How to Simplify Doing Business in India

India has consistently been in the news for its ranking on Ease of Doing Business. It ranked 142 out of 189 countries in 2015, it has now climbed up to 130. But what is this metric and why is it important?

‘Doing Business sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. It measures and tracks changes in regulations affecting 11 areas in the life cycle of a business.’

We discuss substantially about frugal innovations and how it has the potential to affect the masses. However, what is missing is private investments and entrepreneurs who venture into such innovations is to scale them up in order for them to reach out to large numbers. Without scale, innovation in one community may not even see the light of day in other communities.

Many innovators and entrepreneurs skip India because they see many obstacles when it comes to commercializing their ideas i.e. starting up their own business in India. What are these obstacles? Some of the major obstacles are put together by the World Bank to come up with a metric ‘Ease of Doing Business’. Singapore ranks 1 on this metric as a result of its government’s pro-active-ness in creating a conducive environment for creativity. Though India’s ranking on this metric has been improving, a lot still needs to be done to accelerate this process and de-bottleneck the system in order to capitalize on the start-up boom that’s taking over the world.

Comparative Analysis of India, China and Singapore

This section brings out the ranks of India, China and Singapore on various metrics developed by the World Bank. As can be seen from Table 1, Singapore is the world leader in EoDB rank while China ranks 84. India is way behind in the list ranking at 130 and improving a tad over the previous year’s ranking of 134. This improvement has largely been propelled by improvements in ‘Starting a Business’ (from 164 to 155) and Getting Electricity (from 99 to 70). The ranks on other metrics have largely fallen or have been stagnant. What is notable is that China has either slipped or ranked the same on all 10 metrics i.e. it has not shown any improvement in any of the metrics which has resulted in its overall ranking being almost the same as last year. The same is the case with Singapore which has been consistent in its top ranking and ranking on sub-metrics.

Table1: Comparative Data of India – Singapore on the Metrics (Ranking 2016)

Metric	Singapore	India	China
Ease of Doing Business Rank	1	130	84
Starting a Business	10	155	136
Dealing with Construction Permits	1	183	176
Getting Electricity	6	70	92
Registering Property	17	138	43
Getting Credit	19	42	79
Protecting Minority Interests	1	8	134
Paying Taxes	5	157	132
Trading Across Borders	41	133	96
Enforcing Contracts	1	178	7
Resolving Insolvency	27	136	55

Given the criticality of certain sub-metrics over others, and the gap between India-Singapore and  India-China, I have begun my analysis by studying the  ‘Starting a Business’ metric.

Starting a Business

This metric captures all procedures required and the cost associated therewith for an entrepreneur to start up and formally operate a business in country. Specific indicators used are number of procedures (a procedure is defined as is any interaction of the company founder with external parties, for example, government agencies, lawyers, auditors or notaries.,), time (time span for each procedure starts with the first filing of the application or request and ends once the company has received the final document, such as the company registration certificate or tax number), costs (official fees and taxes), and paid in minimum capital requirement (amount that an entrepreneur is required to deposit in a bank or with a notary prior to or within 3 months of company registration).

A brief snapshot of how Singapore, India, China and New Zealand (SINC) fair on these metrics is given below:

                        Table 2: Comparison of Sub-Metrics of Starting a Business Across Countries

Country	Number of Procedures (rounded off)	Time (calendar days)	Cost of Procedures (as % income per capita)	Paid-in Minimum Capital
New Zealand	1	0.5	0.3	0
Singapore	3	2.5	0.6	0
China	11	30	0.6	0
India	14	29	17	0

India

Due to very high procedural complexity, the major procedures along with the agencies and timeline involved are shown below (Table 3).

                        Table 3: Procedural Details for Starting a Business in India

Note that there are typically 14 procedures involved to pursue which one has to deal with 12 different agencies. The number of procedures is much higher than those in New Zealand though some steps are common. Another point to be noted is that New Zealand has a single window for all the steps, while in India there are multiple agencies that one has to deal with. This increases documentation and verification redundancies while increasing transaction costs and time.

When compared to Singapore, procedures such as PAN and VAT registration are required for all companies in India (irrespective of turnover). Even the online procedures take a lot of time for processing. Procedures such as Digital Signature Certificate, DIN, EPFO registration and Registration with the Office of Inspector are not even present in any of the above countries including China.

Also, unlike China, many of the processes are offline or partial offline. This increases transaction costs through bribery which is not considered by the World Bank in its assessment of these metrics. Thus we see that there is huge potential in India to cut down on the procedures or at least streamline them in order to reduce the procedural complexity, the number of agencies one has to deal with, and therefore the time taken to set up a business.

Scope for Process Re-engineering

This section of the report presents a brief analysis of some procedures, their comparisons to other countries and some recommendations:

                                    Table 4: Recommendations on Reducing Procedural Complexity

The revised table after the above changes would look as follows:

                        Table 5: Impact of Recommendations on Starting a Business     

Conclusion

As can be seen from the above table, many processes can be omitted/made optional or conditional while others can be simplified. Simplification can be accomplished by asking the employer to upload all documents on a central database and sharing that database with all the relevant agencies. This should also be accompanied by creating a single common portal for all the procedures by integrating the portals of individual agencies. This is a short term solution till we can physically create a single window agency such as the one present in New Zealand.

Appendix

New Zealand

As can be seen from the table, New Zealand is the fastest, least cumbersome, and cheapest when it comes to starting a business. How has it managed to do this? The entire registration process (pre-registration, registration and post-registration process) is online in New Zealand because of which also it takes just about half a day to complete the process. All an entrepreneur needs to do is to apply online for registration with the Companies Office (single window) which includes filing an IRD application and a GST registration.  Here are the key steps all under one procedure:

Procedure 1:

1. Reserve a company name (online)

2. Apply online with details (Ensure one share, one shareholder, one director, registered office and address for service)

3. Pay registration fees

4. Acknowledgement + Director & Shareholder forms emailed instantaneously

5. Get the forms signed and fax them to Companies Office; Certificate of Registration issued as soon as last form is accepted

6. IRD and GST registration can be done simultaneously with minimal information requirement

Singapore

For a company to register, there are 3 procedures to be followed in Singapore, each of which takes approximately a day to complete.
Procedure 1: Online registration with Accounting and Corporate Regulatory Authority (ACRA) + GST registration (1 day). The following are the steps involved in the process:

1. Approval for company name online
2. Bizfile – one stop portal for company name, GST, activating Customs Account and bank account

3. Submit business profile documents, processing time taken is 15 min

4. Email incorporation notification is issued.

5. Registration for Inland Revenue and GST (annual taxable turnover >SGD 1million) can be done simultaneously

Procedure 2: Make a company seal (1 day); Company seal can be made in one day from a seal maker

Procedure 3: Employee compensation insurance at an insurance agency (1 day)

Every employer has to get employees insured against any liability that the company may incur. Minister has flexibility in exempting this insurance. The insurance processing time typically is 1 day but may depend on the arrangement between the company and the insuring agency.

China

As can be seen from the table, setting up a business in China typically involves 11 procedures, and consequently takes much longer (30 days) to set up. China has reduced the transaction costs by exempting small and micro companies from paying several administrative fees. However, the procedural complexity is still intact as can be seen below:
Procedure 1: Notice of pre-approval of company name (1 day)

Company pre-approval form can be obtained from the local Administration of Industry and Commerce (AIC) office or can be downloaded from the AIC website. It should be signed by all the shareholders of the company. The signed form with business licenses/registration certificates (in case shareholders are companies) along with photo identity proof of all shareholders should be handed over to AIC (either in person leading to on the spot approval/rejection or through mail/fax etc. leading to maximum turnaround time of 15 days)

Procedure 2: Apply for Business License (BL) with State AIC, Organization Code Certificate (OCC) and registration with state and local tax authorities (11 days)

The application forms can be downloaded from the AIC website. Filled up forms are to be submitted to the agent at the SAIC window who scans and submits it electronically to the relevant authorities. Approval is a sequential process in which OCC and Tax certificates are approved upon approval of business license. However, requirement of documents such as article of association, identity card of shareholders (asked again), appointment and identification documents of directors, supervisors, legal representatives etc. for OCC makes the process much tedious for both the applicant and the verification authority. Further these documents are to be submitted again when obtaining the tax certificates.

Procedure 3: Approval for company seal from police department (1 day)

This requires submission of documents such as power of attorney, business license, copy of passport/ identification of legal representative and applicant.

Procedure 4: Make a company seal (1 day)

Companies get a seal made from only the makers having Shanghai Special Industry Permit.

Procedure 5: Fee payment for OCC (2 days)

After a company seal is made, fees for OCC and picking it up can be done. We can thus see that this serves as input for OCC release which is an input for tax certificates. A delay in business certificate can have a cascading effect on getting the tax certificates.

Procedure 6: Register with local statistics bureau (1 day)

This requires BL and OCC

Procedure 7: Open a bank account (1 day)

Procedure 8: Apply for authorization to print or purchase financial invoices (10 days)

While small and micro companies do not need to do this, others need to apply for authorization after which they get an invoice purchasing book. Tax registration certificate, models of invoice seal, and company seal are some crucial inputs to get authorization. This also means that an unsatisfactory company seal (say) can lead to re-doing the entire process again thus resulting in double the processing time.

Procedure 9: Purchase uniform invoices from Tax authority (1 day)

Procedure 10: File for recruitment registration with local career service center (1 day)

Procedure 11: Register with Social Welfare Insurance Center (1 day)

It can be clearly seen that China has huge procedural complexity when compared to Singapore or New Zealand in that there are multiple, sequential and interdependent certificate authorizations needed. Also, the time taken in two processes (business license and financial invoices is about 20 days) is very high compared to other two countries. One possible reason is the verification of multiple and sometimes redundant documents and the process not being entirely online. Another concern is that there are very few single window shops and each department is given its own processing time. Therefore, coordination between departments is difficult which otherwise could have led to streamlining of the process by de-duplicating verification of common documents, and overall demand-supply matching thus leading to a much lower processing time.

China has taken a key initiative of exempting small and micro companies from some of the administrative fees. However the procedural complexity is the same for them especially the two major procedures of obtaining BL, OCC, Tax certificates, and authorization to purchase final invoices.

References:
1. https://www.business.govt.nz/companies/app/ui/pages/reservations/names
2. https://www.iras.gov.sg/irashome/Quick-Links/Forms/GST/GST-registration/-de-registration/
3. http://www.doingbusiness.org/custom-query#hReprtpreview
4. http://www.doingbusiness.org/data/exploreeconomies/china/
5. http://www.doingbusiness.org/data/exploreeconomies/india/
6. http://www.doingbusiness.org/data/exploreeconomies/singapore/
7. http://www.doingbusiness.org/data/exploreeconomies/new-zealand/
8.https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG-CII-Ease-of-doing-business-in-India.pdf
9. https://www.tin-nsdl.com/
10.https://www.iras.gov.sg/IRASHome/GST/Non-GST-registered-businesses/Registering-for-GST/Applying-for-GST-Registration/
11. https://mytax.iras.gov.sg/ESVWeb/default.aspx
12. http://www.ird.govt.nz/gst/gst-registering/register-now/register-now.html
13. http://www.ird.govt.nz/gst/gst-registering/gst-process/
14. http://www.mca.gov.in/MinistryV2/Download_eForm_choose.html
15. https://www.business.govt.nz/companies/do-it-now/start-a-company

Would you be content?

They say life and death follow a cycle but what is missing from this is the level at which this cycle operates. It operates on a species level and not at an individual level. This means that every individual has just got one life to do whatever she wants to do. This also means that this is a lot of responsibility and unpredictability in that one life that she is living.

There is uncertainty on a day to day basis. Today we are alive, tomorrow we may not be. What happens if we have thought of a lot of things to do in life but we are in a life and death the very next day? Will we have sufficient accomplishments in the past to die peacefully with a feeling contentedness? May be not. May be it is not practical to deliver and achieve everything we thought of achieving in the short span of time we lived for. Therefore, it is essential to divide our lives into as small time pockets as possible and achieve as much as we can every day. These achievements can be very varied ranging from learning new pieces of knowledge and disseminating them to acts of goodness to help others. But what is essential is to plan one's acts on a decade, short term and daily basis and take a stock of those everyday, every week and every decade. Ask yourself 'What if I were to die tomorrow? Have I done sufficiently enough so far to happily die tomorrow?' If the answer is a resounding 'No', then may be it's time to switch gears.

Another corollary of the uncertainty is that one should do what one likes and loves to do because this is another sources of contentedness. What if on the deathbed one regrets living someone else's life all this while? And lack of more time to live their own? Unfortunately, there will not be a second chance. Hence, one should figure out all the activities and experiences that one enjoys and likes doing on a day to day basis and continue to them. This can be working for a start-up, partying, playing, sitting idle watching the sun rise or set, travelling and so on. The question is 'Have you done enough of it to die peacefully?' The most likely answer would be 'No' owing to the definition. This is an activity you love doing, and hence you cannot get enough of it ever. So, the real question is 'Have you leveraged sufficient opportunities so far to do those activities?' If the answer is 'No' then you need to go back to the drawing board and plan those experiences as soon as possible.

But someone would ask, 'How do I know the activities/ things I like?' It is simple yet profound question. Based on my journey so far, I can confidently say that one of the best ways to figure this is to experience as many experiences as possible and as early as possible to find it yourself. There would be seldom occasions when others will tell you what you like, but you would know it only when you experience it. There is no substitute to this and this is the purest way of figuring out. If you don't know whether you like dancing, go to a pub dance all night or join a dance club and practice for sometime. At the end of it, you would know if you love it or not. You can also ask yourself  'can I ever get enough of it?' If the answer is 'No' then probably this activity needs further attention. If the answer is a 'Yes', then this activity can be back-burnered for now. Hop on to another such as photography, or travelling may be. But do as many activities as possible and as quickly as possible. Because for all you know, there might not be another tomorrow.