The Hindu Business Line, October 10, 2014

By Pradeep S Mehta

It’s time to sweep away the pervasive red tape that makes India one of the most difficult places in which to do business

It’s time to sweep away the pervasive red tape that makes India one of the most difficult places in which to do business

The Clean India campaign can serve as an inspiration and a metaphor. After all, we also need to clean up the maze of regulations to enable a success of the Make in India campaign. Both need a blitzkrieg approach.

A web of policies, laws, rules, regulations and variable practices, have earned India a poor ranking of 134 out of 189 countries in the World Bank’s Ease of Doing Business in India index. A mammoth task such as building millions of toilets can be achieved if there is a regulatory clean-up across all levels of government — Central, State and local.

As with the Clean India project, the Make in India project requires will, a national campaign and a huge change in mindset. This includes getting rid of fears surrounding the endeavour to industrialise, create jobs and entrepreneurs, and ameliorate poverty.

Pervasive red tape

The strong will demonstrated by Prime Minister Narendra Modi and supported by his ministers, needs to percolate to the grassroots. One senior official in the power ministry told me that he feels more energised these days, as against in the past when he was busy attending meetings, pushing files and watching his back. This energy is percolating to our States and local bodies, but in driblets. The challenge for the Central Government is to orchestrate a sustained national campaign, handholding the States in this endeavour. This would, in turn, involve getting the States to handhold the local bodies.

We have set a target to increase the share of manufacturing from 15 per cent to 25 per cent by 2025, but there is little progress as of now. On the other hand, our competitiveness has tumbled to 71 in 2014 from 60 among 144 countries, according to a World Economic Forum report. On the Asian Development Bank-Economist Intelligence Unit’s Creative Productivity Index, we are 14th in a list of 24 economies. This report highlights the fact that regulatory hurdles, red tape and corruption provide little incentive to the private sector to invest in innovation. Without innovation, there cannot be manufacturing growth.

Other than the regulatory burden there are issues, such as infrastructure, fiscal matters, education, health, civil service reforms, labour, and land and economic regulation which need to be addressed. But one major issue is to enable entrepreneurs to start new factories and run them without the hurdles they face on a daily basis. For SMEs it is a huge task; big investors are able to overcome hurdles more easily, given their deep pockets.

We need big investment which creates opportunities for SMEs upstream and downstream. FDI policies are being liberalised, yet there are many hurdles. We also need to ensure that Indian investment is domesticated, rather than flee abroad. After the recent Supreme Court order cancelling all captive coal mining licences, one CEO remarked: “It is not the time to Make in India…It’s time to run from India.”

‘Three brooms’ needed

Ease of doing business will not improve automatically. It needs a structural revolution, and what better way than to create a clutch of brooms to improve the macros and clean up the red tape as well.

The first broom is to clear reservations about trade and investment liberalisation. We need to get into global value chains, as over 60 per cent of international trade takes place through this route. Our international trade is not really enmeshed into value chains. That can happen only if we open our borders to foreign trade and investment, and not just for our consumption. Simultaneously, we need to strengthen our regulatory regimes through an optimal approach rather than a heavy-handed approach, to ensure that gains are not cornered by a few.

The second broom, or a set of them, would have to clean up red tape. This requires a multi-pronged and multi-level approach. The first step is to invite businesses and other stakeholders to share their views on the hurdles faced by them on a website created at the Centre and in each State and offer incentives for them to do it. The second is to collate the same, prepare a map and publicise the effort. The awareness generated will lead to a mindset change. The third step is to carry out regulatory impact assessments with cost benefit analysis of the changes proposed. Of course, one will have to deal with vested interests in the process.

Thinking out of the box

A business development and reforms commission at the Centre and in the States headed by cabinet ministers and armed with RIA instruments can push out-of-the-box thinking and action.

The third set of brooms will be needed to clean up the mess in our local government. For example, India ranks very low in the area of construction permits. Clearing this jungle will lead to better governance. For the low ranking on contract enforcement, the judiciary needs to be incentivised to cut the delays in settlement of disputes.

Like drivers being the major cause of road accidents, lawyers are mainly responsible for judicial delays. The Chief Justice should look into the matter.

Finally, changing mindsets will need a campaign from the top leadership at all levels. Indian bureaucracy lacks a sense of proportion. For instance, allowing a used after-shave bottle of 103ml in the hand baggage when checking in for a flight as against the rule of 100ml will not cause a catastrophe. But to get ahead in these areas, we need radical and structural reforms in our civil service and systems.

The writer is the secretary-general of CUTS International

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