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Doing Business in India

Omkar Goswami


In his recent visit to India, Intel’s Craig Barrett said something quite ominous. Since he said it politely with elegant caveats, and since it was but a part of many good things that he said, the comment merited small headlines in the pink papers. Shorn of politeness and provisos, this is what Barrett had to say: While India is an exciting prospect for Intel, long delays in getting government clearances are making the management favour investing in China and Vietnam over India.

Barrett’s was a powerful wake up call. We can praise India’s growth to the skies. But we must recognise that there are huge hassles for MNCs and others in setting up and running businesses in India. Consider some facts culled from the World Bank.

In 2006, India ranked 134th out of 175 countries in terms of the ease of doing business. China ranked 93rd; and the relatively tiny Vietnam ranked 104th — 30-points higher than India. In terms of dealing with licenses and sundry government permissions, India ranked 155th; China was only marginally better at 153; but Vietnam was way ahead at 25th position. As far as registering property was concerned, India was placed 110th, versus China at 21 and Vietnam at 34. Regarding flexibility in hiring, utilising and retrenchment of workers, India was 112th, compared to 78 in China and 104 in Vietnam.

Now come the real party poopers. In exports and imports, our still cumbersome procedures ranked India at no.139; China was 38th, and Vietnam 75th. We fared abysmally in the ease of enforcing commercial contracts: ranked 173rd (i.e. only two countries in the world are worse than us), versus 63 for China and 94 for Vietnam. And our monstrous difficulties in winding-up ranked India at 133rd in the ease of closing business, compared to 75 for China and 116 for Vietnam.

All these hassles have to do with the government and the judiciary: centre, state, districts, municipal entities and courts. All involve multiple permissions — often sequential and occasionally conflicting in their remit — which take far too long to be resolved. Let me now give you a live example.

To begin with, a disclosure. I serve as an independent director on the board of Cairn India Limited, a company listed on Indian stock exchanges. What I write here are bald facts, bereft of any bias that could accompany my fiduciary position.

Cairn discovered India’s largest on-shore oil reserves in the district of Barmer in Rajasthan. The original agreement was that Cairn would be paid for evacuating the crude at site (the ‘point of delivery’), which would then be carried by a public sector company to southern Rajasthan and Gujarat by a pipeline constructed by that enterprise.

By end-2006, it was clear that the public sector company was not going to be able to construct the pipeline. Since no pipeline meant no oil for the nation (you need to ship the crude out of Barmer), Cairn offered to build the pipeline with cost recovery. That required two permissions from the Ministry of Petroleum. The first was to permit shifting the ‘point of delivery’ of the crude from Barmer to the end-point of the pipeline and, hence, right of access. And the second required recognising Cairn as the pipeline contractor for getting cost recovery.

The file made interminable rounds in the ministry for over six months. Eventually, Murli Deora, the minister, was given the full picture of the delays and what it was costing the nation. Deora, to his credit, immediately sanctioned the project. Guess what? Even after the minister’s approval, a civil servant in the ministry succeeded putting such onerous caveats in the last paragraph of the sanction letter that it has become impossible to proceed without these being removed.

Bureaucracy is delaying a project which happens to be India’s largest on-shore find. For reasons that are beyond my comprehension. Except one: lack of concern about the cost to the nation. Yet another example of hassles of doing business in India. And why Craig Barrett said what he did.

Published: Business World, September 2007


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