All governments too often gather only flak, regardless of the improvements they see through. Part of this simply comes down to the disparity between actual results and the grand expectations set by campaign speeches. But in focussing on these initial promises, we almost always forget how hard it is to breathe life into a moribund economy. Entrepreneurs, of all people, can appreciate how hard it is to produce change in a large workforce.
To some extent, our pessimism is understandable, given that the media would rather push bad news rather than positive developments. But from where we’re standing – and Vakilsearch has daily interactions with government institutions across India – the developments are often positive, with improving processes and better solutions with the capacity to quicken starting-up and ease running of a business.
Now, don’t get us wrong. It’s still very far from perfect. And if you don’t know how things were, you’ll never believe that it has improved. But take this as an example – while it often takes us up to 45 days to incorporate a company, we did so in under 14 days because of a new 5-in-1 form introduced in May 2015.
So let’s give credit where it’s due by going through the improvements. And only then initiate a discussion about what remains to be done.
Easier to do Business
With India languishing at 142nd on World Bank’s Doing Business Index, there’s of course, much that we can do to ease entrepreneurship in India. This is no small exercise given the multitude of organisations and thousands of people involved in the processes pan-India. So while we are unlikely to crack the top 50 even a year since the election of the new government, as was discussed, crucial changes have been made:
Simplifying Company Registration: Form INC-29
A private limited or one-person company (OPC) is now simpler and quicker to form, with this form, which combines three separate applications – for the Director Identification Number, company name and final incorporation. So, while entrepreneurs had to previously wait for one procedure to be completed to begin the next, all three are now processed simultaneously. And by the same officer, who will inform you of all the corrections you need to make, if any, at one go. This eliminates the need to run from one department to another, which leads to miscommunication. While there can be improvements to this system too, the INC-29 is a big step in the right direction.
Lowering Cost of Registration: No Minimum Capital Requirement
The Companies (Amendment) Bill, 2015 has boldly decided to remove the minimum paid-up capital requirement, previously Rs. 1 lakh for private limited companies and OPCs and Rs. 5 lakh for public limited companies. So while a young entrepreneur had to issue share capital worth Rs. 1 lakh, he can issue even Rs. 5000, thus severely reducing the cost of starting-up. If entrepreneurship is a priority, and it most certainly is, this is exactly how to encourage it.
Lessening the Need for Resolutions: Transactions between Related Parties
The Companies Act, 2013 required a special resolution (votes in favour need to be three times votes against) for even transactions between related parties. This has now been relaxed to only an ordinary resolution (simple majority). More importantly, shareholder approval is no longer required for transactions between holding company and its wholly owned subsidiary, if consolidated accounts are submitted to shareholders for their approval.
Fewer Rules & Deadlines: For all involved
When dealing with government, you’ll often find the rules to be arbitrary. For example, Form INC-10 required applicants to have their signatures and photograph verified by a banker or notary. While applying for company registration, all directors needed a Digital Signature Certificate (DSC). The company name was reserved for only 60 days, even though the process is most often delayed by the Registrar. Over the past two months, all such problems have been done away with. Only one director may apply for DSC, Form INC-10 can be self-attested, while the name reservation does not expire.
What Remains to be Done
While there’s no denying that things are improving, there’s much more that we need to change – and fast – if we are to achieve the economic growth of the last decade. Some (such as ease of starting a business) are less complicated than others (such as enforcing contracts), but if we are serious about cracking the top 50, the status quo won’t do. We need to ensure that at least the following three changes are made as soon as possible:
Starting a Business
The top 50 countries to start a business in let entrepreneurs start-up in 7 to 10 days. In India, while incorporation has been shortened, the various licenses and certificates still take around 40 to 50 days to obtain. And there’s duplication everywhere. The Certificate of Incorporation, for example, is enough to obtain a Permanent Account Number, but you need the Certificate of Commencement to get a current account. And even this alone won’t do. You also need to have registered under the Shops and Establishments Act.
Particularly when a business is small, entrepreneurs’ lives should be made simpler. But we still live under a system wherein we need several separate government registrations (Service Tax, Professional Tax, Sales Tax, Shops and Establishments), which take between 10 and 35 days to obtain, and you need to file taxes bi-annually or monthly for three of these four. It’s not like other countries haven’t solved for this. The US, for example, has simply brought all these processes under one body and enabled all tax payments through the Tax Identification Number. Local businesses here do get a Tax Account Number, but that’s only for tax deducted at source, not for all the other indirect taxes that need to be filed.
We’re 186th (out of 189) on ease of enforcing contracts. How much more investment could we attract if we can assure foreign investors that contracts they enter into will quickly be enforced by a court of law? Currently, the trial, enforcement and judgement takes up to 1420 days, that’s almost five years, as compared to less than two years in developed nations. Moreover, 46 procedures are involved, as compared to 21 for developed nations. What we need to do is have fast track courts for commercial disputes (arbitration is not as easy as it sounds) and reduce powers of regulators.
[This post is written by Hrishikesh Datar, CEO of vakilsearch.com, one of India’s largest online legal service providers.]