Across the aisle: The case for creative destruction

The opportunity has come with the publication of the World Bank Group’s annual report titled ‘Doing Business 2017: Equal Opportunity for All’. The verdict on India is disappointing.

Written by P Chidambaram | Updated: October 30, 2016 9:47 am
GST, GST bill, GST bill pass, GST implemented, problems in GST implementation, GST problems, IGST, GST regime, rajya sabha, good and service tax, arun jaitley, GDP, economy, tax reform, tax, VAT, GST VAT, excise duty, GST exemptions, GST privelege, one state one gst, 1 state 1 gst, CGST, modvat scheme, indian express opinion, opinion Illustration by: C R Sasikumar

In my column on October 2, 2016 (How free is freedom in India?), I had made a brief reference to the World Bank’s Ease of Doing Business Report and concluded thus:

“Despite the reforms since 1991, which is a remarkable story, the State-to-firm interface remains a problem. What needs to be done and what can be done deserve a separate column and I hope to be able to write one soon.”

Accumulated negligence

The opportunity has come with the publication of the World Bank Group’s annual report titled ‘Doing Business 2017: Equal Opportunity for All’. The verdict on India is disappointing. In the year between the previous report and the latest, India’s overall rank improved one place from 131 to 130 among 190 countries. That means, despite the ambitious goal of getting into the top 50, nothing has changed. It reminds one of the French saying that, in translation, reads, “The more things change the more they remain the same.”

Sure, India did not reach this depressing position in one year. It is the result of the accumulated mistakes and negligence of the years since Independence, especially the 1960s and 1970s, when the State intervened, massively, in the direction and management of the economy. There was deep distrust of certain institutions (private sector) and natural forces (markets) and there was great dependence on some structures (bureaucracy) and organisations (public sector enterprises). Other key institutions (judiciary, municipal governments) carried on as before although many parts had become dysfunctional and obsolete.

If one looks closely at the methodology of the study, one could point out significant limitations. As far as India is concerned, it is based on a survey of just two cities — Delhi and Mumbai. Besides, the study is a ranking and measures relative performance among 190 countries; so, even if there is significant improvement on an absolute scale, India’s rank may not improve if other countries have done better. Nonetheless, the conclusions are important because they are approximations of the realities of doing business in India.

No cause for boasts

The study ranked countries on 10 parameters. In the case of India, there was significant improvement only on two: Getting Electricity (51 to 26) and Enforcing Contracts (178 to 172). There was marginal improvement on two parameters, the rank was the same on one and worsened on the remaining five. Altogether, there is no cause for the boasts that we hear from time to time.

Because of the privatisation of distribution of electricity in Delhi and Mumbai, it is easier to get an electricity connection. Improved supply has also helped. On enforcing contracts, presumably, the courts in Delhi and Mumbai are more aware of the need to be strict although, at 172, the rank is not exactly a badge of honour. Let’s look at the other parameters and consider what can be done.

REGISTERING PROPERTY (140/138): Just as we have authorised depositories for securities, we must authorise private registrars who will compete with each other and offer improved and quicker services.

TRADING ACROSS BORDERS (144/143): The external environment has indeed become more protectionist and difficult. So has the environment in India, especially due to the gobbledygook that has found its way back into the Foreign Trade Policy and the Handbook of Procedures. The minister has run out of ideas. It is time for another bonfire a la 1991-92 and a change of guard.

root & branch reforms

STARTING A BUSINESS (151/155): The obstacles are notorious. Do away with prior permissions in the case of a small or medium business and require the promoter to report the event within 60 days of starting the business.

RESOLVING INSOLVENCY (135/136): Let the new Insolvency and Bankruptcy Code be tried for a year. Afterwards, it should be brought back to Parliament for amendments that will improve the law.

CONSTRUCTION PERMITS (184/185): This is the notorious cash generator for municipal authorities everywhere in the world and India is no exception. I am loath to make any suggestion but here is one. Introduce public hearing and decision making on the applications. It will be like a hearing in a courtroom and decisions must be handed down on each application at the end of the hearing.

GETTING CREDIT (42/44): With NPAs worsening, it is not surprising that getting credit has become more difficult. To tackle NPAs, the government has relied on threats, arbitrary appointments, and a useless new supervisory board. We had a much worse situation in 1997/1998 and we resolved it through empowering experienced bankers. That is the way to go.

PROTECTING MINORITY INVESTORS (10/13): By not filling vacancies for months, the government emasculated the Company Law Board. Now we have the National Company Law Tribunal and the Appellate Tribunal. Their work should be closely monitored so that they deliver results.

PAYING TAXES (172/172): Why should paying taxes have become more difficult? The BJP coined the phrase “tax terrorism”. Ask any businessman his view on the current functioning of the Income-tax, Excise and Service Tax departments and the phrase you will hear repeatedly is “tax terrorism”. The recent ‘harvest’ of Rs 65,000 crore of ‘black money’ and the subsequent actions by different tax authorities have thrown up horror stories. Retrospective tax demands (there was one Vodafone case under UPA) continue to be made. The government seems to have lost the plot on how to collect taxes and hence I shall offer no suggestion.

I am glad the Prime Minister has called for suggestions on the World Bank Group’s report. The best suggestions will be based on ‘creative destruction’ of the present system.

Website: pchidambaram.in @Pchidambaram_IN

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First Published on: October 30, 2016 3:37 am
  1. H
    Hemant Kumar
    Oct 30, 2016 at 11:24 am
    If Modi's ranking is no. one, India''s ranking will improve in due course.
    Reply
    1. J
      Jawahar
      Oct 30, 2016 at 1:27 am
      Constructing economy brick by brick requires lot of experience, professionalism and great knowledge. PC ji has all the three in abundance. This gives us great hope that only if he is back to power India will improve safely. A languishing country needs an economic leadership genius for recovery. PC ji is the beacon of hope for this nation
      Reply
      1. P
        PCKULKARNI
        Oct 30, 2016 at 7:59 am
        Where are promised 2 crore jobs?
        Reply
        1. S
          Skillan
          Oct 30, 2016 at 1:35 am
          Fantastic article by the one and only Plt;br/gt;Chidambaramji. Unequalable. Greatest economical mind and tallest leader today who can take us to the Global leadership position. Thanks Sir.
          Reply
          1. S
            SubbuI
            Oct 30, 2016 at 9:46 am
            P.C SIR, EXELLENT . ANALAYTICAL VERY TRUE FACTS FULL ARTICLE AS ALL WAYS IS YOURS. THIS GOVERNMENT IRRESPECTIVE OF TOAL FAILURE IN ALL FRONTS IN CLUDING HANDELING KASHIR PROBLEM AS ON TODAY AND SHAMLESSLY BLAMING NEHRU AND DOING I FOR SARDAR PATEL WHO WOULD HAVE ERASED RSS AND JANSANG THEN AND BJP NOW WITH IRON HAND.SIR.RATE ON DOING BUSSINESS IS DEFINITELY MUST BE IMPROVED -NO DOBOUT -BUT WHAT ABOUT TODAYS NECK DEEP KASHMIR PROBLEM. ONE MORE SCHOOL( 22nd) IS BURNT YESTERDAY. ONE BJP SPOKESPERSON SAYS KASHMIRIS DO NOT DESERVE EDUCATION BUT THEY MUST LEARN DISICPLINE AND NATIONALISM.ASPER RSS IDEOLOGY. SIR. REQUESTING YOU TO COME OUT WITH SERIES OF ARTICLES ON TODAY'S KASHMIR AND THE WAY OUT" AND REQUSTING IE EDITOR TOO.
            Reply
            1. T
              Trichiharan
              Oct 30, 2016 at 1:32 am
              Fantastic choice of topics. Reveals the true problem in its crux. Sir only you have the capacity to rescue this economy. This government may be trying hard, but lacks skills and knowledge. The best they can do is thetorics. They lack capabilities to deliver. Only you can put us on the top. Thanks for the wonderful article.
              Reply
              1. T
                Tg
                Oct 30, 2016 at 11:05 am
                If pappuji had become the great pm of India he would have solved all these issues. He would have set up aloo factories all over India to generate employment.
                Reply
                1. K
                  K SHESHU
                  Oct 30, 2016 at 2:07 pm
                  At least now, a critical examination of economy is crucial
                  Reply
                  1. A
                    Alab
                    Oct 31, 2016 at 8:09 am
                    So, Chidambaram admits that Nehruvian Economics was faulty. To tthecreditof Chidambaram it must. be said that he along with Narasimha Rao made changes due to economic compulsions
                    Reply
                    1. A
                      Anil Bharali
                      Oct 30, 2016 at 11:53 am
                      Mr P Chidambaram has made a Surgical strike on historical truth of Indian Independence and its British colonial design and pro-colonial congress party policy persuasion why freedom remains no freedom till today as France scholar stated" Changes are no change". He is hypocrite from historical view point. There is of course there is half truth in his version.
                      Reply
                      1. A
                        Anil Bharali
                        Oct 30, 2016 at 11:53 am
                        Mr P Chidambaram has made a Surgical strike on historical truth of Indian Independence and its British colonial design and pro-colonial congress party policy persuasion why freedom remains no freedom till today as France scholar stated" Changes are no change". He is hypocrite from historical view point. There is of course there is half truth in his version.
                        Reply
                        1. A
                          A. KHAN
                          Oct 30, 2016 at 4:16 am
                          Dear Chidam,lt;br/gt;WE MUS LIMS WERE WITH CONGRESS BUT GOT ONLY POVERTY.....YOU KEEP ADVICING AND DID NOTHING FOR 20 YEARS, INDIAN EXPRESS IS A CONGRESS SPOKESMAN, MANY MUS LIMS ARE NOW SUPPORTING NDA FOR DEVELOPMENT AND GOOD GOVERNANCE.
                          Reply
                          1. A
                            A. KHAN
                            Oct 30, 2016 at 4:19 am
                            MR.JAWAHAR , WHAT DID UPA DO OTHER THAN CORRUPTION IN LAST 20 YEARS.
                            Reply
                            1. A
                              A. KHAN
                              Oct 30, 2016 at 4:21 am
                              WHAT DID UPA DO OTHER THAN CORRUPTION IN LAST 20 YEARS.
                              Reply
                              1. S
                                SK
                                Oct 30, 2016 at 3:06 am
                                Can one imagine this bitter person was finance minister only two years ago. Who prevented him doing what he is suggesting now. Bitter grapes! I hope he would remain only a critic, as he and his mentors are not going to return to power.
                                Reply
                                1. L
                                  Lalit
                                  Oct 30, 2016 at 1:42 pm
                                  In fact Bhakts got the chance to vent out for the first time and propaa is favorite tool of Modiji.
                                  Reply
                                  1. L
                                    Lalit
                                    Oct 30, 2016 at 1:40 pm
                                    In fact credit for many things go to MMS led UPA. Corruption by allies of Congress led to their debacle.
                                    Reply
                                    1. A
                                      Abhishek Parashar
                                      Oct 30, 2016 at 8:39 pm
                                      Are we not inclining more towards pro capitalistic approach. Sure there are flaws but why we criticize public sector so often. Aren't you (real law makers) the one responsible for its functionality?Call me from nehruvian era but you people systematically disintegrated out public sector to feed the demand to private. Now our unions are dead. On the name of jobs our youth is underpaid and over exhausted. lt;br/gt;More public is gonna rob public. Jobs can be generated without killing unions , will is something that is lacking from past as well as present govt.
                                      Reply
                                      1. B
                                        Bafna
                                        Oct 30, 2016 at 1:37 pm
                                        True. He has cleverly hidden the mistakes of Congress Government.
                                        Reply
                                        1. S
                                          Subramanian Chandramouli
                                          Oct 30, 2016 at 5:07 pm
                                          The person who is responsible for WB's poor rating all along more than a decade is crticising the present govt. for his (PC's)mess is perplexing. Of course expecting conscience from him is too much and it is my fault like many Indians.
                                          Reply
                                          1. S
                                            sekhars
                                            Oct 30, 2016 at 1:22 am
                                            World bank themselves are doomed. US is a banana republic and corrupt world bank's opinion is meaningless. This moron PC Chidambaram sound like western stooge or puppet rather any thing to do with economics of the world
                                            Reply
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