only 41% have the knowledge of the existence of the facility.
The report also pitched for accelerating power sector reforms to ensure that power-intensive enterprises have access to steady and uninterrupted power without undue delays or regulatory burden.
“We must reduce sclerosis in the structure of the industry by encouraging the entry of new enterprises and expediting the timely and least costly exit for sick enterprises, which wish to exist,” it recommended on the basis on the survey findings.
The report also highlighted that half of the enterprises do not borrow from financial institutions and about a third consider lack of access to finance as a major source of obstacles for business in the country.
“This suggests that enhancing the access to low-cost capital to business could be an important vehicle to improve business environment, especially in poorer states such as Bihar," it said.
Adding that there is a significant and robust relation between a favourable business regulatory environment and greater economic activity, it said if India is to enter the 'double digit’ economic growth club, it will need to continually streamline and improve the business environment.