The growing Indian industry – An assessment of government reforms
Did you know that India has jumped a record 30 places in the ‘World Bank’s Doing Business Report’- 2018 to achieve 100th rank? In fact, the country was one of the top performers and was credited with registering the highest ever jump.
Three years ago, the Indian Prime Minister Modi announced an ambitious aspiration to take India’s rank in the World Bank’s Doing Business report to 50. Bringing it somewhat a bit closer to this number, India has been placed amongst the top-five countries that have improved its ranking in the ‘World Bank’s Doing Business 2018’ Report. And for the first time, India was ranked in the top 100 economies listing.
Does this upscale ranking affect the business ecosystem and the employment industry as a whole?
Of course, Yes!
The World Bank report is the first reference point for investors who plan to do business in other countries. The rankings are closely monitored and evaluated to determine the investment attractiveness of a country. For a country that aspires to create over 12 million jobs annually, remaining investor-friendly is an absolute necessity. Employment generation is the best by-product of an investor-friendly nation. And it is a huge relief, that Modi Government has been able to generate some level of optimism in the investment climate thus boosting the business ecosystem.
As per the World Investment Report 2017; India remains the second most attractive FDI destination in Asia after China. "The automobile industry by far has received the maximum boost from FDI giving employment to approximately 25 million people directly and indirectly in the year 2016. "
For the first time in 14 years, there has been an upgrade in India’s sovereign rating by Moody. India has also recorded the highest growth rate amongst the BRICS economies, i.e., Brazil, Russia, India, China and South Africa. The government’s focus on Ease of doing business (EoDB) reform and its concerted efforts have led to improved results. However, looking into the specifics of ease of doing business the average procedures in starting a business in Mumbai is 14 as compared to an average of 6 procedures to start a business in the US.
This highlights the urgent need to bring in various operational reformative measures to propel growth in the internal regulatory business environment. As per the government, it has taken 7,000 steps at the central and state level to simplify the business regime affecting the existing and would be entrepreneurs of the country. An improved online application system for getting PAN and TAN has eased out the application process system to a greater extent.
From easing the application process system during the start of the business venture to the introduction of the electronic payment system and simplified compliance norms for corporate income tax; the government is making an effort at the State and Union Territory (UT) levels to bring in more operational efficacy. More than 100 reforms have been identified by the Department of Industrial Policy & Promotion (DIPP) and are being coordinated by seven nodal ministries appointed by the Prime Minister’s Office.
On the ecosystem for Startups
This brings back the agenda of evaluating India’s preparedness on creating a culture and eco-system of startups. Do the given below numbers sound encouraging to the business ecology?
As per last year’s data, India had only 140 incubators and accelerators that puts it way behind the United States which has approximately 1,500 incubators and accelerators. Such numbers are not encouraging ones when you compare it with roughly 4x ratio of population vis-à-vis that of US. Also, with nearly one-sixth of the world population living in India, it had only ten unicorn companies whereas the US had 98 unicorns with 4x fewer people. In India, VCs have migrated “up-market” and have herded around the technology sector. There is a lot which needs to be amended in the space of startup ecology.
However, looking at the brighter side; while the United States is still the startup capital of the world, the Indian startup ecosystem has grown into the third largest startup landscape in the world. India is also 3rd overall in the number of startup incubators and accelerators, after China and the US. India is ahead on indicators like getting credit, protecting minority interest.
Encouraging start-ups to thrive and grow has been one of the biggest agenda taken up by the current Government. And to improve the Business Regulatory climate of the country, Modi Government has introduced the Insolvency and Bankruptcy Code (IBC). With the amended code, aiming at 180-day time-bound process to resolve insolvency, the bidders will make their assessment while submitting a resolution plan, thereby catering to a better recovery rate. This will also allow secured creditors to opt out of resolution proceedings. Before the passage of this code, it took 4.3 years in India to liquidate a business.
In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 million) in Maharashtra to set up multi-format stores and experience centers. The investment arm of the World Bank Group (International Finance Corporation), is planning to invest about US$ 6 billion through 2022 in several sustainable and renewable energy programmes in India. The World Bank has stated that private investment in India is expected to grow by 8.8 percent in FY 2018-19 to overtake private consumption growth of 7.4 percent, and thereby drive the growth in India's gross domestic product (GDP) in FY 2018-19. All these efforts collectively are expected to propel an enabling ecosystem to bring in a more participative business environment in future.