Businesses are still bogged down by red tape

Sushma Ramachandran

Senior Financial Journalist

Red tape is the bane of the Indian bureaucracy. To some extent, every government is plagued with this issue. British comedy series "Yes Minister" was a humorous take on the Gordian knots into which the state can tie even its political leaders. In this country, a similar maze of rules and regulations has been a disincentive for foreign investors to venture into these shores for many years. Indian entrepreneurs have equally faced the tribulations of the licence raj regime. There seemed to be light at the end of the tunnel with the economic reforms and liberalisation policies that were launched in 1991. Since then, successive governments have tried their best to cut red tape and simplify procedures. Even so, bureaucrats continue to weave a tangled web.

A recent media report on this issue is telling. It says that about 30,000 applications seeking to condone delayed returns are pending with the Income Tax Department. What is even more interesting is that officials are quoted in the report as seeking to study each application individually before taking a decision. The concern over scrutiny is inexplicable given the fact that the Central Board of Direct Taxes (CBDT) has in recent years directed that delays can be condoned by senior officials. The fact that prolonging the clearance of the applications will cause hardship to income tax payers is evidently of little consequence to the officialdom.

This is just one instance of stubborn bureaucracy that has come to light. Conversations with those in trade and industry reveal that there are many cases where regulations have been given priority at the cost of the ease of doing business. In this context, one must note that this government has tried to convert interfaces between businessmen and officials into digital rather than physical ones. Many difficulties have been resolved by this shift towards digital interactions. Yet, those in the industry find that often the digital format becomes unworkable at crucial stages. This was mentioned to me by an executive who noted that the CBDT’s efforts to prevent face-to-face meetings with officials were thwarted by the mysterious collapse of systems. The experience is anecdotal but could reflect a trend, given the corporate sector’s continuing woes over delays due to red tape.

There is also a tendency in recent times for government officials to insist that the Centre has implemented reforms relating to ease of doing business. In fact, at a business channel’s conference of small and medium enterprises where procedural issues were highlighted, G20 Sherpa and former Niti Aayog CEO Amitabh Kant recently stated that the Centre had done its work and it was now for the states to carry out reforms. Given the latest report about thousands of pending income tax applications, it is evident the work is not finished even for Central government agencies.

Yet, it must be conceded that the regulatory framework has come a long way from the days of the licence raj. According to the Economic Survey, the Centre and states together have eliminated more than 39,000 compliances to foster ease of doing business. In addition, over 3,500 provisions related to minor technical or procedural defaults have been decriminalised, while minor economic offences have also been decriminalised under the Companies Act of 2013.

These measures are all to the good, but the fact is, there are still inordinate delays in approvals for setting up and operating a business in this country. This at a time when India is competing for foreign investments with other countries like Vietnam and Indonesia that are reported to have an easier climate for setting up industries. In the case of the former, the advantages include simplified investment rules, low labour costs, tax incentives and its participation in regional trade groupings. Indonesia is also luring many companies looking to implement a ‘China plus one’ policy after a series of reforms making investments easier than ever.

Currently, India is also receiving paeans of praise from foreign investors and media over its attractiveness as an alternative to China. The enthusiasm has grown after the opening of the Apple retail stores that received much positive publicity along with its sizable investments in manufacturing facilities. It has also, along with Samsung, been the driver of the doubling in mobile phone exports over the last two years from $5.8 billion to $11.2 billion in 2022-23.

It is precisely for this reason that the country needs to ensure that foreign investors are not disillusioned by the long time frame and numerous processes involved in setting up operations. While the broad swathe of economic policies cannot be faulted, including the successful production-linked incentive (PLI) scheme, it is the nitty-gritty of setting up a business that remains daunting for investors. Basics like construction permits and power connections, for instance, require innumerable approvals and take a long time. These processes need to be made simpler and quicker.

Many such issues are indeed within the purview of states. Here, there is a glimmer of hope that regulations will be eased as state governments are now vying for a share of the investments flowing from both domestic and foreign sources.

What is encouraging is that states not known for being industrial centres, such as UP and Rajasthan, are trying to attract investors. To do so, they will have to improve their regulatory processes. A lesson to be learnt by these states is that Big Tech is setting its sights on the southern region where the business climate is considered more salubrious. Apple’s collaborators Foxconn, Wistron and Pegatron are making sizable investments in Karnataka and Tamil Nadu, giving a clear indication of the better climate for industry there.

It is, thus, clear that red tape will have to be cut in a big way both by the Centre and the states if investors are to remain here for the long run. Political will must play a major role as the bureaucracy leans towards complexity in procedures. These must end if India is to become a country where it is truly easy to do business.

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