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 focusing 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 register a new 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.
Doing business in India
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.
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.
Paying Taxes
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, SalesTax, 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.
Enforcing Contracts
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. For more information follow our blog
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