Ease of doing business in India

Published: Tuesday, June 14, 2016

Of the 189 nations surveyed by the World Bank group, India’s ranking has marginally gone up from 134 in 2015 to 130 in 2016 with regard to ‘ease of doing business’. Indeed, it is a long way to go if the economic powerhouse has to get its reforms act together and do well in world rankings.

While the government claims to have eliminated ‘licence raj’, the industry still goes through ‘inspector raj’ wherein bureaucrats have a way of throwing the spanner in the works. The NDA (National Democratic Alliance) government under the dynamic leadership of the Prime Minister, Narendra Modi has seemingly ‘come clean’ till now with regard to ‘corruption at high places’. It is at the executive level that files go through a pace which is all dictated by money and clout.

29 days to get a business going

The World Bank has indicated how it has gone about the ranking for India in comparison with ‘ease of doing business in Asia’. It points out that in Mumbai the number of procedures required is 14 to start a business, while it is 7.9 in South Asia. The number of days to get a business going is 29 in Mumbai, while it is 15.7 in South Asia. As regards dealing with construction permits, the number of procedures is 40 compared to 15.1 in South Asia, but India fares better in the number of days it takes to get the permits. It takes 147 days in India, while it 194.6 in South Asia, some consolation.

Getting electricity is not a problem

Though India is facing energy (electricity crisis – demand outdoing supply), the various electricity authorities have shown considerable improvement on decision making. It takes only 53 days to get electricity in Mumbai compared to 141.7 days in South Asia and the cost of getting electricity is 76.5 (percentage of income per capita) while it is a whopping 1386.2 in South Asia. As regards getting credit, India’s ranking has gone up to 42 from 36, so it needs to ensure a line of easy credit.

Logistics performance index, India ranks 54

Meanwhile, the 2014 ranking of the World Bank on Logistics Performance Index (LPI) has placed India 54th out of 160 countries. It has LPI score of 3.08; customs 2.72; infrastructure 2.88; international shipments 3.20; logistics competence 3.03; tracking and tracing 3.11; and timeliness 3.51. Germany which is the top performer has a LPI score of 4.12; customs 4.10; infrastructure 4.32; international shipments 3.74; logistics competence 4.12; tracking 4.17 and timeliness 4.36. India’s ranking must have improved in these two years considering the developments that are taking place.

A Working Group Report by Ministry of Civil Aviation, has said “Evidence from the 2007 and 2010 Logistics Performance Index (LPI) indicates that, for countries at the same level of per capita income, those with the best logistics performance experience an additional growth of 1 per cent in GDP and 2 per cent in trade.” Similarly, according to International Civil Aviation Organisation (ICAO) the output and employment multiplier of the aviation sector are 3.25 and 6.1 respectively. This means every Rs.100 spent in the sector results in an addition of Rs.325 to GDP and every 100 direct jobs created in the sector results in 610 jobs in the larger economy.

Awaiting GST implementation

The issue of ‘ease of doing business’ was one of the subjects at the Mumbai convention of air cargo operators recently. Dr.Renu Singh Parmar, adviser at the Ministry of Civil Aviation pointed out that the Government of India would be soon rolling out the nationwide Goods and Services Tax (GST). The Finance Minister, ArunJaitley has said on several occasions that the government would be pushing the GST this year. With GST coming in, it is bound to speed up logistics processes significantly. “GST roll out will boost GDP growth by 2 to 2.25 per cent and increase exports by 10 to 14 per cent,” she said. Another key aspect specific to the air cargo industry is freight dwell times and she mentioned that the government is working on a way to reduce it. “It is at a dismal stage now. The government has done a study and will draw up a strategy this year. We hope to bring it down to 48 hours within a year.”

High cost of logistics

Another hindrance to faster growth is the cost of logistics which is high in India compared to that of many developed countries. It is about 13-14 per cent of GDP, thus affecting adversely India’s trade. In developed countries it is between 7 and 8 per cent. She reiterated that the government was investing heavily to make India a manufacturing hub for global companies and it was time for the air cargo logistics industry to do its part by investing in India as the government has significantly improved the ease of doing business.

The issues that the government/industry has to address include infrastructure creation at airports. The facilities are inadequate and poorly management, calling for special facilities for express freight, temperature controlled goods, airmail and hazardous goods etc. With the pharma sector doing well in exports, India’s cargo terminals are fairly well equipped to handle pharma shipments. However, in other areas cargo facilities need to be upgraded and modernised. One of the major issues is that only six airports are considered as international cargo hubs in the country – Delhi, Mumbai, Kolkata, Chennai, Hyderabad and Bengaluru, while there is need for more.

The industry is looking at the government to facilitate improved trade movement. Corresponding to the economic survey of 2014-15, India’s import-export trade was affected due to weakened demand in key developed markets of Europe and the US. The industry has sought relaxation in taxes and progressive reforms to boost trade, both export and import. One of the facilitators the industry has underlined is setting up of air freight stations (AFS). It has also sought improvements in customs and excise policies to benefit the international traders, ease of regulatory requirements etc.

The International Air Transport Association (IATA) Airline Industry Forecast 2014-2018 shows that international freight volumes are expected to increase at a compound annual growth rate (CAGR) of 4.1 per cent over the next five years. Emerging economies, particularly in the Middle East and Africa, will be the fastest-growing markets. “Air cargo remains as vital to the global economic system as ever. This year, more than $6.8 trillion worth of goods, equivalent to 35 per cent of total world trade by value, will be transported around the world by air. So it is welcome to see a forecast for a return to growth for the air cargo sector after several years in the doldrums. An average of more than 4 per cent growth for the next five years would be a marked improvement on the performance of recent years. Since 2011, for example, growth in freight tonnes has averaged just 0.63% per year,” said Tony Tyler, IATA’s Director General and CEO. India will be the second fastest-growing market with a CAGR of 6.8 per cent to add 622,000 extra tonnes. Bangladesh (339,000 total freight tonnes), Ethiopia (319,000) and Nigeria (276,000) make up the remainder of the top five.