Things Corporate India Needs Freedom From

India has broken into the top 100 of the World Bank’s Ease of Doing Business list from 142 in 2015, and the ranking can improve even further this year when the major reforms of GST and IBC are taken into account. But unfortunately, this is not reflected in the business sentiments as, despite a demand revival, an increasing part is met by imports. Domestic manufacturers are being left behind as we are just not competitive enough due to high factor input costs. While the Government has taken several steps, more are needed for Indian industry to reach its true potential.

A major impediment is the high logistic costs that stem from our relatively inefficient infrastructure. While the Government has tried to address it by accelerating the pace of building highways, the achievement so far has been between 50-60% of the target. Also, there is a need for a more broad-based focus on infrastructure improvements by improving ports, railways etc. and a need to finish pending projects on a mission mode, most notably the Dedicated Rail Freight Corridors. 

Despite the improvements in rakings, we are still faced with too many regulations that undermine the ease of doing business. This could be in the form of multiplicity and overlapping laws/ provisions leading to higher compliance costs or policy instability (norms frequently changed). For example, since the Companies Act, 2013 came into force, as many as 93 amendments have taken place and there remain divergent provisions between it and SEBI regulations that deal with the same subject matter. Regulatory bodies should ideally be facilitators and not regulators alone. A proper alignment of policies/ laws will reduce compliance costs and make domestic industry more competitive.

India Inc. also seeks freedom from the archaic labour laws that inhibit labour productivity and indeed employment generation itself, despite the advantage of lower relative wages. There is a need for bold decisions on this front. The Government made a bright start by combining around 44 labour laws into 4 specific codes, but thereafter action has been almost been at standstill. There is also a mismatch of real skills needed and those actually available, which should also be addressed. 

High finance cost remains an issue even when RBI maintained an easy monetary policy regime for 4 years. Transmission of rate cuts has remained partial due to, perhaps, Banks’ own NPA issues. As a result, Indian interest rates are significantly higher than Asian peers. While SEBI is in the process of mandating 25% of lending through the bond market (a commendable measure to reduce the burden on banks), the market itself needs to be deepened and it is by no means suitable for MSMEs. 

Rising manufacturing imports has led to significant spare capacities, which has further delayed a pick-up in private investments. This is accentuated by the FTAs with Asian partners (ASEAN, Japan, and Korea) that enable imports at a nil duty and/ or concessional rates, leading to a loss of value addition and employment opportunities in India. With domestic industries putting in significant investment to put up capacities, it is important that those investments are safeguarded against dumping/ surge in imports. It should, therefore, be circumspect in joining RCEP, which has China as one of the partners. 

While the Government has succeeded in improving the business rankings, higher ranks would matter little if we are unable to compete on an even footing. Unless India Inc. is freed of the above constraints, we will remain less competitive that will ultimately delay the manufacturing take-off as envisaged through Make In India.