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Doing Business in India is even tougher than in Pakistan, SriLanka or Nepal

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Now that does not sound very positive, is it? India touted as the next world super power is unfriendly to entrepreneurs who want to setup shop in India, so much so that war ravaged, terrorism prone, unsettled political economy like Pakistan ranks much above India. Doing business in India is tough…really tough !

World Bank has released the latest rankings for 2009 for doing business in several countries. India not surprisingly is languishing at a ranking of 122. This is a slip of 2 ranks from 2007.

That should not come as a surprise because it has been a while since India has gone through any major reforms. Other intriguing facts are all our neighbors (including Pakistan) of the sub-continent have done remarkably well. Sri Lanka has led the way in the sub-continent with some major reforms.

This report is extremely important because, FDI’s and private equity groups follow it carefully to park their investments. The main reason for India slipping is because most of the African nations have gone through major reforms and thus broke through the rankings.

India did not focus on any reforms since the report was published in 2008. Other factors for India’s downslide are the number of tax payments required by the companies and the inefficiency of court system to resolve any legal matters.

We have recently reviewed Forbes survey for doing business in India. World Bank survey focuses on 10 indicators which includes the time and cost involved to meet the government regulations to start, run and close a business.

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The 10 indicators are:

  • Starting a business
  • Dealing with construction permits,
  • Employing workers
  • Registering property
  • Getting credit
  • Protecting investors
  • Paying taxes
  • Trading across borders
  • Enforcing contracts
  • Closing a business

However, all hope is not lost because a new bill to make doing business easier is already drafted and waiting to be presented in parliament. This new bill will deal with protecting minority share holder interests, the number of partnerships in a firm (increased to 100 from 20), reducing the norms required to starting and running a business to around 400 (this was double earlier) and also a ‘one person company’ which was not possible earlier.

Also, the free trade agreements (FTA) India has signed up recently with ASEAN should augur well for business in 2009 especially for ‘trading across borders’.

Once that bill is passed, I am expecting a significant leap in India’s rankings in coming years.

  1. Tony Lin says

    Hi Sriram,
    This doesn't bode well for someone like myself. As an example, I was looking to setup a division of my Australian company in India to perform my IT development on a permenant basis. This division would be funded from Australia by the parent company and the staff would be employees of the Australian company. The way it currently stands in India, I am more inclined to look at other countries, such as China, Bangladesh or Sri Lanka to setup my ICT division as the setup costs, tax burdens would be greatly reduced.

  2. aman says

    nice post

    There is a government of India website which shows the steps involved for doing business in India and also the forms that needs to be filled. I am not sure how current it is but, its there. It actually outlines how a business plan should be. Surprising right.

    Agreed but I think the fruits of the things you find tougher are more sweeter.
    India has a vast population and see the rural markets . Pakistan and Sri Lanka can’t be compared.
    But the article was very good. :)

  3. jini builders says

    Thanks for sharing…

  4. Mithun John Jacob says

    What about the “bill” ? Is that passed yet ?

  5. Squamble says

    Agreed but I think the fruits of the things you find tougher are more sweeter.
    India has a vast population and see the rural markets . Pakistan and Sri Lanka can’t be compared.
    But the article was very good. :)

  6. Vikas says

    India and Sri Lanka signed a free trade agreement in December 1998 with India agreeing to a phase out of tariffs on a wide range of Sri Lankan goods within 3 years, while Sri Lanka agreed to remove tariffs on Indian goods over eight years.

  7. Gopinath Mavinkurve says

    The number of steps involved in setting up a business is indeed a deterrent, what with several agencies involved.  In fact, the Government has not even put up an official site which lists out the several clearances needed for various industries.  Investors need to grope in the dark.  It is surprising however that Pakistan is better in this aspect.  It is easier to set up a business in Pak? Which one, a training camp for terrorists? Pak is the only country where you can set it up.  For other industries, I am circumspect if it would be any better than India.   The rankings have been drawn without considering some important factors like consumer demand, consumerist activism and the rising middle class numbers in line with the current growth rate.   FII and FDI will continue to prefer India over its neighbours due to these factors.  

  8. Srirama Vadlamani says

    Gopinath,
    There is a government of India website which shows the steps involved for doing business in India and also the forms that needs to be filled. I am not sure how current it is but, its there. It actually outlines how a business plan should be. Surprising right. I know.
    Pakistan is a better country for doing business based on the factors mentioned. However, it does not consider the political instability and the past history of the dictatorship of this country. FDI’s and PE consider them.
    Once you are in Pakistan it has less red tape than in India to start, run and close your business. Now would you chose Pakistan over India is a different question.
    Investors would take a holistic perspective, much broader than the 10 factors listed, to park their investments or start a business. That would mean they would continue to choose India over Pakistan until Pakistan has a stable government for a sustainable period. Until then India will  continue to attract foreign investors.

    Link for government of India website : http://business.gov.in/default.php

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