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Doing Business: Road Ahead

वसुधैव कुटुम्बकम् - The world is one family

History and Introduction:
The doing business has its origins way back to 2002 where first paper published in Quarterly Journal of Economics (Harvard University) by Simeon Djankov and others on titled – The regulation of entry in which they did analysis of 85 countries on various parameters and concluding the impact of entry barrier to a new business entity and its effect on economy.

They compared it with prudent economic theories and come up with a conclusion that:
Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but no better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry.

In order to understand the menace and articulation of doing business and to have its understanding in Indian context, we need to brush up with few basic coverings. There are economic theories which might modeled the intention of a government to frame restrictions for a business entrant and these theories also play the role of making perceptions of aftermath of these regulations on businesses.

The Invisible Hand theory:

In this theory, Market forces have upper hand in determining the factors and government intervention is at the lowest level. Every self-interest is in its invisible way helping the community at large.

The Helping Hand theory

In this theory, Government intervene into markets to keep it stabilize. The Government brings regulations and restrictions. It argues the intervention of government but assume government to be an autistic. It advocates the intervention of government on facet of its social obligations towards society. It assume the government to be completely bonafide and justify government intervention into business as a beneficial policy for overall community. Strict regulations means better quality goods for the society because law ensures various checks and licenses

However, both of the theories ignore the role of politics and assume government behavior as selflessly.

The Grabbing Hand theory

This theory suggests that either way of model of government whether democratic or dictator is at end of day going to work for their own benefits. regulation is pursued for the benefit of politicians and bureaucrats (De Soto 1990). Politicians use regulation to favor friendly firms and other political constituencies, and thereby obtain campaign contributions and votes. In addition, an important reason why many of these permits and regulations exist is probably to give officials the power to deny them and to collect bribes in return for providing the permits.

So more the relaxation in laws and licensing policies by the government, it refers to a situation where government is admitting the corruption practices created by politicians by restricting the new business. This theory also suggest that government do the regulations more strict either to advantage incumbents or for their own. More government intervention is linked up with more corruption practices.

The helping hand theory can said to be more found in socialist economies like Russia where the Government is assumed to be completely bonaide and true to its intentions. One who criticize the socialist countries do their rely on grabbing hand theory.

Thus, the question of who regulates thus helps to discriminate among the theories

Relation of regulation and these theories

There are three measures of entry regulation:
  1. the number of procedures that firms must go through,
  2. the official time required to complete the process, and
  3. its official cost

It is important to note that in the 3rd aspect, the official cost is been chosen instead of statutory fees for the reason being firstly the term cost is wider in scope and will include notary expenses, fees, printing and secondly, a corrupt regulator may also want to set fees low in order to raise her own bribe income if, for example, fees are verifiable and cannot be expropriated by the regulator.

For 2nd aspect each procedure considered as a separate procedure no matter If it related to single purpose. For example, applying for registration from trademark registry is a separate procedure than applying for certificate of information from Registrar of companies. It also noted that the procedure only consider those aspects where a business has to met with an outsider. Hence, the number of board meetings or general meetings required by law do not come within this span.

The helping hand model, in which governments regulate entry to cure market failures, the capture model, in which governments regulate entry to protect the incumbent firms, and the tollbooth model, in which governments regulate entry to seek political benefits and bribes. We do not find convincing evidence to support the capture theory, although our data are probably least suited to test it.

Our results are difficult to reconcile with the helping hand model, and even with the elaborate versions of this model which recognize that the generally benevolent regulation may have unintended consequences. On the other hand, all the evidence is naturally consistent with the tollbooth version of the grabbing hand model. Entry appears to be regulated more heavily by the less attractive governments, and such regulation leads to unattractive outcomes. The principal beneficiaries, if any, are the politicians and the bureaucrats themselves

From 2002 onwards, Doing Business highlights every year the successful reforms carried out by each country. Since The Regulation of Entry was published, Simeon Djankov and Andrei Shleifer have published eight other academic studies, one for each set of indicators covered by the report.

Indian Context:
The World Bank’s Doing Business 2020 study, released by the World Bank last week, showed that India improved 14 places from 77 to 63 out of 190 countries in the Ease of Doing Business (EODB) rankings.

Key reasons for the improvements cited by world bank in its report

Starting a business:

India made starting a business easier by abolishing filing fees for the SPICe company incorporation form, electronic memorandum of association, and articles of association. This reform applies to both Delhi and Mumbai.

Dealing with construction permits

India (Delhi) streamlined the process, reduced the time and cost of obtaining construction permits, and improved building quality control by strengthening professional certification requirements. India (Mumbai) streamlined the process of obtaining a building permit and made it faster and less expensive to get a construction permit.

Trading across borders:

India made trading across borders easier by enabling postclearance audits, integrating trade stakeholders in a single electronic platform, upgrading port infrastructures, and enhancing the electronic submission of documents. This reform applies to both Delhi and Mumbai.

Resolving insolvency:

India made resolving insolvency easier by promoting reorganization proceedings in practice. India also made resolving insolvency more difficult by not allowing dissenting creditors to receive as much under reorganization as they would receive in liquidation. This reform applies to both Delhi and Mumbai.

Road Ahead For 2021:
  1. Consumer Protection law, 2019:

    Business and consumerism are two facet of one single coin. New consumer protection law has come up with concept of product liability and has given more shape to the efficacious remedy to enforce tortious wrong by make material changes to the pecuniary jurisdictions of the forums, and by giving district forums a power to review its own decisions and thus has given enforcement of contracts an additional edge.
  2. IBC bill, 2020:

    The bill seeks to remove bottlenecks and streamline the corporate insolvency resolution process. It aims to provide protection to new owners of a loan defaulter company against prosecution for misdeeds of previous owners. The latest changes pertain to various sections of the IBC as well as introduction of a new section.
  3. Companies amendment bill, 2020

    In order to bring ease of doing business at its pace, companies act, 2013 has been amended in 2015, 2017 and 2019. The Bill of 2020 has bring some significant changes such as Central government empowered to exclude certain class of companies whose debts are listed and not shares from definition of a listed entity. The minimum time limit of 15 days for right issue excluded. All such major changes are aim to bring ease to the startup & established entities and thus ease is in its pace and line of International context.
  4. Arbitration and Conciliation Amendment Act, 2019

    Enforcement of contracts is a key indicator to improve rating at ease of doing business and accordingly, the government of India has put forward the material changes to the same To avoid challenges to arbitral award on ground of appointment of arbitrator, the changes made to the section 11 of law. The qualification and experiences of arbitrator also expressly framed therein. In order to avoid further litigations, confidentiality clause of arbitration proceedings called tighten.
  5. Competition amendment bill,2020

    The 2020 Bill is put for suggestions from public. The Bill for the first time has introduced concept buyers cartel and accordingly changes has been made to the anti-competition agreements. The rule of reason and rule of per se made it more explicit in context of horizontal and vertical agreements. The changes are also proposed to have a single wing of DG in line with CCI. In order to bring corporate resolution at its most ease, material changes introduced in combination provisions under the law.
  6. Administrative & policy changes in nature of sub-delegation

    Administrative law is a key menace of modern executive organ of state whereby which it can cope up with routine practical difficulties of law. In line of same, The Central Government through the concerned ministries has relaxed the Foreign Direct Investment norms in different sectors vide series of Press Note which was issued by Department for Promotion of Industry and Internal Trade. Further, the Merger of banks will help in creating national presence and global reach.
  7. The Banking regulation bill

    In order to ensure governance and control over the Cooperative Banks and concomitantly avoiding similar situation faced by Punjab and Maharashtra Cooperative Bank Limited, the government has introduced the Banking Regulation Bill.
  8. The Code on Social Security

    The way GST has brought simplification in the Indirect tax system by introducing one indirect tax for the entire nation which provided much needed impetus in improving the Ease of Doing Business in India. Likewise, Government has introduced Code on Social Security thereby subsuming 8 Central Labor Acts dealing with Social Security.
  9. The International Financial Services Centers Authority Act, 2019

    In order to provide world class environment to the participants in the Indian market and for the establishment of a unified authority for regulating financial services, the Government has passed the International Financial Services Centers Authority Act, 2019.
  10. The Finance Bill, 2020

    The Government has recommended various changes in the Finance Bill, 2020 not only to ease business environment but also to iron out certain ambiguities including but not limited to abolition of Dividend Distribution Tax, redefining the concept of Residential Status.
  11. Relaxation in FDI Provisions

    After the enactment of Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 the Government has relaxed norms for Foreign Direct Investment in various sectors like Coal, Mining, etc. The said changes are in line with providing ease of doing business providing impetus to much-diversified economy.

Considering the intention of the government and its prominent approach in era of darkness faulted by this pandemic creation, community is hoping for the greater grade in area of ease of business at its most promising result.

Written By:
  1. CS Shubham Budhiraja and
  2. CS Sameer Gahlot)

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