DOING BUSINESS:
ROAD AHEAD
(CS
SHUBHAM BUDHIRAJA & CS SAMEER GAHLOT)
वसुधैव कुटुम्बकम् - The world is one family
HISTORY & INTRODUCTION:
The doing business has its
origins way back to 2002 where first paper published in Quarterly Journal of
Economics (Harvard University) by Simeon Djankov and others on titled – “The
regulation of entry” in which they did analysis of 85 countries on
various parameters and concluding the impact of entry barrier to a new business
entity and its effect on economy. They compared it with prudent economic
theories and come up with a conclusion that "Countries
with heavier regulation of entry have higher corruption and larger unofficial
economies, but no better quality of public or private goods. Countries with
more democratic and limited governments have lighter regulation of entry."
In order to understand the menace
and articulation of doing business and to have its understanding in Indian
context, we need to brush up with few basic coverings. There are economic
theories which might modeled the intention of a government to frame
restrictions for a business entrant and these theories also play the role of
making perceptions of aftermath of these regulations on businesses.
The Invisible Hand theory – In this theory, Market forces have
upper hand in determining the factors and government intervention is at the
lowest level. Every self-interest is in its invisible way helping the community
at large.
The Helping Hand theory –
In this theory, Government
intervene into markets to keep it stabilize. The Government brings regulations
and restrictions. It argues the intervention of government but assume
government to be an autistic. It advocates the intervention of government on
facet of its social obligations towards society. It assume the government to be
completely bonafide and justify government intervention into business as a
beneficial policy for overall community. Strict regulations means better quality goods
for the society because law ensures various checks and licenses
However, both of the theories
ignore the role of politics and assume government behavior as selflessly .
The Grabbing Hand theory-
This theory suggests that either way of model of
government whether democratic or dictator is at end of day going to work for
their own benefits. regulation is pursued for the benefit of politicians and
bureaucrats (De Soto 1990). Politicians use regulation to favor friendly firms
and other political constituencies, and thereby obtain campaign contributions
and votes. In addition, “an important reason why many of these permits and
regulations exist is probably to give officials the power to deny them and to
collect bribes in return for providing the permits.
So more the relaxation in laws
and licensing policies by the government, it refers to a situation where
government is admitting the corruption practices created by politicians by
restricting the new business. This theory also suggest that government do the
regulations more strict either to advantage incumbents or for their own. More
government intervention is linked up with more corruption practices.
The helping hand theory-
can said to be more found in
socialist economies like Russia where the Government is assumed to be
completely bonaide and true to its intentions. One who criticize the socialist
countries do their rely on grabbing hand theory.
Thus, the question of who
regulates thus helps to discriminate among the theories
Relation of regulation and these
theories;
There are three measures of entry
regulation:
1.
the
number of procedures that firms must go through,
2.
the
official time required to complete the process, and
3.
its
official cost
It is important to note that in
the 3rd aspect, the official cost is been chosen instead of statutory
fees for the reason being firstly the term cost is wider in scope and will
include notary expenses, fees, printing and secondly, a corrupt regulator may
also want to set fees low in order to raise her own bribe income if, for
example, fees are verifiable and cannot be expropriated by the regulator.
For 2nd aspect each
procedure considered as a separate procedure no matter If it related to single
purpose. For example, applying for registration from trademark registry is a
separate procedure than applying for certificate of information from Registrar
of companies. It also noted that the procedure only consider those aspects where
a business has to met with an outsider. Hence, the number of board meetings or
general meetings required by law do not come within this span.
The helping hand model, in which
governments regulate entry to cure market failures, the capture model, in which
governments regulate entry to protect the incumbent firms, and the tollbooth
model, in which governments regulate entry to seek political benefits and
bribes. We do not find convincing evidence to support the capture theory,
although our data are probably least suited to test it. Our results are
difficult to reconcile with the helping hand model, and even with the elaborate
versions of this model which recognize that the generally benevolent regulation
may have unintended consequences. On the other hand, all the evidence is
naturally consistent with the tollbooth version of the grabbing hand model.
Entry appears to be regulated more heavily by the less attractive governments,
and such regulation leads to unattractive outcomes. The principal beneficiaries,
if any, are the politicians and the bureaucrats themselves
From 2002 onwards, Doing
Business highlights every year the successful reforms carried out by
each country. Since The Regulation of Entry was published, Simeon Djankov and
Andrei Shleifer have published eight other academic studies, one for each set
of indicators covered by the report.
INDIAN CONTEXT:
The World Bank’s Doing Business
2020 study, released by the World Bank last week, showed that India improved 14
places from 77 to 63 out of 190 countries in the Ease of Doing Business (EODB)
rankings.
Key reasons for the improvements
cited by world bank in its report
✓ Starting a business
India made starting a business
easier by abolishing filing fees for the
SPICe company incorporation form,
electronic memorandum of association,
and articles of association. This
reform applies to both Delhi and
Mumbai.
✓ Dealing with construction
permits
India (Delhi) streamlined the
process, reduced the time and cost of obtaining
construction permits, and
improved building quality control by strengthening
professional certification
requirements. India (Mumbai) streamlined the
process of obtaining a building
permit and made it faster and less expensive
to get a construction permit.
✓ Trading across borders
India made trading across borders
easier by enabling postclearance audits,
integrating trade stakeholders in
a single electronic platform, upgrading
port infrastructures, and
enhancing the electronic submission of documents.
This reform applies to both Delhi
and Mumbai.
✓ Resolving insolvency
India made resolving insolvency
easier by promoting reorganization proceedings
in practice. India also made
resolving insolvency more difficult by
not allowing dissenting creditors
to receive as much under reorganization
as they would receive in
liquidation. This reform applies to both Delhi and
Mumbai.
ROAD AHEAD FOR 2021:
1.
Consumer Protection law, 2019:
Business and consumerism are two
facet of one single coin. New consumer protection law has come up with concept
of product liability and has given more shape to the efficacious remedy to enforce tortious
wrong by make material changes to the pecuniary jurisdictions of the
forums, and by giving district forums a
power to review its own decisions and thus has given enforcement of contracts
an additional edge.
2 2. IBC
bill, 2020:
The bill seeks to remove
bottlenecks and streamline the corporate insolvency resolution process. It aims
to provide protection to new owners of a loan defaulter company against
prosecution for misdeeds of previous owners. The latest changes pertain to various
sections of the IBC as well as introduction of a new section.
3. Companies
amendment bill, 2020
In order to bring ease of doing
business at its pace, companies act, 2013 has been amended in 2015, 2017 and
2019. The Bill of 2020 has bring some significant changes such as Central
government empowered to exclude certain class of companies whose debts are
listed and not shares from definition of a listed entity. The minimum time
limit of 15 days for right issue excluded. All such major changes are aim to
bring ease to the startup & established entities and thus ease is in its
pace and line of International context.
4.
Arbitration and Conciliation Amendment
Act, 2019
Enforcement of contracts is a key
indicator to improve rating at ease of doing business and accordingly, the
government of India has put forward the material changes to the same To avoid
challenges to arbitral award on ground of appointment of arbitrator, the
changes made to the section 11 of law. The qualification and experiences of
arbitrator also expressly framed therein. In order to avoid further
litigations, confidentiality clause of arbitration proceedings called tighten.
5. Competition
amendment bill,2020
The 2020 Bill is put for
suggestions from public. The Bill for the first time has introduced concept
buyers cartel and accordingly changes has been made to the anti-competition
agreements. The rule of reason and rule of per se made it more explicit in
context of horizontal and vertical agreements. The changes are also proposed to
have a single wing of DG in line with CCI. In order to bring corporate
resolution at its most ease, material changes introduced in combination
provisions under the law.
6. Administrative
& policy changes in nature of sub-delegation
Administrative law is a key
menace of modern executive organ of state whereby which it can cope up with
routine practical difficulties of law. In line of same, The Central Government
through the concerned ministries has relaxed the Foreign Direct Investment
norms in different sectors vide series of Press Note which was issued by
Department for Promotion of Industry and Internal Trade. Further, the Merger of
banks will help in creating national presence and global reach.
7. The
Banking regulation bill
In order to ensure governance and
control over the Cooperative Banks and concomitantly avoiding similar situation
faced by Punjab and Maharashtra Cooperative Bank Limited, the government has
introduced the Banking Regulation Bill.
8. The
Code on Social Security
The way GST has brought
simplification in the Indirect tax system by introducing one indirect tax for
the entire nation which provided much needed impetus in improving the Ease of
Doing Business in India. Likewise, Government has introduced Code on Social
Security thereby subsuming 8 Central Labor Acts dealing with Social Security.
9. The
International Financial Services Centers Authority Act, 2019
In order to provide world class
environment to the participants in the Indian market and for the establishment
of a unified authority for regulating financial services, the Government has
passed the International Financial Services Centers Authority Act, 2019.
10. The
Finance Bill, 2020
The Government has recommended various
changes in the Finance Bill, 2020 not only to ease business environment but
also to iron out certain ambiguities including but not limited to abolition of
Dividend Distribution Tax, redefining the concept of Residential Status.
11. Relaxation
in FDI Provisions
After the enactment of Foreign
Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments)
Regulations, 2019 the Government has relaxed norms for Foreign Direct
Investment in various sectors like Coal, Mining, etc. The said changes are in
line with providing ease of doing business providing impetus to much-diversified
economy.
CONCLUSION:
Considering the intention of the
government and its prominent approach in era of darkness faulted by this
pandemic creation, community is hoping for the greater grade in area of ease of
business at its most promising result.
REFERENCES:
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