Cost Of Doing Business

Context:  Though India has made considerable progress on ‘Ease of Doing Business’ rankings since 2016, there are many underlying challenges in ‘doing business’ in India.

Issues associated with ‘Doing Business’ in India

• Pandemic has made countries inward-looking in terms of their supply chain and domestic capacities.
  • It may affect global trade and growth over the medium term and make countries extremely discerning on costs and competitiveness.
• High cost of doing business: India lags behind other countries in terms of high cost of doing business.
  • High energy cost: Price of Diesel in India are 20.8% higher than those in China and 39.3% higher than those in US, due to heavy taxation.
  • In case of electricity, prices for businesses in India were higher by 7-12%, than in US or China and by 35-50% as compared to those in South Korea or Vietnam.
  • High freight costs: Coal freight costs are amongst the highest in the world as high freight rates are used to cross-subsidise passenger fares by railways.
• Regulatory cholesterol: Outsized regulatory levels also pose a significant burden on businesses.
  • Various rules and regulations in small and mid-sized manufacturing sector, and numerous regulations along with changes thereof, imposes huge operational and financial costs on businesses, particularly the MSME segment.

Way Forward:

• Mobilise states to initiate reforms: A majority of the compliances stem from states and reducing the burden would require a significant push on states to act on this front.
• Centre could leverage “carrot and stick” framework, using fiscal incentives to nudge states to act and disincentivise them from maintaining the status quo.
• Reducing the cost of energy and compliances for businesses is must rather than focusing on de jure measures to boost ease of doing business.