Is it Easy to Start a Business in India?

India is the world’s largest democracy with a population of over a billion, and a fast-growing nation. It has the fifth largest GDP in the world. But it is a challenging market to crack for foreign businesses and investors.

The World Bank, the Reserve Bank of India (RBI), and the International Monetary Fund (IMF) have all slashed India’s growth forecasts due to a slowdown in the global economy.

Ease of doing business

India ranks at 63rd place out of 190 countries in which a survey was done, as per the World Bank’s Ease of Doing Business (EODB) Report, 2020. It is an improvement of 14 places over the previous year.  However, in another survey, the Ease of Starting Business, India ranks 136th.

This Doing Business Report ranks countries on the basis of Distance to Frontier, which measures the gap between India and the global best practice across different countries of the world. A high ranking indicates simpler regulations for businesses. India is among the top 20 countries that have improved the most in this ranking. In fact, India is among the top 10 for the third year in a row.

This report was based on the following criterion-

1. Ease of starting a business.
2. Ease of getting credit.
3. Ease of getting construction permits.
4. Resolving insolvency.
5. Reforms in taxation

And many more.

As per the World Bank report, taking steps in the above matters has boosted India’s rankings. Two cities that have scored highly are Delhi and Mumbai.

The government’s demonetisation drive and poor implementation of the Goods and Services Tax (GST) have resulted in poor GDP growth between 2015 to 2017. However, since then, the government has embarked on an ambitious reform path and is among the top five reformers in the world. Considering the size of India, this is a tremendous achievement.

Why India is a good place for doing business?

In this article, we will tell you why India is a good destination to start a business.

1. Stable Economy

The 2021 budget envisages a GDP of $ 3 trillion by 2022. India’s annual GDP growth of 6-7% is the highest in the world in the past decade. The Government had announced an investment plan called the National Infrastructure Pipeline (NIP) for $ 1.5 trillion in 2019. The agenda is to facilitate foreign investment in infrastructure and social sectors.

US President Joe Biden recently announced a $ 4 trillion plan to invest in India, over the next 10 years. This should be seen along with the fact that India’s entire CY2021 GDP is expected to be $ 22 trillion.

2. Encouraging Start-ups

India is projecting itself as a top start-up destination and is inviting countries from across the world to start a business here. Startup India was an initiative launched in 2016 to foster start-up culture and build a strong ecosystem for starting a business in India. The number of start-ups recognised by the government now stands at 50,000.

The sectors that had the maximum start-ups were application and product development, food processing, and IT. An important measure taken by the government has been to reduce the number of forms to fill up for a start-up.

3. Make in India

Make in India is the government’s flagship scheme that was launched by Prime Minister Narendra Modi in 2014. This was done to build manufacturing infrastructure, facilitate foreign investment, create jobs, and encourage innovation. It encourages Indian manufacturers to make products whose quality exceeds global standards.

4. Reforms

Since coming to power in 2014, the BJP government has pledged to improve the ease of doing business in India. The Department of Industrial Policy and Promotion (DIPP) has prioritised the rationalisation and simplification of existing rules. It has made credit easily available to start a new business, especially in infrastructure and power.

The government has identified 6000 compliances at the Central and State levels and plans to ease them up soon. It has introduced reforms in areas such as protecting the interest of minority shareholders, taxes, and insolvency resolution.

5. Construction Permits

The government has introduced an online system that has streamlined the process of getting permits at the municipal level in Delhi and Mumbai. The time is taken to get a building permit has been considerably lessened. The procedure cost for constructing a warehouse is now only 4% of the warehouse value.

6. Digital India

The government is making an effort to make India connected digitally. This is encouraging many entrepreneurs to start an online business. There are many universities offering courses in data analytics and digital marketing, thus churning out a trained workforce.

Scope for improvement

The Government should do away with unnecessary controls. For example, to open a restaurant in a city like Bengaluru, one needs 36 licenses, as compared to just 4 in China or Singapore. In fact, it is easier to own a gun than to open a restaurant in India-for a gun, you need to submit 19 documents to the police, while for a restaurant, that number is 45!

There is scope for improvement in other categories also. While it takes an average of four years to close a contract in India, New Zealand. Indonesia and China take seven months, 1.2 years, and 1.4 years respectively. The Union Government should do more to speed up the process.

Ease of doing business in other countries

Do you want to expand your business overseas? There are many places where you can start your dream company with fewer restrictions than in India. The top 5 easiest countries to do business are:

1. New Zealand

New Zealand is in the top position because it is extremely easy to start a business there. You can start a new venture there in the shortest possible time-half a day!  Another important advantage is it’s location-based here, you can easily cover the Asia-Pacific market.

2. Singapore

Singapore, in the second position, has the shortest time frame for enforcing contracts and paying taxes. The government provides a high-quality and safe business environment. It has embraced globalisation and is free of corruption.

3. Hong Kong

Honk Kong is the stepping stone to other Asiatic countries, including China. The region has a multi-cultural environment, and several transnational companies use it as their headquarters or base of operations. If you want to do business in China, it is better to first gain a foothold here.

4. Denmark

Denmark is one of the most business-friendly countries in Europe, and you can get the paperwork for a new business done within a day. The government works with a lot of integrity and efficiency. The working population is well educated and productive.

5. South Korea

South Korea is known across the world for its expertise in technology. It has a booming economy, and the workforce is very skilled. But, you will face some language barriers.

While the Indian government has achieved some success, more needs to be done to encourage small and medium enterprises to do business here. One key area where the government has to work on, is a faster resolution to commercial disputes, as the legal wrangling with Vodafone has shown us. The focus of all is how soon India gets back its momentum after the coronavirus pandemic.

Also Read:

1) What is Financial Risk? Types and How to Measure Financial Risk?
2) How To Save Tax On Long-Term Capital Gains?
3) What is Financial Analysis? Types, Importance & Purpose.
4) All About Stamp Duty And Registration At The Time Of Property Purchase

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FAQs

Q. How will the Bankruptcy and Insolvency Act, 2017, help a businessman?

Ans. It has made it easier to revive or exit from a business. It will also improve the Non-Performing Assets (NPA) s of banks.

Q. What is the average time taken to set up a business in India?

Ans. The average time to start a business in India is 18 days.

Q. What is the main issue that dogs foreign investors wanting to invest in India?

Ans. Most foreign investors are frustrated by the complex procedures for getting a construction permit. The government has to simplify the process of land acquisition.

Q. How does India rank in the Macroeconomic Stability category of the World Economic Forum (WEF)’s Global Competitive Index?

Ans. India ranks highly with a score of 90 out of 100. Its economic growth has been very good in recent years due to key structural reforms and healthy domestic consumption.

Q. How has starting a business in India become less costly now?

Ans. The fees for filing the incorporation form, and electronic filing of the memorandum of association has made the process of starting a business in India less expensive.