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Any doubts?


  1. Pushkin Negi

    @ Rohit I agree with you on, “ease of doing business” is a prerequisite for a successful “Make in India Campaign”. But looking at the bigger picture,
    without a focused approach from the govt., ‘the ease of doing business’ will remain just a priority area. But with campaigns like, “Make in India”, “Skill India”, the govt will be forced to create a better business environment that eases doing business in India.

  2. Rohit Pande

    How is Make in India going to help in ‘ease of doing business’? Won’t it be otherwise?

  3. Siddhartha Singh

    I’m unable to understand how corruption can help economy? Can anyone explain it in simple language along with some examples?
    Some people gave examples of China and Tamilnadu which have shown good economic growths despite corruption. But how can we say that it is corruption which helped them in growing faster? It may be possible that some more development could have occurred in absence of corruption.
    so plz elaborate it.

    1. Devesh Tiwari

      For example Our black economy helped us to fight with economic slowdown during 2008!

    2. Sajina Ban

      @Sidharth. .

    3. Sajina Ban

      Economic growth rate can reduce the corruption. But lowering the corruption alone did not lead to economic growth. In the case of Tamilnadu maintain high growth over long period is political stability. The same time maharastra is less corrupted state comparing to other state but political instability is reason of low growth. In TN government encourage their educated people with job creation and service people with good compensation. Example every police have self home in tamilnadu by government. .

  4. Sajina Ban

    I remember now koutilya arthasastra makes many cynical reference to corruption that is “just as it is impossible not taste honey that find itself at the tip of the tongue so it is impossible for a government official not to eat up, at least bit of the King revenue”.The same tradition continue even today.
    LIMITATION OF LAW
    to ensure people movement strictly within the stipulated orbit . parliamentary committee contribution in this regarding is not sufficient. Most of the political leaders political agenda is corruption but their black hand shivering because of hypothermia after election win . whistle blower protection law is good one for only their naming. So people try to close their eyes.
    REMEDIES FOR CORRUPTION
    1.need to improve salary structure.
    2 . improve ethics in public life.
    3.well structural ethical code
    4.sharpening accountability etc..

  5. Srinath Sundareswaran

    Why do some countries thrive despite corruption,like China, while others don’t? This question has beguiled me for a while and today because of this discussion I decided to do a little research.

    One research paper I found lays out an interesting argument. It says growth happens in countries where there is huge mutual trust amongst strangers. In China for example, the term Guanxi which means relations is regularly flouted. Investopaedia explains it as, “A Chinese term meaning “networks” or “connections,” understood to be a network of relationships designed to provide support and cooperation among the parties involved in doing business. According to the Los Angeles Chinese Learning Center, by obtaining the right guanxi, organizations minimize the “risks, frustrations, and disappointments when doing business in China.”

    China has also the oldest bureaucracy in the world, right from the Han dynasty and hence there should be an internalization of how to liaison with officers. In modern times with the advent of reforms, one major question among the officers was shouldn’t they also get a part of the pie as it is they who have facilitated it. This led to a sharing of spoils. In addition the benefit of having trust is that by paying you know that you are going to get your services rendered without any consequences. Petty bribes might be mostly to get an immediate solution so exchange is on the spot and service is also promptly delivered and trust remains intact. For big ticket bribes where the turn around time would be more officers are fine with the amount being given post deliverance or even in some cases, post retirement.

    The researchers compares this with Philippines during the Marcos regime. One example of their ineptitude is that cigarette companies (both domestic and international) were asked to pay a tax and one of the companies, which happened to be that of a relative was given a subsidy and hence was able to monopolize the cigarette industry. This is notoriously similar to how the license Raj in India was. Of course here the case mostly was that the monopolizing institution were state owned. The high charges levied on entrepreneurs neither allowed them to innovate, nor gave any reason for the PSU’s to do so and in the middle it was the officials who benefited.

    But given better and more favourable investment conditions such as now can growth and corruption coexist? If we accept the trust hypothesis mentioned above it would be tough to conclude as given our social conditions (caste, communal disharmony, regional disparities etc) it is tough to say yes. Perhaps this too is a reason why corruption isn’t the answer in India. Having said that, a few anomalies do come to my mind.

    Tamil Nadu, where corruption happens at many levels continues to post solid growth. I wonder if this is because of the egalitarian effect which was brought about by figures such as Periyar. (Although caste is increasingly playing a major role these days in TN).

    In the end, all this being said, there will have to be a phase where graft has to be cracked down, as is happening in China right now. Agreeably in China reasons for the current anti-graft measures has as much to do with political issues as it does with economics but it still is a welcome move.

    I agree with much of what Aditya has said and I’m quite the Kantian too except maybe with a slight tinge of pragmatism perhaps because of my love for existentialism.

    1. Rohit Pande

      The Chinese corollary reminds me a similar research I read in Francis Fukuyama’s book. Cannot recall much but I think the kings realised the folly in employing their kiths and kins in the bureaucracy and they had to extricate them for the high posts.

      As with the modern day China’s reference – I agree, economical fishing is more of a natural outcome of political clout for the leaders and it makes sense for 11 jinping to clean the political slate.

      Similar case with N. Korea right?

      1. Srinath Sundareswaran

        Yes, political order and political decay. I can read it post mains only now, provided I get through pre of course. Pre might be the toughest part of the exam this year. Scared!

        1. Rohit Pande

          Indeed it is! The wisecracks have done away with CSAT – long live the kingdom!

      2. Rohit Pande

        haha – indeed. that very book. Amazing treat to read in bits and pieces! I liked the way they made analogies of indian political order/ chinese political order with the way the teacher/ priest is placed. That was interesting. Still have to finish the book.

        He released a sequel to it as well right?

      3. Srinath Sundareswaran

        Yup, I got to know of this part of Chinese history through Fukuyama’s writing too. I believe you are referring to “the origins of political order” ?

        NK is a similar case too. Except its a more straightforward case of being in power, a GoTesque scenario. China is a more complex 21st century scenario where to a small extent public opinion matters and so they feature prominently in the narrative. We live in exciting times 😀

    2. Root

      Amazing comment Srinath.

      Intriguing research and an interesting digression. This is worthy of inclusion into the story trail and we would love to do so.

      Can you provide us with the relevant links here?

    3. Sajina Ban

      Your correct ease of doing business in Tamilnadu is increasing stage now. People are very lucky in tamilnadu Before election and after election because tv ,cycle, laptop etc are free of cost. That is good but highlights is different types of corruption.

  6. Arindam Sarkar

    Whether it is good for the economy or nor has already been determined. The point to ponder now is whether it is an acceptable path to go down. I agree – it’s a means over ends issue.

    1. Rohit Pande

      Okay – I agree, a theft is a theft is a theft.

      But what happens when the faith in the gov machinery erodes. When you have a informed conviction that it’s going to be an endless wait (via the idealistic way).

      Would you indulge in a minor corruption (bribing to get your tender pass which you know is going to help a lot of people coz of your vision) to get things running?

  7. Rohit Pande

    Take this as a pinch of salt –

    What if we say that economic growth itself is a strong guarantor of reducing corruption, because it means that “the resource base from which leaders extract rents expands over time.”

    So, then the political leader has more incentive to stay in power and hence gradually create a feedback loop where high growth reduce corruption.

    And this loop in turn helps in strengthening the present day dysfunctional institutions which became so because the political clout had no taste of economic growth before (hence extortion of sorts was at play).

    Do I make a little sense?

    1. Aditya Kalia

      Your argument can be interpreted in different lights. Without proper checks and balances, the enhanced economic growth can also result in a wider base from which corruption laden commissions can be siphoned off. No doubt economic growth can be helpful in curbing this menace but only if tender etc are allotted transparently. IC&T tools can be handy here. Online bidding systems alongwith all the information in public domain, discouraging cash transactions, proper investigation of Income Tax returns coupled with a fear of law can be helpful. Even something analogous to recently used technique of banks tagging intentional defaulters as ‘Wilful defaulter’ can help in bringing social stigma to the practice of corruption. Besides punishing the corrupt, rewarding the honest can be another deterrent.

  8. Aditya Kalia

    Just to give a little philosophical tinge, i will compare the views of Consequentialists and Deontologists on the issue of corruption. Consequentialists like Jeremy Bentham and John Stuart Mill believe in greater good for greater masses i.e. the ends justify the means. They say corruption is like greasing the wheels which makes the institutions act efficiently. On the other hand Deontologists like Imaanuel Kant believe in the concept of categorical imperative which means that no matter what situation a person is in, he has to act morally. Specifically on the issue of corruption, Kant says that though corruption might increase efficiency momentarily but in the long run, it will lead to erosion of morals in the society. He tries to vehemently criticize consequentialists by saying that consequentialists might also defend the actions of Hitler when he killed millions of innocents believing that he was doing good for the masses.

    Choose your side, guys. Myself, I am inclined towards Kant’s views.

    1. Rohit Pande

      Such heavy jargon(ated) answer! Unintended side effects of reading philosophy, eh 😉

      Let me attempt a quirkier answer in a while.

[op-ed snap] Reducing financial misallocation in India

Note4students

Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Twin balance-sheet problem

Mains level: Financial misallocation and its effects


Context

Concerns about India’s future growth trajectory

  1. The twin balance-sheet problem, of highly leveraged corporate entities and bad loan-ridden banks, has raised concerns about India’s future growth trajectory
  2. If firms are not able to grow, and banks not able to lend, that trajectory will slow down

Financial misallocation in India

  1. Financial misallocation is a bigger problem in the manufacturing sector than in services in India
  2. Growth requires more efficient firms to produce more output and use more factors of production, including greater access to bank loans
  3. But, less efficient firms manage to access more bank loans, leaving less room for growth of more efficient firms
  4. This is India’s financial misallocation problem

Reasons behind misallocation

  1. The underlying cause behind the financial misallocation is distortion in the land market
  2. Access to bank loans is disproportionately tied to access to land, as land and buildings provide strong collateral support for most bank loans
  3. Less efficient firms have been accessing more land and thus more bank loans
  4. This is not a problem for the service industry, which is less land-intensive

Industry distributions of financial misallocation

  1. Most bank loans in the manufacturing sector are taken up by large firms in the organized sector
  2. The small firms in the unorganized sector, which account for nearly 80% of jobs, and about half of the value of land and buildings held in the manufacturing sector, pull in a very small share of bank loans
  3. The value of financial loans reported in the informal sector is barely 2-6% of the value of total bank loans reported in the manufacturing sector

Geographic distributions of financial misallocation

  1. There is a huge spatial diversity in access to bank loans within India
  2. Access to bank finance is significantly higher in the leading states compared to the lagging regions
  3. This is true for manufacturing enterprises in both the organized and the unorganized sector
  4. States like Gujarat, Haryana and Rajasthan have access to financial loans for over 95% of the organized sector plants
  5. Lagging states like Bihar and Uttar Pradesh perform poorly in access to bank loans
  6. The differences in misallocation within India are larger than the differences across countries

Financial misallocation and growth

  1. India is one of the most land-scarce countries in the world
  2. Land and financial misallocation trumps labour misallocation
  3. Financial misallocation has constrained the growth of the manufacturing sector
  4. Rapidly growing firms in asset-intensive sectors require external finance due to their capital growth needs
  5. This is reduced due to financial and land misallocation which explains why India’s manufacturing firms have trouble scaling up
  6. Poorly functioning land and financial markets also explain why India has so few start-ups

Way Forward

  1. India remains one of the fastest growing market economies
  2. Financial misallocation has constrained the growth of the manufacturing sector, a key driver of growth and job creation
  3. Policymakers need to pay more attention to addressing the underlying causes of financial misallocation
  4. This would involve removing land market distortions, better land-use regulations, and more efficient taxation of properties

Centre plans to set up more commercial courts

Note4Students

                 Mains Paper 3: Indian Economy | Issues relating to growth and development.

Prelims:  World Bank’s Ease of doing Business

Mains level: This article highlights the steps the government is planning to take to further improve India’s ranking in the World Bank’s Ease of doing Business.


News

Context

Commercial courts

  1. Days after India jumped 30 positions in the World Bank’s Ease of Doing Business ranking; Law Ministry said the Union government proposed to establish commercial courts in districts to further improve the parameters.
  2. Legal remedy to commercial disputes and enforcement of business contracts are parameters of the World Bank ranking.
  3. In terms of ease of enforcing contracts, India jumped from 172 to 164.
  4. Though the jump in the ranking sounds small, it is substantial given the diversities of laws in our country and the complex demography.

Varying performance

  1. India’s performance has been varied within the legal framework.
  2. For example, the World Bank’s ranking marked court system and proceedings in India 4.5 out of a total of 5, but in management of cases, it was 1.5 out of 6.
  3. India also fared well in alternative dispute redress mechanism and scored 2.5 out of a total of 3 marks.
  4. The government is proposing amendments to facilitate the establishment of commercial courts, at the district level, in places where the High Courts have ordinary original civil jurisdiction.
  5. The specified value of commercial disputes would be brought down so as to expand the scope of commercial adjudication effectively and expeditiously.

Suggestions for New National Mineral Policy

Image source

Note4students

Mains Paper 2: Governance | Government policies & interventions for development in various sectors & issues arising out of their design & implementation

From UPSC perspective, the following things are important:

Prelims level: New national mineral policy, National Mineral Policy, 2008, District Mineral Foundation, National Mineral Exploration Trust, Compensatory Afforestation, Make in India, Mines and Minerals (Development and Regulation) Amendment Act (MMDRA), 2015, Atomic Minerals Directorate (AMD)

Mains level: Various policies of government that need to be revamped in order to provide ease of doing business


News

Niti Aayog’s suggested steps to the mines ministry

  1. Mines ministry is currently in the process of formulating a new national mineral policy
  2. Niti Aayog has given following suggestions to ministry regarding policy
  • Revamp the taxation structure applicable to the mining sector in India
  • Reduce the “widespread instances of corruption prevailing in the administration” of mining rules and regulations through “technology-based monitoring approach”
  • Avoid the tendency to incorporate financial conditions while granting the environment clearance
  • Involve mining sector consultants to evaluate mineral blocks before they are put up for auction

Effect of Supreme Court judgment

  1. On August 2, 2017, the Supreme Court had passed a judgment, wherein it directed the Central government to revisit the National Mineral Policy, 2008
  2. It also asked government to announce a “fresh and more effective, meaningful and implementable policy” before the end of this year

High taxation burden

  1. In its comments, the Niti Aayog has listed a number of taxes and charges that miners pay, which ultimately take their taxation burden to around 65 percent of the revenue
  2. The global average taxation applicable for mining is 40 percent
  3. India is constantly adding to the taxation burden for mining industry with royalty, DMF (District Mineral Foundation), NMET (National Mineral Exploration Trust) and host of other statutory levies implemented by the states
  4. Adding to this are the one-time regulatory costs related to ECs (environment clearances) and FCs (forest clearances) mostly on account of NPV (net present value) for forest land, CA (compensatory afforestation) charges, CA land procurement, etc

Ideal tax system desired

  1. According to the Niti Aayog, it is “necessary to define an ideal tax system for the industry to make it more lucrative
  2. This is especially for the foreign investors, under the Make in India initiative of the Central government
  3. Several regulatory payments like DMF, NMET, etc., have not been subsumed into GST (goods and services tax)
  4. The bidding price quoted by the bidder during auction is subject to GST and the interpretation is that the act of auction by the government is a form of service being provided and hence the tax

Mines and Minerals (Development and Regulation) Amendment Act (MMDRA), 2015

  1. According to this new mining law, non-coal mines have to be auctioned by the respective state governments
  2. Under the old mining law, the states had the powers to grant the mining lease to any company as per their discretion
  3. The Niti Aayog has suggested that the mining blocks that are being placed for auction should be evaluated by agencies having expertise in mineral commodity and as per international codes

Exploration of all the rare-earth and nuclear minerals

  1. Currently, China is dominating this sector with over 90 percent of the world market share
  2. Immediate necessary actions should be taken for the exploration of all the rare-earth and nuclear minerals
  3. It should be carried out under the umbrella of the Atomic Minerals Directorate (AMD) under a subset of the MMDRA Act, 2015
  4. This will reduce India’s dependence on external sources that may not be reliable due to socio-political reasons

‘All major ports to get LDB services’

Note4students

Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

From UPSC perspective, the following things are important:

Prelims level: Logistics Data Bank, Indian Ports Association (IPA), Radio Frequency Identification Tag (RFID), ease of doing business, Special Purpose Vehicle, Delhi Mumbai Industrial Corridor (DMIC)

Mains level: Various initiatives that are being undertaken to improve efficiency as well as ease of doing business


News

The Logistics Data Bank’s (LDB) services to be extended to all major ports in India

  1. Logistics Data Bank was begun to help track containers, reduce transaction costs
  2. Discussions between the Government and the Indian Ports Association (IPA) have begun in this regard

What is LDB project?

  1. As part of the LDB project, each container is attached to a Radio Frequency Identification Tag (RFID) tag and tracked through RFID readers
  2. This, in turn, helps importers and exporters to track their goods in transit
  3. It helps reduce the overall lead time of container movement, besides bringing down transaction costs that consignees and shippers incur
  4. LDB project covers the entire movement through rail or road till the Inland Container Depot and Container Freight Station.

Objective and implementation

  1. The LDB project’s objective is to ensure greater efficiency in the country’s logistics sector through the use of information technology
  2. The LDB project was unveiled in July 2016 as an important ‘ease of doing business’ initiative to boost the country’s foreign trade and bring about greater transparency
  3. The project is implemented through a Special Purpose Vehicle called Delhi Mumbai Industrial Corridor Development Corporation Logistics Data Services Ltd. (DLDSL) — jointly (50:50) owned by the Delhi Mumbai Industrial Corridor (DMIC) Trust and Japanese IT services major NEC Corporation

Also linked to railways

  1. The LDB System has been integrated with the Freight Operations Information System of railways
  2. The move will help users track in-transit rail container movement

Back2Basics

Special Purpose Vehicle

  1. The name SPV is given to an entity which is formed for a single, well-defined and narrow purpose
  2. No SPV can be formed for an unlawful purpose, or for undertaking activities which are contrary to the provisions of law or public policy
  3. An SPV is mainly formed to raise funds by collateralizing future receivables
  4. An SPV is, primarily, a business association of persons or entities eligible to participate in the association
  5. Technically, an SPV is a company. It has to follow the rules of formation of a company laid down in the Companies Act
  6. It has all the attributes of a legal person. It is independent of members subscribing to the shares of the SPV
  7. An SPV can also be a partnership firm

[op-ed snap] A new industrial policy for Bharat

Note4Students

Mains Paper 3: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

The following things are important from UPSC perspective:

Prelims: Not much

Mains level: This article talks about the recently released discussion paper on Industrial Policy 2017 by DIPP .It highlights the issues with it and also gives suggestions on how to make it more effective.

 


News

Context

  1. A recent report by Deloitte LLP pointed out that India’s young population will drive its economic growth to overtake China and other Asian tigers in the next few decades.
  2. The potential workforce in India is set to increase to 1.08 billion in the next 20 years and hold above the billion mark for 50 years.
  3. This requires enabling conditions for growth are created and sustained.

About Industrial Policy, 2017

  1. The Department of Industrial Policy and Promotion (DIPP), released the discussion paper on Industrial Policy 2017.
  2. It highlights the progress made in the last 25 years and facilitates discussions for the formulation of new industrial policy aimed at building a globally competitive Indian industry equipped with skill, scale and technology.
  3. It recognizes the need to gainfully employ a growing workforce and lists long-term and medium-term measures and related challenges.

What does Economic Survey 2017 says about the rising workforce?

  1. It points out that the richer peninsular states in India will initially witness a sharp increase in working age populations, followed by a sharp decline.
  2. In contrast, the poorer hinterland states will remain young and dynamic, characterized by a rising working age population for some time, plateauing towards the middle of the century.

What needs to be done to cash upon demographic dividend?

  1. The poorer states in the hinterland are characterized by a substantial rural, informal economy where agriculture and allied non-farm activities are the principal sources of livelihood.
  2. For India to realize its economic potential, it is this population which needs to be tapped and provided opportunities.
  3. Significant migration in search of better sources of livelihood is also being witnessed from such areas towards urban centres, which needs to be carefully managed.

Issues with the discussion paper on Industrial Policy 2017

  1. The policy does not discuss ideas for creating jobs for and in Bharat.
  2. It follows conventional approach that confines the scope of industrial policy to “manufacturing enterprises”, unrelated to agriculture and the services sectors.
  3. This myopic industrial policy can have adverse consequences in the longer term.
  4. It recognizes the importance of competition and strengthening global linkages and value chains. But incentives to select sunrise sector will potentially disincentivize competition and innovation, and curb the growth of other sectors
  5. This sector specific approach might result in policies soon becoming out of sync with dynamic economic developments and with our World Trade Organization (WTO) obligations.
  6. An effective industrial policy cannot be merely a collection of sectoral policies.

Way Forward

  1. It must appreciate its linkages with agriculture, services policies and with trade, competition and sector-specific policies at a broader level.
  2. A systems’ view informed by a whole-of-government approach is needed.
  3. It will treat the economy like a complex human body, composed of many sub-systems, each of which performs a function to enable the entire system to remain healthy and grow.
  4. The Indian economy has suffered from several ill-advised medications in the past, and more recently as well. Such experiments need to be prevented.
  5. It requires different actors and government departments engaged in specific sub-systems to work with each other.
  6. Stakeholders involved in the design of specific policies must interact with each other and optimize the functioning of crucial sub-systems.
  7. A powerful nodal department in the prime minister’s office should be authorized to ensure coherence through coordination with different departments and related stakeholders, and enable swift decision making within predetermined time frames.
  8. A new forward-looking industrial policy for India must have Bharat as its soul.
  9. A long-term view needs to be taken on competition and trade-related issues, and the industrial policy should avoid the temptation of short-term benefits of over-protectionism.

 

[op-ed snap] Unease of doing business

Image result for Ease of doing business in India

Image source

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

Once you are done reading this op-ed, you will be able to attempt the below.

What are the reasons for India’s low position in World Bank’s “Doing business” ranking? How India should improve to better its rank?

From UPSC perspective, the following things are important:

Prelims level:  World Bank’s Ease of Doing Business Ranking

Mains level: Prepare Ease of doing business in India- problems, government Initiatives, challenges and way forward


News

Context

  1. Last year, World Bank’s Ease of Doing Business Ranking placed India at a lowly 130 out of 150 countries

Niti Aayog Survey finding

  1. Survey by the Niti Aayog and the Mumbai-based think tank, IDFC Institute, reveals that the despite Centre and state government’s efforts to ease the system of permits and clearances, most entrepreneurs still feel hobbled by the country’s regulatory environment.
  2. Most firms do not use the single-window systems for business and regulatory clearances.

Problems

  1. Centre claims that a firm can be incorporated in less than a week
  2. But the survey shows that even in the best performing state, Tamil Nadu, the process takes more than 60 days — on average it takes nearly four months to set up a business in India. 
  3. It is sign of a persistent problem with governance in India: The difficulty of cutting the red tape of the lower bureaucracy. 
  4. The World Bank’s report, last year, highlighted that delays in issuing construction permits affected the ease of doing business in India. 
  5. The report finds that entrepreneurs in these employment-intensive sectors are more likely to face problems and securing construction and other permits, compared to the capital-intensive ones.

The survey should serve as a wake-up call to government and a reminder that over two decades after economic reforms the Indian state is still flailing when it comes to easing the path for entrepreneurs.

Suggest ways to improve EoDB ranking: PM

  1. What: PM Modi has urged the states and the central government departments to immediately analyse the World Bank’s latest report on ease of doing business
  2. And within a month, suggest ways to improve India’s ranking
  3. The nodal agency at the Centre for ease of doing business initiatives – Department of Industrial Policy and Promotion (DIPP), has already sent its report

Doing Business Index: Centre to hold meeting with 17 ‘laggard’ States/UTs II

  1. There are ten States that have an implementation percentage of 90% or more
  2. Andhra Pradesh and Telengana share the top spot
  3. The 340 reform areas are broadly under categories including construction permit, environmental and labour registration, obtaining electricity connection etc

Doing Business Index: Centre to hold meeting with 17 ‘laggard’ States/UTs I

  1. 17 States/Union Territories (UTs) have abysmal performance in effecting reforms for ease of doing business
  2. The Centre will soon hold a special high-level meeting with them
  3. The States include Kerala, those in the entire North-Eastern region and others
  4. They have managed to implement only 25 per cent or below of the 340-point ‘Business Reform Action Plan’ that was circulated in late October 2015

India up one position in WB ease of business ranking II

  1. Reforms: Exporting and importing is easier because of the introduction of ICEGATE portal and simplification of border and documentary procedures
  2. It scored well on protecting minority investors
  3. The overhaul of the Companies Act has brought Indian companies in line with global standards
  4. Particularly regarding accountability and corporate governance practices

India up one position in WB ease of business ranking I

  1. Ranking: India improved its position to 130 in the World Bank Ease of Doing Business 2017 report
  2. Last year: It was placed at 131 according to the revised rankings for last year
  3. India could not improve its ranking more despite reform measures because other countries around it in the ranking list also did well last year
  4. However, India had made a noticeable improvement in the distance to frontier (DTF) score — an absolute measure of progress towards best practices

‘One India’ concept push for ease of business II

  1. Global ranking: India was ranked a lowly 130th out of 189 economies in the World Bank Group’s ‘Doing Business’ 2016 index.
  2. The government aims to ensure that India gets a place in the top 50 soon
  3. Other initiatives: The Centre is already developing an eBiz project that is basically a government-to-business portal
  4. The services offered under the portal are on starting, running and closing down a business
  5. It was introduced in January 2014

‘One India’ concept push for ease of business I

  1. Proposal: The Centre, in collaboration with State governments, plans to introduce a ‘One India’ concept
  2. It will be the biggest and the most comprehensive ‘ease of doing business’ initiative so far
  3. Purpose: Under the ‘one-form-one-portal’ model the processes will be simplified to an extent where investors will need to fill only a single e-form for investing and doing business anywhere in India
  4. Currently: Firms are mandated to complete multiple forms at the Central and state-levels
  5. It gets more complicated as each state has different requirements and regulation

Justice delay keeps investors away: CJI

  1. Source: Chief Justice T.S. Thakur
  2. He said foreign investors continue to be wary of India’s labyrinthine and delayed justice delivery mechanism
  3. Investors feel that Indian courts would delay justice due to them
  4. According to him, alternative dispute resolution mechanisms like arbitration, mediation and conciliation would become effective only if backed by a robust justice delivery system steered by conventional courts
  5. Civil courts should be able to hear and decide challenges to arbitration awards in a time-bound manner

India needs to remove bottlenecks: Singapore PM

  1. Singapore PM: India is not as open for business as investors hope
  2. Why? Land acquisition, over-regulation and legal hassles are among the biggest bottlenecks
  3. For trade to grow, India must make a strategic decision that you want to encourage interdependence and more openness and more trade-based economy
  4. Bilateral trade: India and Singapore have stepped up contacts as a part of the Govt’s ‘Look east, Act east’ policy
  5. However, bilateral trade between India and Singapore has declined year on year, down 11.2% in 2015-2016 to US $15 billion compared to 2014-2015, with Indian exports dropping 21.2% in a year

Let’s know more about National Company Law Tribunal

  1. Constituted by the Corporate Affairs Ministry in June 2016
  2. Under the Companies Act, 2013
  3. It replaced Company Law Board (CLB)
  4. It has been set up at 10 locations, including the national capital, Mumbai, Kolkata, Hyderabad and Chennai
  5. Powers: To delegate inquiry related to proceedings before it, securing assistance of a magistrate or collector to take possession of property etc.

No repeat of 2G, Satyam if laws are sincerely implemented

  1. A sincere implementation of laws including those dealing with insolvency and bankruptcy will ensure that there is no repetition of 2G and Satyam like scams in India
  2. Bankruptcy laws are very strict in the US and Mallya type of instances cannot take place there & if the law is implemented sincerely, it is not going to happen here also
  3. Satyam scam: One of the biggest corporate frauds, which involves financial mis-statements to the tune of about Rs 12,320 crore

Discuss: In the light of the Satyam Scandal (2009), discuss the changes brought in corporate governance to ensure transparency, accountability [UPSC Mains 2015, GS 2]

Simplify factory inspections for ease of doing business: CII

  1. Source: Confederation of Indian Industries (CII) white paper- Inspections and Regulatory Enforcements for Micro Small and Medium Enterprises (MSMEs) in India
  2. The factory inspection system needs a complete overhaul to bring India among the top 50 countries in terms of ‘ease of doing business’ in the next two years
  3. India is currently placed at 130 out of 189 countries in the ‘ease of doing business’ rankings
  4. The excessive number of inspections in India weighs down on the competitive advantage and the ‘ease of doing business’ of Indian businesses
  5. It called for an integrated inspection system and highlighted the need for inculcating a risk-based approach in the inspection system
  6. The system should rationalise the number of inspections and weed out the redundancy and duplicity

Why India wants to be a global arbitration hub?

  1. West domination: Developing countries are under-represented in the international dispute resolution mechanism
  2. 69.8% of the international arbitrators belong to the first world or the developed world
  3. BRICS countries have 42% of the world’s population & 30% of the land area and are contributing so much for the economic ecosystem of the world, why do we see less and less arbitrators from these regions in the world’s dispute redressal mechanism?
  4. Ad hoc: The international arbitration system is ad hoc and quite frequently unpredictable
  5. Bilateral treaties: The current system is problematic & India has had a mixed experience with bilateral investment treaties
  6. Also, need to quickly dispose off frivolous cases and the need to take into account the exigencies of populous nations

India is keen to be a global arbitration hub: Prasad

  1. Law Minister: The international arbitration system is ad hoc and unpredictable & India is keen to become a global hub for international arbitration
  2. Mumbai is coming as a big hub of dispute resolution & Delhi would also come along in the same way
  3. Background: The comments come at a time when Cairn Energy has initiated international arbitration seeking $5.6 billion in compensation from the Indian government against a retrospective tax demand of Rs.29,047 crore made by tax authorities

India slips on business optimism index

  1. News: India slipped to the third position on the scale of global business optimism during Q2 2016 (April-June) Grant Thornton International Business Report (IBR)
  2. India had after remaining on top globally for the two preceding quarters
  3. Concerns: Delays in key reforms like the goods and services tax, non-resolution of tax disputes and the banking sector’s performance

Winding up of National Manufacturing Competitiveness Council (NMCC)

  1. News: Cabinet Committee on Economic Affairs has given its approval for winding up of NMCC
  2. About NMCC: established in 2004 as a part of the Common Minimum Programme (CMP) of erstwhile govt
  3. To provide a continuing forum for policy dialogue to energize and sustain the growth of manufacturing industry
  4. Function: NMCC conducted various studies independently in consultation with several Government Ministries and shared these studies with the Ministries
PIB

Tapan Ray Panel Recommendations

The panel was constituted to suggest amendments in the Companies Act, 2013, to make it easier for companies to do business.

  1. Doing away with any kind of government intervention in managerial remuneration and allowing startups to issue more sweat equity and employee stock options (ESOPs).
  2. Removal of provision under Section 2(87), which prohibited the companies to not have more than two levels of subsidiaries.
  3. Only those frauds which involve Rs 10 lakh or above, or 1% of the company’s turnover, whichever is lower, may be punishable under Section 447.
  4. Section 447 lays down the punishment for any person found guilty of fraud to minimum 6 months imprisonment.
  5. A firm to be called associate company only when the parent firm owns 20 per cent of voting power in it.
  6. Insider trading and forward dealing provisions to be removed from the Act as Sebi regulations already exist.
  7. Institute of Chartered Accountants of India’s regulatory powers to be taken away; National Financial Reporting Authority would be formed.
  8. Private placement process to be simplified, doing away with separate offer letter, making valuation details public.

Companies Law Committee submits report to Government

Suggestions include omitting provisions relating to forward dealing, insider trading.

  1. The Companies Law Committee — constituted in June 2015 to make recommendations on the issues related to implementation of the Companies Act, 2013.
  2. The recommendations including definitions, raising of capital, accounts and audit, corporate governance, managerial remuneration, companies incorporated outside India and offences/ penalties.
  3. Some key changes proposed are regarding managerial remuneration to be approved by shareholders.
  4. The modification of definition of associate company and subsidiary company.
  5. Companies may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement.
  6. Auditor will report on internal financial controls with regard to financial statements.

Government makes it easier to set up companies, do business

The government has unveiled two initiatives to expedite clearances and ensure greater ease of doing business in the country.

  1. These initiatives ensure faster clearances to incorporate companies and improve the ease of doing business.
  2. The Government Process Re-engineering (GPR) involves a 3-pronged approach of further automating some of the approval processes.
  3. By utilising advanced software tools, rationalising and modifying certain rules and engaging professionals to expedite the process of manual scrutiny.
  4. The Central Registration Centre (CRC) will process applications for name availability, submitted online and endeavour to process them by the end of the next working day.

Partnership Summit – Andhra Pradesh

Deals covering a gamut of sectors were also signed—retail, steel and gas, among others, and pledged policy changes that would ensure ease of doing business.

  1. First-ever retail policy by a state in India—that makes it easier for retailers to do business in the state.
  2. It proposes single-desk clearance of business plans, let’s stores stay open longer.
  3. Makes it easier for retailers to acquire land to build warehouses, simplifies labour laws and relaxes stocking limits for essential commodities.
  4. It is aimed at attracting investments worth Rs.5,000 crore and creating 20,000 additional jobs in the sector by 2020.

Up the ranks

India’s improved Doing Business rank puts the spotlight on state and local governments

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  1. The World Bank’s latest “Doing Business” report ranks India 130 out of 189 countries.
  2. One of the main reasons for the improvement was the current government amending the Companies Act.
  3. Another reason, India jumped a 29 rungs in “getting electricity”, changes made by the Delhi and Mumbai electricity utilities, that made getting a connection easier.
  4. India ranks a shocking 183 for “dealing with construction permits”, an area in the exclusive jurisdiction of these levels of government.
  5. The Centre could enact a modern bankruptcy code, as promised in this year’s budget.
  6. A good start has also been made with the formation of a committee to overhaul the 1961 Income Tax Act to make it less litigation-prone.
  7. These rankings are, at best, an incomplete snapshot of micro regulatory constraints that affect small and medium enterprises.

Governments at various levels must note that India is not the most hospitable place for SMEs, which are key for job creation.

 

India moves up in ‘ease of doing business’ ranking

World Bank official lauds efforts of Modi government, ‘It took four months in 2005 to start a business in India, but it takes only 29 days now’

  1. India improved its position from last year’s 134 to 130 in the World Bank Doing Business 2016 ranking.
  2. Last year’s report ranked India at 140, this year’s report features the recalculated 2015 rankings, in which India comes at 134.
  3. The WB Doing Business reports, started in 2002, review business regulations and their enforcement across 189 countries.
  4. Among South Asian economies, India made the biggest improvement in business regulation.
  5. India ranks in the top 10 in Protecting Minority Investors (8).

The improvement in two indicators, ‘starting a business’ and ‘getting electricity,’ pushed India up the ladder.

Stamp out petty corruption for ease of business

Did you know?

  1. An investigative report by The Wall Street Journal said Wal Mart had paid millions of dollars in bribes in India. But not to the biggies!
  2. Many of the payments were of small value, $5 to $200.
  3. That’s what it takes to do business in India. This is a problem for multinationals which end up having to report these bribes.

 

To make it easier to do business in India, the government needs to focus as much on stamping out petty corruption as it does on big-bang reforms.

India now most attractive investment destination: EY

  1. India has emerged as the most attractive investment destination in the world in a global survey of top decision-makers in MNCs.
  2. Perception about India’s macroeconomic stability is up to 76% in 2015 in comparison to 70% in the 2014 survey.
  3. Investors rated India’s domestic market and availability of labour among the most attractive features for doing business.
  4. Investors mentioned implementation of GST and legislation on land acquisition as important for attracting FDI.

Vodafone wins transfer pricing tax dispute case

In a major relief to British telecom major Vodafone in the transfer pricing case, the Bombay High Court ruled in its favour, setting aside a tax demand of Rs. 3,700 crore imposed on Vodafone India.

  1. The case of 2007-8 involving the sale of Vodafone India Services Private Ltd., to Hutchison, and the tax authorities demanded capital gain tax for this transaction.
  2. This is likely to benefit multinational companies such as IBM, Royal Dutch Shell and Nokia that face similar tax demands.
  3. Transfer pricing is referred to the setting of the price for goods and services sold between related legal entities within an enterprise.
  4. For example, if a subsidiary company sells goods to a parent company, the cost of those goods is the transfer price.

India ranks low on inclusive growth, development in WEF report

Ranked in the bottom half of the 38 countries that make up our lower middle income bracket.

  1. India’s overall place in the Global Competitiveness Index 2014–2015 rankings is 71 out of 144 countries.
  2. Particularly disappointing is its position in terms of Fiscal Transfers, where it ranks 37th out of 38. It also ranks very low at 32nd for Tax Code and 36th for social protection.
  3. WEF said that India would need to prioritise improvement would be ‘Asset building and entrepreneurship’, in particular the Small business ownership.
  4. For business and political ethics, India ranks 12th, while it ranks 11th on the Financial intermediation of real economy investment pillar, which suggests that money invested in the economy generally gets directed towards productive uses.

What are the parameters of Global Competitiveness Index ? Why it is important for Indian economy?

India aiming to be among top 30 in ‘ease of doing business’

  1. Currently, India is ranked 142nd out of 189 countries ranked by the WB.
  2. Contributions are expected from initiatives like e-biz portal, GST, mobile platform for setting up business and closer cooperation with states.
  3. Initiatives like Skill India, Make in India, Mudra Bank etc. will further provide an impetus to achieve the target.

Centre to pump Rs. 70,000 cr. into PSU banks

  1. In a bid to boost investments, Centre will over the next four years infuse Rs.70,000 crore out of budgetary allocations into PSU banks – Rs. 25,000 in this year and the next, Rs.10,000 crore in 2017-18 and 2018-19.
  2. NIIF will make equity investments of Rs. 20,000 crore every year in commercially viable long gestation projects.
  3. Reason for the capital infusion is global and domestic slowdown in demand, menace of NPAs and lowered profitability of PSU banks.
  4. NIIF is owned 49% by the govt. outside the purview of the Parliament and CAG, and is run by commercial managers.

A Labour Litmus Test


 

  1. The Industrial Disputes Act proves to be an impediment in the investments in India because of a chapter, which was incorporated into it during Indira Gandhi’s regime.
  2. The chapter V-B has a clause which says that any employer who employs a “specified number” of people has to take prior approval of the govt. in the time of layoffs, retrenchment or closure.
  3. In 1976 this “special number” was fixed at 300 workers but later in a 1984, it was changed to 100, thereby making the provision even more restrictive.
  4. We need to ensure a balance between workers protection and investors confidence.
  5. Indian labour laws are seen as some of the most restrictive in the world.

CCI amends merger regulations to increase ease of doing business

What is the intent?

The changes to regulations are intended to make the paperwork for mergers and acquisitions simpler, and bring in greater transparency, clarity and reduce delays.


 

  1. The measures would make for greater ease of doing business, a parameter on which India has consistently come up short.
  2. India dropped two places to rank 142nd in the World Bank’s Ease of Doing Business report last year.

Govt. to roll out road map for corporate tax reduction

  1. Government in the next 45 days will unveil the road map of how it will go about reducing the corporate tax rate.
  2. Plan is reduce it to 25% over 4 years, and eliminate the existing incentives and exemptions.

Though the effective rate of collection is 23% due to many exemptions but the base rate of 30% is much higher than global standards making our domestic industry uncompetitive.

[Discuss] Can corruption be good for the economy?

We have been talking about Ease of Business and what not, right! Let’s take a quirky detour around the murkier waters and try to answer the question above in the Indian context.


 

Of course, we are not talking about those sinister, outrageous corruption marathons, but what if we say this – a bit of controlled malfeasance can work like a lubricant that makes it easier for us to address some of our most pernicious social ills.

The Fortune begs you to think – 

Most of us fail to imagine that corruption can also grease the wheels of prosperity. Yet in places where bureaucracies and organizations are inefficient (meaning entrepreneurs and big firms struggle to transport or export or comply with regulation), corruption could improve efficiency and growth. Bribes can act like a piece rate or price discrimination, and give faster or better service to the firms with highest opportunity cost of waiting.


 

Although, there is an equally important world view which says this – 

  1. Most of the time, corrupt officials are like parasites that feed off society and benefit only themselves.
  2. Furthermore, as corruption becomes more prevalent, ethical people lose faith in the system and are sapped of their drive to work honestly.
  3. But it’s important to understand that because we live in an imperfect world, a bit of controlled corruption can function as a lubricant to overcome some of our worst problems.

To cut project delays, Telangana brings in ‘Right to Clearance’

  1. Right to Clearance, on the lines of Right to Information, for industrial projects.
  2. For every day of delay in clearance, the State will fine the official concerned Rs. 1,000. No country has such a policy, the government says.
  3. The Right to Clearance is intended to convey a message that the government is determined to create an ecosystem in which ease of doing business “matches and even exceeds the best global standards”.

[cd explains] Bits & pieces of the Doing Business report

 

World Bank team in India to assess ease of doing business

  1. India is currently ranked 142 among 189 nations in World Bank’s Ease of Doing Business 2015 study.
  2. With the exception of 2 parameters (Getting credit and Protecting minority investors), India does not feature in the top 100 in the remaining parameters.
  3. Recent measures taken by the GoI on the ease of doing business?
  4. Removal of minimum paid-up capital requirement for companies, only 3 documents required for exports and imports, removal of requirement of filing declaration of commencement for companies etc.

States to be ranked on ease of doing business: DIPP

  1. Department of Industrial Policy and Promotion will assess and rank them in terms of ease of doing business with the help of the World Bank.
  2. This is aimed at prompting competitiveness among states to attract investments.
  3. By July-end, the result of the ranking would be declared, which would help in further alluring investments.

Centre identifies parameters to ensure ease of doing business

  1. The Centre has identified some 98 parameters to ensure ease of doing business in India.
  2. The measures include digitizing the process of applying for industrial licenses, industrial entrepreneurial memorandum and also setting up of the e-biz platform.
  3. States must benchmark themselves against model nations such as Singapore to achieve industrial growth and attract investment.


:( We are working on most probable questions. Do check back this section.







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