Effectiveness of Government Efforts to Improve the Ease of Doing Business in India

India has made significant strides in improving the ease of doing business through a series of reforms and initiatives aimed at enhancing the business environment. These efforts have impacted the growth and competitiveness of both the industrial and services sectors, and have been instrumental in attracting foreign direct investment (FDI). Below is an assessment of these initiatives and their effects.

Key Government Initiatives

1. Reform Measures

• Ease of Doing Business Reforms: The government has implemented several reforms based on the World Bank’s Ease of Doing Business (EoDB) indicators. Initiatives include:
  • Simplification of Compliance: Reduction in the number of compliance requirements and simplification of processes. For example, the Online Single Window Clearance System streamlines business registrations and approvals.
  • Digitalization of Services: Introduction of digital platforms like GST Portal for tax filings and eBIZ Portal for various business registrations.
• Startup India Initiative: Launched in 2016, this initiative offers benefits such as easier compliance norms, tax exemptions, and funding support for startups. The Startup India Hub connects startups with investors and industry experts.
• Make in India Campaign: Aimed at boosting manufacturing and creating jobs, this initiative includes measures to improve infrastructure, labor laws, and investment facilitation.

2. Specific Reforms and Their Impact

• Companies Act, 2013: Overhaul of company law to ease the process of setting up and running businesses. The Insolvency and Bankruptcy Code (IBC) of 2016 has streamlined the process for resolving insolvencies, making it easier for businesses to recover and start afresh.
• Goods and Services Tax (GST): Implemented in 2017, GST has unified the tax structure and reduced the complexity of the tax regime. The e-way bill system introduced in 2018 has further simplified interstate movement of goods.
• Labour Law Reforms: Recent reforms, such as the Code on Wages, 2019, and the consolidation of labor laws into four codes, aim to make labor regulations more business-friendly while ensuring worker rights.

Impact on Growth and Competitiveness

1. Industrial Sector

• Manufacturing Growth: The Make in India initiative has led to increased investments in the manufacturing sector. For example, Samsung’s new mobile phone plant in Noida and Apple’s assembly units in Tamil Nadu are a testament to the growing attractiveness of India as a manufacturing hub.
• Infrastructure Development: Investments in infrastructure, such as the Dedicated Freight Corridors (DFC) and Industrial Corridors, have improved logistics and reduced transportation costs, benefiting the industrial sector.

2. Services Sector

• Expansion of IT and Services: The ease of doing business reforms have supported the expansion of the IT and services sectors. For example, Bangalore and Hyderabad continue to grow as major IT hubs due to improved business conditions and infrastructure.
• Financial Services Growth: The introduction of the Digital India initiative and Financial Technology (FinTech) reforms has spurred growth in financial services. The rise of digital payments and online financial services has transformed the sector.

Impact on Foreign Direct Investment (FDI)

1. Increase in FDI Inflows

• Record FDI: India has seen record FDI inflows as a result of these reforms. In 2022, India attracted $84 billion in FDI, the highest ever. This growth reflects increased investor confidence due to improved ease of doing business.
• Sector-Specific Investments: The reforms have attracted significant investments in sectors like technology, manufacturing, and retail. For instance, Google’s investment in the Indian tech ecosystem and Toyota’s expansion of its manufacturing base are examples of foreign investments driven by favorable business conditions.

2. Improved Global Rankings

• World Bank’s EoDB Ranking: India’s ranking improved from 142nd place in 2014 to 63rd place in 2019 and further improved to 63rd place in 2020. This reflects the success of reforms in improving the business environment.
• Global Competitiveness: Enhanced business conditions have improved India’s global competitiveness. The Global Competitiveness Report 2019 noted improvements in infrastructure and business regulations as contributing factors to India’s enhanced competitiveness.

Need for Continued Reforms

Despite these achievements, further improvements are needed to address ongoing challenges:

• Simplifying Compliance Further: Continuous efforts to reduce regulatory burdens and streamline compliance processes are necessary to enhance the business environment further.
• Addressing Infrastructure Gaps: Continued investment in infrastructure, especially in logistics and urban development, is crucial for sustaining industrial and service sector growth.
• Enhancing Ease of Exit: Simplifying the process for business closure and insolvency can further improve the overall ease of doing business.

Conclusion

The government’s efforts to improve the ease of doing business in India have had a substantial impact on the growth and competitiveness of the industrial and services sectors. Initiatives like the Swachh Bharat Mission, National Nutrition Mission, and regulatory reforms have fostered a more favorable business environment, leading to increased foreign direct investment and economic growth. However, ongoing reforms and infrastructure development are essential to address remaining challenges and sustain progress in the business landscape.