Ease of doing business now an impetus to India’s growth

The end of License Raj in 1991 paved the way for India to emerge as one of the world's fastest-growing major economies, demonstrating the transformative power of economic liberalisation. Over the past decade, India has taken its place as a Top 5 global economy, on track to soon be the 3rd largest, behind just the US and China. This has been bolstered by the Government’s efforts to enhance ease of doing business (EODB) through reforms. EODB has positively impacted tax collection, reduced compliance burden, increased the number of start-ups and supported FDI.

India had ranked 133rd in World Bank’s Ease of Doing Business Report in 2009. In a decade it took a giant leap and was ranked 63rd in 2019. During this journey, India’s ranking for construction permits improved from 184 in 2014 to 27 in 2019, whereas for getting a power connection, from 137 in 2014 to 22 in 2019. India continues its trend of improving its business environment ranking in the world as per the Economist Intelligence Unit (EIU) report (comparing Q2 2022 with Q2 2023).

Simplified tax regime

In 2017, the government implemented the Goods and Services Tax (GST), which unified and simplified the otherwise complex taxation for businesses, like excise duty, service tax, and others, consolidating them into a streamlined method of tax payments. This has vastly reduced the complexity of the tax system, and the numbers are evident. The central and state governments have collected ₹1.82 lakh crore in goods and services tax (GST) in July 2024, a record collection. The GST CAGR growth has been almost 13% from 2017-18 to 2022-23, three times higher than the GDP CAGR growth of 4.1% over the same period.

Reducing compliance burden

Budget 2023-24 highlighted that the Government has reduced over 39,000 compliances and decriminalised over 3,400 legal provisions as part of its endeavour to reduce compliance burden for implementation of reforms related to ease of doing business. It has also introduced the Jan Vishwas Bill 2023 to amend 183 provisions in 42 Central Acts administered by 19 Ministries/Departments, covering various domains such as environment, agriculture, media, industry, trade, information technology, copyright, motor vehicles, cinematography, food safety, etc. The Bill seeks to decriminalise minor offences that do not involve any harm to public interest or national security and replace them with civil penalties or administrative actions.

Best places to start a business

As of 2024, India is home to 113 unicorns with a combined valuation of $350 Bn. It is also the 3rd largest startup ecosystem in the world, with over 1,24,000 DPIIT-recognised startups. The Startup India Initiative, the flagbearer of the government’s support for startups, offers various schemes that provide financial and infrastructural support to young entrepreneurs. In 2022, India announced 53 key regulatory reforms for startups across the board to enhance the ease of doing business, ease of raising capital and reduce the compliance burden for the startup ecosystem.

Improving FDI

India’s improvement in ease of doing business has positively impacted Foreign Direct Investment (FDI) in the country, with its highest-ever FDI inflow of $84.83 billion in FY22 compared to $45.14 Bn in FY 2014-15. While FDI inflows reduced to $70.95 billion in FY 2023-24 amid a global slowdown, as the fastest growing major economy in the world, India will continue to remain a preferred investment destination due to enhanced ease of doing business and FDI reforms.

More to come

As per the EIU report, Vietnam & Thailand had the biggest move worldwide in the rankings, followed by India. Global organisations who are de-risking their supply chain are benefiting from policies favourable to foreign investors provided by Vietnam and Thailand.

India’s huge endeavours to enhance ease of doing business through the simplification of taxes, improvement in processes, removal of copious approvals, and digitisation makes it a compelling investment destination. It is critical that the government continues the support and the industry proactively collaborates to strengthen all efforts to enhance the ease of doing business to realise the vision of a Viksit Bharat.

(Ankur Modi, cluster head – South Asia & Indochina, Philip Morris International)