India has rightly decided to deal with the crisis at the domestic front with a human touch and with economic and physical might with China
Data is the great Panoptes (the Greek giant with many eyes) to make sense of the present while promising a potent vaccine for future risk-case scenarios. Random, unconnected sets of data when put on a piece of paper begin to intimately engage with each other to give birth to a larger reality on most issues around us. Today I aim to put together a mix of data sets in a petri dish for an alchemic moment of truth. First, a recent report by TeamLease suggests that an average business entity in India has to adhere to at least 25,537 Central Government compliances and 43,696 additional compliances, if the entity is a pan-India operator with business presence in every State. Hence, technically a pan-India enterprise would have to adhere to 69,233 compliances governed by 1,536 Central and State Government Acts. Some of these Acts may date back to the pre-Independence era, which perhaps only a historian along with a legal expert and linguist would be able to decipher. If you thought that relatively more industrialised States have lesser compliances, consider this: Maharashtra has 67 Acts and 3,657 compliances, Tamil Nadu 53 Acts and 2,414 compliances and Gujarat has 38 Acts and 3,043 compliances. If we try to look at this compliance universe sector-wise, a major chunk is shared between labour and industry-specific Acts, adding up to 947 with close to 50,000 compliances followed by commercial, finance and taxation-related regulations. Leaving this data dashboard aside, let’s look at the world of unicorns. As of June, the US tops the list with 228 unicorns, followed by China with 122, UK 25 and India 21, as per a report by CB Insights. Of course, one can contest the way to define unicorns i.e. by $1 billion in valuation or EBITDA (earnings before interest, taxes, depreciation and amortisation) margins and also on time, as this year may not be a great benchmark. But we will still park this data set.
Now take a look at foreign investments headed towards India. If we stick to newspaper headlines, a bunch of multi-billion dollar investment funds, private equity funds and technology companies have announced close to $20 billion in cross-border deals in India in the last three months. Sliced this way, it seems the promise of huge capital inflows to India fleeing from China was not a pipe dream. However, a closer look reveals that a major part of this money and equity stake buyouts was captured by less than five Indian business conglomerates. That brings us to the original task of engaging the three data sets into an alchemic reaction and the new hard truth emerges. India continues to be a regulatory and compliance nightmare for any enterprise, domestic or foreign, to function. Yes, India has jumped 79 places from 142 in 2014 to 63 in 2019 in the World Bank’s Ease of Doing Business Index. However, talk to the business head or unit supervisor of a factory, a major portion of whose time is still consumed trying to fix yet-to-be-broken compliance audits. To simplify, it means there is a huge regulatory overload, human capital and paper money spent. Compliance costs for India are the highest in the world and perhaps the inspector raj still casts a long shadow on enterprises, where every Government department wants to have a rule in the functioning of a business.
Second, India despite liberalising since 1991, opening up its doors and markets for foreign companies and funds, still has a huge protectionist hangover. This gets flared up or sometimes wrongly-equated with patriotism under stressful circumstances. This has led to a “Made in India foreign investment format” emerging where the multinational firm has traditionally entered the country through a minority stake with a large local business tycoon, slowly getting into the swampy regulatory pool, to either sink or develop deep mangrove roots.
Third, these regulatory loads are stifling innovation and growth as is reflected in the unicorn data set. India, despite having one of the world’s largest talent pool of smart coders, bright software techies and most important the world’s largest, most diverse, digitally-savvy, addressable open market, brimming with customers, ends up way behind China. We need to acknowledge the two realities India is facing right now. A menacing pandemic tearing its way through densely-packed neighbourhoods and metros of India, burning deep holes in the economic fabric, while a hostile neighbour is closing in physically on our borders threatening our sovereignty. India has rightly decided to deal with the crisis at the domestic front with a human touch and with economic and physical might with China. Early indicators on both issues point towards India having an edge over the pandemic and China. But remember, in battle you must never celebrate early. This battle with China is for the long haul. Only social distancing and compulsory wearing of masks in public places can drastically reduce transmission of the deadly virus. Similarly, drastic cutting down of regulatory compliances would ensure a sustainable and secure inflow of capital into the country. Yes, global supply chains would switch to India and provide the much-needed money for a V-shaped rebound and put back millions into jobs. The Indian consumer market still could be the world’s most attractive place for any multinational to try out their ‘Made for India’ products and services. But a mindset change is necessary for citizens and the Government to win the battle.
(The writer is a senior policy analyst)
