Doing business gets tougher in India

If 9 per cent growth is possible despite time-consuming decision making processes, imagine what we could do with more efficient governance!

The World Bank periodically publishes studies titled "Doing Business" which rank different countries in terms of the difficulties in doing business. Last year we ranked 116 out of 155 countries covered; in the latest report, we have slipped to 134 out of 175 - China is 41 places ahead of us, and Singapore is number 1.

Clearly, despite all the liberalisation, doing business in India is not becoming much easier. Quite apart from bureaucratic hassles, procedures and corruption, the want of stability, consistency, and completeness in policies and regulations, also add to the difficulties.

Take the case of special economic zones. The act was passed back in 2005 and the rules framed in 2006. There is a "National Policy on Resettlement and Rehabilitation for Project-Affected Families" since 2003. A couple of weeks back, the 'empowered Group of Ministers' came out with new norms on some of the basic issues, when a few hundred SEZs are at various stages, but not one is functioning.

Most of the parameters now specified by the eGOM seem to be numerical compromises rather than coming from an analysis of the issues. The area earmarked for processing (that is, actual manufacture) has been increased to 50 per cent (Why? Why not 60? Or, the earlier 35?). The size has been limited to 5,000 hectares. This would mean that we would have, Inshaallah, a large number of small zones.

Our policy does not seem to take into consideration the administrative cost, hassles and inefficiencies which a large number of small zones, many of them inland, would lead to; the need for world scale enterprises with room for expansion, and world class infrastructure. (Incidentally, earlier there was only a lower limit of 1,000 acres).

One positive feature is that state governments should not acquire lands on behalf of private developers who should directly negotiate with the landowners. (Then why the limit on size?) While this is welcome, the eGOM has left unanswered thorny but crucial questions like what to do if a small minority of landowners refuse to sell, tax issues and labour laws.

It also calls for a new relief and rehabilitation package to be announced soon. What happened to the 2003 one?

A letter from Sonia Gandhi, questioning the use of agricultural land for SEZs, was the provocation for the appointment of the eGOM. Shouldn't somebody have pointed out to Gandhi that the total farmland in the country is in excess of 1.5 million sq km, and that only 1750 sq km (or just about 0.1 per cent) is required for the SEZs? Or that many Haryana farmers have become crorepatis by selling land for SEZs (Times of India, April 8), so others are worried about the cancellation of SEZs under the new dispensation (Economic Times, April 9)? Perhaps the eGOM package was merely a "default consensus", splitting the differences rather than taking any well thought out stand.

Take, again, the question of Vodafone's takeover of Hutch. There are questions whether HTIL, the holding company, had contravened existing guidelines limiting foreign investments in telecom companies to 74 per cent.

Quite apart from the logic of the limit, what puzzles me is why the issue is being raised now, and the way the ball is being tossed about. (RBI to finance ministry to law ministry to Accountant General to …). After all, the details of the holdings of HTIL, Essar's foreign company, and those of Asim Ghosh and Analjit Singh have been known for a
long time now.

Why were the questions not raised at the point of time at which the shareholding pattern was established and became known, which was more than a year back? Will the FIPB cleared investment of Malaysia's Maxis in Aircel be reopened on the same ground? What signal do such decision making processes send to foreign investors?

As it is, Moody's has warned that risks associated with lengthy and uncertain land acquisitions and delays in environmental clearances would dissuade much needed infrastructure investments.

Take, again, the question of quotas in educational institutions for OBCs, based on a 1931 census, which should go into history, not current policy making. As Sunil Jain analysed in the Business Standard (April 5), the average OBC family is no different from the average Indian family in terms of its income and other parameters, as evidenced by an NCAER study. So why the special dispensation, that too without any analysis based on current conditions?

But coming back to political governance, overall, one wonders whether data and analysis and principles have become passé, too 'elitist' for today's political economy? Are populist measures to satisfy, at least in the short term, the aspirations and demands of vote banks, howsoever divisive their effect in the long run, the only politically and economically correct policies?

If we achieve 9 per cent growth with such involved and time-consuming decision making processes (that too based on little data or analysis), which still leave many loose ends to be tied later, just imagine what we could do with more efficient governance!