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Thinning down regulatory Cholesterol for small and medium firms is the need of the hour Niti Ayog survey of ease of doing business says

The challenge of making the grade on global ease of doing business index does not end with the introduction of goods and service tax GST or digitalisation of records but thinning down the regulatory cholesterol for small and medium firms, says a Niti Ayog survey of how the manufacturing sector viewed the implementation of ease of doing business of the central and state governments.

The report is based on an enterprise survey of over 3200 companies in the manufacturing sector across all states. The message coming out of it is unequivocal.

The survey concluded the central and state governments may have done a fair amount to make doing business easier, but they need to do much more, much more.

An enterprise survey of states in ease of doing business is a joint endeavor of the Niti Ayog and the IDFC Institute and the first report was released on August 29 as a parting gift to the country by the outgoing vice chairman of Niti Ayog Arvind Panagariya who is demitting office shortly. The second report will look into the affairs of individual states.

The central and state governments can boost all they want about how they have scythed processes axed paperwork, but businesses, especially small and medium ones, still complain about facing harassment at the hands of field level babus.

The findings are damning. Almost all the state governments boast of having introduced single window clearance system for industries, but the survey reveals hardly 20 per cent companies use the system. As much as 68 per cent do not. And 12 per cent have not even heard of single windows being implemented by the state.

Several state governments promise that they can complete all the formalities in less than a week for registration of a company for starting business. The survey however shows that even in the best performing state of Tamil Nadu, the time taken was 63 days. In Kerala and Assam it takes over 200 days. The average time taken by the states in the country was 118 days.

Land and construction continue to be bugbear for companies. The average time to get the land allotted by the state governments is 156 days. The only exception is Himachal Pradesh which completes the work in less than a month-28 days.

Getting construction permits and no objection certificates takes on an average, 112 days and 75 days respectively. This is an area where corruption is rampant and clearly this needs to be tackled urgently. But will this be done, considering this is a huge money spinner for the bureaucrats?

At a time when the government is grappling with the challenge of giving a boost to employment intensive sectors, the report shows that it is these sectors which deal with more regulatory challenges than the capital intensive ones. The survey covered a large number of labour intensive industries like textiles, food products and non metallic mineral products sector.

The survey reveals that labour intensive sectors are less likely to use self certification under the Minimum wages act and Payment of wages act. 19 per cent of them report that finding skilled workers is a severe obstacle while 33 per cent report about difficulty in hiring contract labour. Terminating an employee remains a problem for 14 per cent of the industries. They faced problems in setting up business, getting land and construction permits and tax related compliance.

Access to credit is another area that the report flags. It shows that retained earnings and personal savings together account for 59 per cent of financing of firms. While 46 per cent of the firms said access to finance is not a problem, 54 per cent said it is either a moderate or a severe obstacle.

Industries which were set up after 2014 took lesser time than the older firms in setting up business, getting land, construction related permits, water connection, sewage connections and labour compliances among others. But they find problems in the case of environment approval, registering for VAT and hours of water shortage.

Another interesting finding of the survey is that the life is easier for businesses in high growth states as against those in low growth states. It also finds that the share of young firms is higher in high growth states than in low growth states. The gap between initiative and the ground reality is pretty large in many cases. This points to the clear need to get the lower bureaucracy on board, using a carrot and stick approach. Merely putting processes online is not adequate the survey concluded.

 


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