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Ease of Doing Business in India

Introduction

Today, most of the international business hubs are penetrating the Indian market. India has been the top priority destination for foreign direct investment after the Indian economic policy change, 1991. Many international companies visualize India as a hub for manufacturing goods and support operations due to skilled and cheap manpower. However, there is still some risk concerning the parent company’s cultural complexities and operational guidelines. For example, Gillette is one of the leading manufacturers of Razors, had first attempted to introduce razors in the Indian Market. The company had to face alot of criticism and disappointment until they had to put marketing efforts and innovate their design to suit the Indian men’s requirements.

Impact on Companies Act

While incorporating a business in India, it almost takes several months to fulfill all the required formalities with all the fees and add on costs depending on the business’s nature and scale. With the replacement of the Companies Act, 1956, the introduction of Companies Act 2013 contains new provisions that establish modular law to the Indian economy. Meanwhile, there were many changes with various amendments and notification by the Government of India to cover up the drawbacks in the new act. That creates lots of incompliance for the incorporation of companies to a greater extent. It has also started a trend of de-corporatization in India. For new incorporation in India, the companies have to follow the statutory requirements added with penal laws with penalties and even imprisonment in certain cases. Therefore, to remove such complexity, the need for clarification through the Companies (Amendment) Act, 2017, was introduced. There were various options for foreign investors to make investments in India.

The Companies Act, 2013, allows foreign individuals to become directors or partners with at least one director to be India’s resident.

Impact on capital markets regulation

There is also an impact on capital market regulation while incorporating the business in India. There has been a reduction in the investor’s interest, which results in limiting options while raising funds for the company. So with the imposition of limitations of investors’ appetite with the present pandemic situation, which damages the marketing of the offering of the securities. Other securities in the capital market, such as QIPs and preferential allotment of shares, are directly linked to share pricing have also taken back. Also, there has been a delay in the offering of equity and debts in the infrastructure, manufacturing, tourism, transportation, and hospitality sector.

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Meanwhile, there has been a decrease in the pricing of shares of the Indian Companies like Sun Pharma by buying back their shares from public offerings to consolidate promoters’ shareholding.

Impact on Banking and finance laws

A country like India has been performing well in acquiring credit from the World Bank. The government has been amending the rules for empowering access to credit from secured creditors. There has been an acceptance of the latest insolvency and bankruptcy code, which incorporates a uniform process for corporate debtors. There are banks and other financial institutions which enable the powers to availability of shares without any interference of courts.

Impact on Taxation laws

According to the World Bank report, Indian system of taxation policy is complicated and took about 214 hours in total for preparation and paying taxes. The laws and rules are very much complex and can put foreign companies under the confusion. Therefore, it is advisable to take appropriate help for overpaying and underpaying of taxes. Although a country like India gets listed amongst the highest rates for the corporate tax in the world. The taxation policy is different for industrial sector depending upon the nature and scale. There is a highest rate of corporate tax, but the tax liability differs from different industry and corporate sector in India.

The Goods and Service Tax, which was a destination based tax. It was came into force on 1st July 2017. The basic purpose of introducing GST was to achieve the ‘one nation tax regime’ in India. It eliminated the taxes used to be levied by the Central and State government and instead comprised indirect taxes throughout the country on manufacturing and sales of goods and services.

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Impact on Employment laws

One of the most challenging part of starting a business is of accessing of right workmen skill. As it will provide a good scope for retention of workmen and higher employment turnover. The government always tries to improve the legislative huddles in the employment laws enforced in India. The employment laws in India not only governs the employment of potential workmen of Indian and foreign nationals but also the ranging of payments of gratuities and gender discrimination.    

Impact on Investment Laws

To offer adequate security to the investors there are different legislations like Companies Act, Securities Contract Act and Consumer Protection Act and other circulars and notifications issued by the government of India. There has been an initiative taken by the SEBI for “ease of doing” business which includes systematization of knowing your customer policy, increase of the arbitration centres and ease of foreign portfolio investment criteria for investment in the share market. With the insertion of the new insolvency policies there has been a rise in the right for minor investors. The government of India and the regulators are learning and adopting new global practices to strengthen the investment policies for the investors and the company. However, there are still many loopholes that need improvements like fixation of the auditors’ accountability and improvement in the surveillance on the regulatory enforcements

Business Interests and Competition Law and Policy

The potential of a company can be determined from the technique, workmen and significant investors. There is another factor which also affects the business in a long run that is the business environment in which a particular business operates. It has been observed in various studies that competition in the domestic market puts major implications on the business environment. This may affect to the higher level of productivity, per capita GDP and dominance of large entities that also affects in competitive index in the world economic forum. Therefore the new companies have to face a higher entry rates in the economic market indicating better investment and new business formation.

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Conclusion

There are plenty of implications which plays a vital role on ease of doing business in India. With the changes in the government policies affects most of the new companies and the prevailing entities in the economic market. In the present situation, the interest of the investors and the company has been bridged for the aim of smooth and long run of the business in the Indian market.


References

  1. https://www.mondaq.com/india/corporate-and-company-law/694318/top-challenges-of-doing-business-in-india
  2. https://corporate.cyrilamarchandblogs.com/2020/04/short-and-long-term-impact-of-current-market-conditions-part-ii/
  3. https://uk.practicallaw.thomsonreuters.com/4-500-8980?transitionType=Default&contextData=(sc.Default)&firstPage=true
  4. https://circ.in/souvenir/the-interface-between-business-strategy-and-competition-law/#:~:text=Anti%20competitive%20business%20practices%20such,undermining%20the%20competitiveness%20of%20firms.&text=In%20India%20and%20several%20other,fixing%20cases%20relating%20to%20cement.

Cite this article (The Bluebook 20th ed.)-

Pritish Kumar Pattnaik and Snigdha Shandilya, Ease of Doing Business in India, Ex Gratia Law Journal, (October 7, 2020), https://exgratialawjournal.in/blawg/company-law/ease-of-doing-business-in-india-by-pritish-kumar-pattnaik-and-snigdha-shandilya/.

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Author

Pritish Kumar Pattnaik
Student - KIIT School of Law, Bhubaneswar, Odisha
Snigdha Shandilya
Student - KIIT School of Law, Bhubaneswar, Odisha