Better on ‘ease of doing business’, but lagging in minority investor interest

This government has been proud of its achievement in raising India’s ranking in Ease of Doing Business to 130 from100 in one year. But we have a long, long way to go considering that a rank of 100 out of 190 countries is not something to be greatly proud of.

To improve ranking, there must be additional effort in strengthening our weakest areas. In order of areas with lower ranks these are: a) Dealing with Construction Permits (181/190); b) Enforcing Contracts (164/190); and c) Starting a Business (156/190).

Now, even though India ranks high in the category ‘Protecting Minority Investors’ (4/190), looking to several cases such as Sahara, Sarada, NSEL, and PACL, among others, one is not too sure of the data the World Bank used to compile the rank.

In India, minority investors get short-changed due to the apathy, unconcern, and simple corruption, in investigative agencies, and due to the lethargy of the judicial system.

In India trials never end. Judges, despite a massive overload of cases, are happy to prolong cases by freely granting adjournments on the flimsiest of reasons. This has to stop, if we want to improve our ranking in the Ease of Doing Business, and try to attract foreign investment into manufacturing.

It is the aim of this government to raise the share of manufacturing to 20 per cent. This cannot happen if we are poor in certain areas.

The other area is enforcing contracts. Both direct and indirect foreign investors are more willing if contracts are speedily enforceable. Contracts are not easily enforceable in India, as demonstrated by the poor ranking.

Nor does it help when cases such as Nissan Motors come up. Nissan is claiming that Tamil Nadu has not paid the incentives (refund of taxes) it had promised to attract Nissan to set up a manufacturing facility in the State. It claims $770 million of such unpaid refunds. Nissan first approached the Madras High Court, and, when matters did not move satisfactorily, moved for international arbitration. The Government of TN sought to injunct international arbitration proceedings, and to have Chennai as the venue for arbitration. The Centre has, rightly, objected to this, as the State of TN has no locus standi under the Comprehensive Economic Partnership Agreement.

Prime Minister Modi is to make a pitch, at the WEF in Davos later this month, to businessmen to invest in India. India is sending a strong delegation. India badly needs jobs. But more than that it needs institutions to re-skill workers. It also needs to introduce more flexibility in labour laws, which protect those already employed, but at the cost of those looking for a job.

Instead of more legislation, what is needed is proper and swifter monitoring and implementation of existing legislation. As Nani Palkhiwala used to say, Indian policy-makers believe in making gestures. They think that mere passing of a new law makes the problem disappear. But it is implementing the law which is crucial. We must focus on punishing wrongdoers and genuinely protecting investors.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)