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CIRC Working Paper


[Un]Ease of Doing Business in India – A Review of Major Pain Points and Possible

Honey Gupta
Tunisha Kapoor
Jitin Asudani

APRIL 2015
CUTS Institute for Regulation & Competition

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Suggested Citation:

Gupta, H; Kapoor, T. & Asudani, J. 2015 ‘[Un]ease of Doing Business in India – A Review of Major
Pain Points and Possible Lessons’, CIRC Working Paper No.12. New Delhi: CUTS Institute for
Regulation & Competition.

Author Bio:

Honey Gupta is a Junior Fellow at CUTS Institute for Competition & Regulation.

Tunisha Kapoor is a Research Associate at CUTS International, CUTS Centre for Competition,
Investment & Economic Regulation.

Jitin Asudani is Assistant Policy Analyst at CUTS International, CUTS Centre for Competition,
Investment & Economic Regulation.

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CUTS Institute for Regulation & Competition

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© CIRC, 2015
One of the more influential challenges that India is today contended with is the need
to improve its business climate, both in letter and spirit. The bureaucratic overdrive
to repair the situation is fuelled by the latest World Bank rankings on one hand and
the urgent need to support the ambitious national slogan -‘Make in India’, on the
other. The Doing Business 2015 rankings show India notably ‘uneasy’ , at a
depressing 142 out of 189 countries ranked, having actually slipped two ranks (140)
from the previous year world order. Most of the entire business life cycle right from
starting a business, running it and to exit is indeed bothered by inefficient a nd
lengthy procedures, lack of information and weak accountability that make it
cumbersome and expensive to conduct business in India.
As India now wants to make some serious regulatory repair, it might be worthwhile
to start fixing the last few indicators of doing business, first. A possible approach
could be to concentrate on the most distressing indicators (those that are ranked
beyond 150), and map these across comparable economies, say BRICS. As against
targeting a particular rank for India, such an ap proach can help draw useful lessons
and inform the policies on incremental steps taken by select countries overtime on
the specific indicators. This paper focuses on the four worst indicators - enforcing
contracts (186), Dealing with Construction Permits ( 184), Starting a Business (158)
and Paying Taxes (156).

1. Introduction importantly, the incumbent Government

India clearly wants to be in the game, itself getting into an overdrive mode –
quickly shedding the idiosyncrasies that realising the urgent need to dump the
have long blotted its business climate as languid, business-as-usual approach and
painful, corruption-ridden and unfriendly. pace up relevant institutional reforms.
As the world looks to India with great hope
and potential, India can ill-afford to let Considering that the latest WB assessment
perceptions and analyses of its business might have missed recent developments
regulatory environment continue to and in view of direct measures currently
indicate indiscipline and hopelessness, underway (online approval for 200 permits
much less being anywhere close to the etc.1), the Government is hoping to see an
bottom of the pack. upswing in the forthcoming rating anyway.
The Government has reinforced this hope
The present situation, however, is grim, far by setting itself an ambitious target rank of
from optimal. The release of the 2015 being in the top 50, to be achieved over the
‘Doing Business’ rankings by the World next two years. Eschewing from making any
Bank (WB) show India notably ‘uneasy’, at a claim on rank jump, this paper attempts a
depressing 142 out of 189 countries ranked, bottoms-up approach to look at the worst
having actually slipped two ranks (140) ranked areas in doing business in India that
from the previous year order. must necessarily be addressed to expect
any momentous improvement. These select
The ranking announcement seems to have areas are then mapped across comparable
suddenly ‘shaken-up’ the nation, with
business houses, analysts and quite
See Annex I

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economies to review their reform pathway which are both urgent and doable. An
overtime and draw lessons. assessment of good practices and
institutional changes in comparable
The ranking might have limitations and the countries is also made to draw possible
target difficult, but the urgency to improve lessons. In order to set a focussed direction
cannot be over emphasised. While taking for India while also keeping the comparison
the discussion forward, it’s useful to bear in rational, the discussion below looks at:1)
mind that these rankings: 1) might not be the four worst indicators (rank based) for
comparable2 across nations for various India and 2) how these indicators score
contextual factors, and 2) these are relative across economies comprising the Brazil
and, therefore, a change in ranking between Russia India China and South Africa
years might not necessarily mean absolute (BRICS).
improvement or degradation in the
regulatory environment of the country. This On the distance to frontier scale as also
means if one country moves up in a year, rankings across the five countries in BRICS
another will necessarily move down. for 2014 and 2015 (Figure 1 below), India
clearly lags on both accounts.
Several countries, including India and
China, have expressed concerns about the Figure 1: Doing Business: How BRICS
country’s ranking in the report. The recent Compare on Distance-to-Frontier
change in the WB methodology, based on South Africa (Rank 43, 2015) 71.1
the Distance to Frontier (DTF), is perhaps a
South Africa (Rank 37, 2014) 71.6
better measure of a country’s performance.
Russian Fed (Rank 62, 2015) 66.7
The DTF tries to capture the actual distance
each economy has to traverse to reach the Russian Fed (Rank 64, 2014) 65.0

‘frontier’ of best performance, which is set India (Rank 142, 2015) 54.0
at 100. DTF shows what has been achieved India (Rank 140, 2014) 52.8
and how much more needs to be done. The China (Rank 90, 2015) 62.6
dichotomy in case of India makes the point China (Rank 93, 2014) 61.3
clearer; India slipped two ranks from 142 to
Brazil (Rank 120, 2015) 58.0
140 but it has improved on the DTF score
Brazil (Rank 123, 2014) 57.4
from 52.8 to 54 between 2014 and 2015.
0 100
While the actual current position of India in
facilitating businesses is perhaps unknown Source:
and subject to debate, the imperative need
for India to improve on the regulatory A review of the past rankings for India show
environment, and reduce implementation similarly poor results for the above-
bottlenecks is undisputed. mentioned four indicators.

2. Major pain points for India

The subsequent sections attempt to discuss
the weaker indicators that contribute to the
overall ranking for India and how these
could be bolstered through specific reforms,
An Independent review panel set up by the Bank a couple
of years ago suggested that it end the practice of ranking
countries against one another on the grounds that the
results might be misleading and are sometimes not objective

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Table 1: Indicator Ranking through Time most other BRICS countries as well
DB DB DB DB (analysed for 2014 and 2015). Enforcing
Particulars 2011 2012 2013 2014 contracts (ranked 186, DTF-25.8) however
Ranks Ranks Ranks Ranks
is particularly bad in case of India. Likewise,
Ease of Doing
134 132 132 140 in case of paying taxes, the only other
Enforcing contracts 182 182 184 186 country in the group that does worse than
Dealing with
177 181 182 183 India (156) is Brazil (177). Brazil also
construction permits
performs even poorer than India in starting
Starting a business 165 166 173 156
a business, with a rank of 167 while India
Paying taxes 164 147 152 154
ranks 158.
The discussion below deals with each of the
Notably, some of these (starting a business
above-mentioned four indicators,
and dealing with construction permits)
indicators are among the bottom four in
Table 2: Indicator Ranking across the BRICS Countries
Ease of
Starting Dealing with Protecting Trading
Doing Getting Registering Getting Paying Enforcing Resolving
Year a Construction Minority Across
Business Electricity Property Credit Taxes Contracts Insolvency
Business Permits Investors Borders

Ranks --

2015 142 158 184 137 121 36 7 156 126 186 137
2014 140 156 183 134 115 30 21 154 122 186 135

2015 120 167 174 19 138 89 35 177 123 118 55

2014 123 160 171 19 137 86 35 175 126 118 60

2015 62 34 156 143 12 61 100 49 155 14 65

2014 64 58 172 141 17 55 97 48 154 14 62

2015 90 128 179 124 37 71 132 120 98 35 53

2014 93 151 177 121 38 67 123 127 98 36 52

2015 43 61 32 158 97 52 17 19 100 46 39

2014 37 55 32 156 92 30 16 18 100 46 36


2.1. Enforcing Contracts (186) Businesses, particularly small and medium,

should be able to depend on the courts to
While the substantive governing legislation
protect their legal rights and deliver speedy
for contracts, laying down the general
justice. In India, the situation is
principles on formation, performance and
unfortunately quite the contrary. Indian
enforceability of contracts in India is
judiciary is characterised by extraordinary
the Indian Contract Act, 1872; the
delays, corruption and complex filing
procedural law for civil cases adjudication
by Courts is essentially the Civil Procedure
Code, 1908.

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Apart from Courts, there are other them out of business. Some of the key
mechanisms to enforce contracts – usually challenges for Indian judiciary are:
availed of before judiciary and provided for
in contracts. The Arbitration and Backlog of pending cases
Conciliation Act, 1996 provides for India’s legal system has the largest backlog
conciliation, mediation and arbitration as of pending cases in the world – as many as
other means of settling disputes, 30million pending cases7. This number is
alternatives to adjudication through courts. consistently on the rise, which is
Arbitration is specifically for commercial symptomatic of an increasing inadequacy of
disputes. While the Arbitration and the legal system. According to Freedom in
Conciliation Act of 1996 has improved the World 2013 Report, the Indian court
matters by imposing some finality to system is severely backlogged and
arbitral proceedings, there are still understaffed, and there are currently
complaints about loopholes3. Institutional millions of pending civil and criminal cases
arbitration is yet to emerge as a preferred – many of these involving
means of dispute resolution among Indian companies. Whereas the need to enhance
companies4. Recent amendments by the strength of the judges and creating more
new Government in the Arbitration and courts is frequently felt, but the
Conciliations Act to speed up commercial implementation of corresponding
dispute resolution by setting up fast track recommendations too has been inadequate.
courts5, brought about through an
ordinance can prove to be helpful. At the same time, certain steps being
considered might have varied implications.
At the same time, speedy disposal of cases For example, the Government has proposed
requires consideration of many other to amend the Negotiable Instruments Act
factors as well. A recent Discussion Paper (N.I. Act) to decriminalise the offence of
by CUTS6 International makes insightful dishonoring of cheques; a move essentially
observations on how shortage of judges and aimed at decongesting the judicial system8.
courts, lack of performance assessment of It has been estimated that about 30 percent
judges, inadequate case management of criminal cases in Indian courts are either
practices and slothful pace of reforms have cheque bouncing or traffic offences. While
all contributed to staggering arrears in there are valid reasons for the reform, but
disposal of cases across various courts. the N.I. Act did provide considerable legal
Businesses are deeply affected as certainty particularly when seen in the
commercial disputes remain pending for context of weak contract enforcement. The
long, soaking up expensive time, proposed withdrawal of section 138 of the
administrative capacity and financial Negotiable Instruments Act will increase
resources. Such a scenario makes it the civil court burden, offsetting some of the
prohibitively expensive for smaller firms to gains expected from decongesting criminal
pursue court cases and may even drive courts.

3 Judicial reforms – law and contract enforcement by Bibek

Debroy 7 Five major problems-the Indian judicial system is facing, by
4 India is still in the grip of ad hoc arbitration: N G Khaitan, Rumani Saikia Phukan, Oct 2014
Indian Council of Arbitration, 2014 (
5 Govt. eyes fast-track arbitration courts, The Times of India, major-problems-the-indian-judicial-system-is-facing)
8 The saga of criminalising and then decriminalising cheque
Dec 31, 2014
6 Judiciary - A crumbling Pillar of Indian Democracy? bouncing by Ajay Shah
Speeding up delivery of Justice in India, CUTS International, (
2013 criminalising-and-then.html)

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Government litigation Like many other institutions of the
Government, the Indian judicial system is
The Government itself is a major litigant, deeply plagued by corruption. As per the
perhaps the biggest contributor to the huge Global Corruption Barometer 2013 by
backlog jamming the courts. The Centre, Transparency International (TI) – it was
States and public sector companies found that 45 percent of respondents in
untiringly appeal most adverse verdicts, India felt that judiciary was corrupt or
despite winning only a small minority of extremely corrupt; 36 percent reported
them eventually. A project titled LARGE paying a bribe to the Judiciary. As such,
(Legal Adjustments and Reforms for there is no provision for registering an FIR
Globalising the Economy) commissioned by against a judge taking bribes without taking
the Ministry of Finance in cooperation with the permission of the Chief Justice of India.
United Nations Development The media has been best able to energise
Programme(UNDP) in 1993 observed that public debates and few mass uprisings; it is
the Government is a litigant in 60 percent of also not completely trusted to act in an
civil suits, sometimes on both sides, with 90 unbiased and independent manner.
percent of these appeals failing9. Perhaps
alarmed by these findings, the State Law Lack of transparency
Ministers, in December 1994, decided that
disputes involving two government bodies Another problem facing the Indian judicial
should be resolved outside the court system is the lack of transparency. It is seen
system. However, the decision was not that the legal system is totally out of the
implemented. More recently in 2010, the ambit of the Right to Information (RTI) Act.
Centre introduced the National Litigation Thus, in the functioning of the judiciary, the
Policy of India (NLPI) in recognition of the substantial issues like the quality of justice
Government and its various agencies being and accountability are not known
the pre-dominant litigants in courts and properly12.
Tribunals in the country. The policy aims to Enforcement of foreign judgments
transform Government into an Efficient and
Responsible litigant and reduce A foreign judgment can be enforced by
Government litigation in courts to achieve courts in India only if the foreign court is in
the goal in the National Legal Mission to a ‘reciprocating territory’ i.e. if India has
reduce average pendency time from 15 reciprocal arrangement with that country
years to three years. However, the policy for enforcement of judgments. The number
was not implemented in India till October of ‘reciprocating territories’ with which
201410. These government cases not only India presently has such treaties is limited.
cost the exchequer but also absorb valuable International arbitration has also often been
time of the courts both of which could be criticised for interference by the Indian
gainfully employed instead towards Judiciary even as it is fast emerging as the
speedier delivery of justice.11 preferred option for resolving cross-border
commercial disputes. Enforcement of
Corruption in judiciary foreign awards through Arbitration in India,
(as provided by Part II of the Arbitration
9 Judicial reforms – law and contract enforcement by Bibek and Conciliation Act 1996), follow the New
10 National Litigation Policy of India, 2010 12Five major problems-the Indian judicial system is facing,
11 Judiciary - A crumbling Pillar of Indian Democracy? by Rumani Saikia Phukan, Oct 2014
Speeding up delivery of Justice in India, CUTS International, (
2013 major-problems-the-indian-judicial-system-is-facing)

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York Convention or the Geneva Convention. Time (days) 1,420 731 267 452.8 600

However, unlike most other Convention Cost (% of 39.6 16.5 14.9 16.2 33.2
states, India has not officially recognised all claims)
Procedures 46 43.6 35 37 29
the signatories to the New York Convention. (Nos.)
Indian courts will, therefore, only enforce Source:
foreign awards, under the New York
The break-up of the three parameters
Convention if they have been issued in a
constituting efficiency of contract
state that has been notified in the Official
enforcement in India, as evaluated by the
Gazette of India as a country to which the
DB rankings are shown below. While the
New York Convention applies13. Even where
number of procedures is still comparable
international arbitration awards have been
across the five countries, the time and cost
made in a notified country, enforcement in
(as percent of claim) are significantly high
India has been an issue, largely contributed
in case of India. Time taken for trial and
by the interventionist approach of the
judgment in India constitutes about 80
Indian Judiciary or denial of enforcement on
percent of the total time required to
the grounds of public policy. With some
conclude a case as against less than 50
recent pro-arbitration Supreme Court
percent in case of China and about 60
rulings things have started looking positive,
percent in case of Russia.
but it remains an issue and many
businesses still choose Singapore and Time taken to enforce the judgment is
London as the more preferred seat for unreasonably high in India; even after
International arbitration rather than India. getting a judgment in your favour, it takes
305 days to enforce the judgment. At the
Furthermore, Doing Business rankings test
same time, the attorney costs in India is as
‘enforcing contracts’ on three broad
high as about 31 percent of the claim;
parameters of time, cost and procedural
standing in stark contrast to about 8-10
steps to follow. Drawing a comparative
percent in case of China and about 10-15
assessment (table 3 below), it takes about
percent in case of Russia. In case of South
three years and ten months to get a contract
Africa, the attorney cost is about 23 percent.
enforced in India as against one year and
three months in China and less than a year Procedures to enforce a contract through the
(267 days) in Russia. courts (number): 46
 Steps to file and serve the case 11
 Steps for trial and judgment 21
 Steps to enforce the judgment 14

Time required to complete procedures

(calendar days): 1,420
Table 3: Enforcing Contract –  Time to file and serve the case 20
Comparison across BRICS  Time for trial & obtaining judgment 1,095
 Time to enforce the judgment 305
Parameter India Brazil Russian China South
Fed Africa
Cost required to complete procedures (% of
Rank 186 118 14 35 46 claim): 39.6
DTF 25.8 53.6 75.8 68.2 66.1
 Average attorney fees 30.6
 Court costs 8.5
 Enforcement costs 0.5
13Enforcement of foreign arbitral awards in India by Richard
Gubbins, India Investment Journal, 2014

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Study by CII-KPMG, 2014 The timeline traces some of the judicial
reforms undertaken by Brazil, Russia, China
A recent survey found that in case of and South Africa through the last many
obstacles faced in contract enforcement in years. A lot of emphasis in recent years has
India, respondents felt that while time been on using technology to manage case
involved is a major issue, enforcing a filing and speed up resolution. Substantial
judgment is an equally big challenge. focus has also been made to strengthen
Judicial Reforms: International enforcement of judgments.

Figure 2 : Reforms Timeline

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Figure 3: Enforcing Contract: Distance to Frontier (DTF) Scores for BRICS Countries



70 CHINA, 68.2
CHINA, 71.4


BRAZIL, 53.6
BRAZIL, 50.6


20 INDIA, 25.8 INDIA, 25.8


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



As the figure above reveals, all the countries the following section discusses certain
in the group seem to have made very little recommendations to improve contract
year-on-year progress on the score, enforcement in India.
represented by almost flat lines. Although,
Russia, which undertook reforms quite Recommendations
early and consistently, over the years is Enforcing judgments
logically much better placed than the
others. This has been widely noted as a major issue
in commercial dispute resolution in India. It
Brazil has improved marginally from may be worthwhile for India to consider the
around 52 to 53 between 2012 and 2013, Chinese model. China has set up a separate
most likely on the basis of having and relatively independent enforcement
introduced electronic system of filing bureau within the courts. The civil
complaints. China, despite having made adjudicating procedure reform, separating
certain reforms in 2009 and 2014 has seen adjudication from petition filing and
a negative slope in the DTF scores; perhaps judgment enforcement, has made it possible
ICT intervention has not been significant. to trace the process of cases being enforced
India has remained farthest from the and also to hold individual judges
frontier and any change/reform during the accountable for the cases that they are
years has failed to influence the DTF score. assigned to handle.
Drawing on some of the reforms The courts have also encouraged plaintiffs
undertaken by member countries of BRICS, to take pre-emptive action to protect their

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business interests. The enforcement bureau disposal of high value commercial suits. The
of the courts requires judges in the petition law commission has also suggested changes
filing and adjudication divisions to inform in the Civil Procedure Code, 1908, which
plaintiffs of the availability of the Asset lays down rules for the courts to adjudicate
Preservation, a procedure whereby such disputes. The institution of these
plaintiffs, by providing security, can ask the exclusive courts and division will be helpful
courts to freeze the assets of the other in faster resolution of commercial disputes
party. This procedure has been very useful and inducing business growth.
both during the enforcement phase and
prior to enforcement, because litigant Foreign judgments
parties are more likely to resolve their India should identify current and potential
disputes through mediation or voluntarily business partners and sign treaties with
withdraw their suits when the defendants most such countries in order to boost
know that they will not be able to delay or investor confidence in Indian judiciary. The
avoid enforcement should a judgment be process of enforcement of foreign
rendered against them.14 judgments should be streamlined and
Increased professionalism of China courts definite time limits should be provided for
has also had a positive impact on achieving closure on their enforcement.
enforcement. The Judges Law, amended in Leverage ICT: Electronic Case Filing
2001, requires all judges to pass the
National Uniform Judicial Exam, leading to It is possible to achieve a substantive
more qualified judges. In addition, judges’ degree of time and cost efficiency through
salaries have generally been increased, in reduction in physical paperwork and
part due to sufficient financial resources migrating to virtual or electronic case filing
being supplied by local governments. The system. Though the process of e-filing of
income-level of judges has generally been proceedings has been initiated by the
much higher than the local Gross Supreme Court and some high courts, it
Democratic Product (GDP) per capita.15 needs to flow to the courts at all levels. This
would essentially involve modernising the
Even as these observations are made, it is IT infrastructure and amendment in laws
important to acknowledge some significant and regulations. An electronic case filing
reforms being currently advanced for the system would typically facilitate electronic
civil justice system in India. The Law submission, registration, service
Commission has recently submitted it 253rd notification and access to court documents.
report – The Commercial Division and Implementation of e-court systems results
Commercial Appellate Division of High in substantial savings from a reduction in
Courts and Commercial Courts Bill, 2015, to the use of paper, time spent in court,
the Ministry of Law and Justice, cheaper service of process, low
recommending a new law to set up transportation costs, easy archiving of
exclusive commercial courts and documents and payment of fees. While
commercial divisions in the high courts Brazil and Russia have introduced ICT in
across the country to ensure speedy case filing, Korea was a pioneer in
leveraging technology – having launched
Formal Contract Enforcement and Economic Development electronic case management in the mid-
in Urban and Rural China, 1980s.

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Alternative Dispute Resolution Case management policy can yield
remarkable results in achieving more
Despite the new Arbitration and disposal of cases and enhancing user-
Conciliation Act 1996 adopted by India on friendliness. Experience from countries,
the lines of the United Nations such as the UK, the US and Australia provide
Commission on International Trade Law good leads. Case management refers to a
(UNCITRAL) model law of Arbitration, judicial process that provides effective,
Courts routinely have to interfere as losing efficient and purposeful judicial
parties challenge the arbitral awards, under management to achieve a timely and
section 34 of the Act. Among others, qualitative resolution. Its mandate is for the
intervention on grounds of ‘public policy’ in Judge or an officer of the court to set a time-
particular has been a usual threat to the table and monitor a case from its initiation
arbitral awards. While assistance of the to its disposal. Importantly, it entails
courts is necessary for the smooth regular communication and above all
functioning of the arbitration system, since assigning cases to alternative modes of
the courts have statutory powers to execute dispute resolution. A Committee set up by
and enforce an order, these supervisory the Supreme Court headed by the Chairman
powers should be exercised with caution of the Law Commission, assessed the
with least interference in the arbitral progress made in other countries and
process. In some recent instances, High concluded that the case management
Courts and the Supreme Court have realised system has yielded exceedingly good
the importance of protecting the results.
arbitration, but the scope of challenge
should be systemically restricted through Also, the Government should put in place
amendment to the Act and finality of mechanisms that can effectively check the
arbitral award should be reinforced. avoidable contribution to the ever-
Together with this, increased Institutional increasing case pendency; should follow the
arbitrations, use of expert witnesses, National Litigation Policy and curb
disclosure procedures with regard to unnecessary litigation
conflict of interest of arbitrators16 and
trained arbitrators can help establish more
credibility in arbitral proceedings and Last but not the least, the National Mission
awards. In addition, all Central and State on Justice Delivery and Legal Reforms,
Government contracts should specify under the Department of Justice, need to be
mandated arbitration institutions, which accelerated. The National Mission would
should be set up in each State. help in implementing the two major goals of
increasing access by reducing delays and
Apart from other direct benefits of arrears in the system and enhancing
strengthening the Arbitration mechanism, accountability at all levels through
India will also be able restrict the huge structural changes and setting performance
outflow of money that Indian parties incur standards and facilitating enhancement of
each year for choosing an international seat capacities for achieving such performance
(Singapore, London) of arbitration instead standards18.
of an Indian seat.
2.2. Dealing with Construction
Case management practices17 Permits (184)
Construction projects whether Industrial,
When Courts Can Interfere In The Awards Passed By An commercial or residential typically require
Arbitral Tribunal As Per The Law In India?, RS Sathiyamoorthy,
Law Senate Law firm
Judiciary - A crumbling Pillar of Indian Democracy? Speeding
up delivery of Justice in India, CUTS International, 2013 Ibid

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obtaining approvals and clearances from uncooperative, rent-seeking ways. Whereas
various public departments to build the regulation of construction to ensure safety
structure and connect it to water, of life and environment is indeed important
electricity, sewerage and communication. but unusually lengthy and complex
In India, complying with building compliance, lack of information, unofficial
regulations to obtain construction permits payments in addition to mandated fees
is excessively costly, complicated and time- constrain infrastructure development, often
consuming. Land and real estate resulting in sub-standard construction
development are State subjects; the quality. The situation is undesirable both
procedure for obtaining clearances varies from an economic standpoint as well as
from city to city in terms of time and productivity.
number of clearances as decided by the
Placed below is a broad regulatory
Urban Local Body/Urban Development
framework governing the construction
Authority of city concerned. These city
activity in India comprises multitude of
authorities are notorious for their
authorities at various levels.

Table 4: Regulatory Environment for Construction Activity in India

Activity Department / Authority Guided by
Land Title Revenue Department Indian Registration Act , 1908
(Ownership) State Town Planning/ULB Various State Legislations
Land Revenue Acts by States
Land use Department of Town Planning /
Town and Country Planning Acts
planning Urban Local Body
Master Plans/ Development Plans
National Building Code 2005
Construction Urban Local Body
Local Building Bye-Laws
Environment Impact Assessment (EIA)
Centre– Ministry of Environment and
Ancient Monuments and Archaeological Sites
Forest, Airports Authority, Ministry of
and Remains Act, 1958
Defence, Central Ground Water
Works of Defense Act 1903 (WDA)
No-Objection Authority etc.
Environment (Protection) Act, 1986
Certificates State– National Highway Authority of
Forest Conservation Act, 1980
(NOC) India/Public Works Department, State
Pollution Board, Forest Department
Water (Prevention & control of pollution)
and Fire Service
Act, 1974
Gram Sabha/Gram Panchayat
Air (Prevention & control of Pollution) Act,
Source: Committee on Streamlining Approval Procedures for Real Estate Projects

While we subsequently analyse this aspect  Coordination requirement with

through the doing business rankings, some several State/Central-level
of the key attributes that make seeking departments
construction approval/permits challenging  Inadequate information and user
in India are: unfriendly interface
 Lack of transparency and endemic
 Complex regulatory framework- corruption
multiple laws/rules and authorities  High transaction costs

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Going by the recent Doing Business 2015 below. While Mumbai takes far less number
rankings, India ranks an appalling 184 of all of days to grant the permits, it is
the 189 countries on the dealing with significantly more expensive to obtain them
construction permits. Even within BRICS in Mumbai than in New Delhi.
countries, where most countries seem to be
struggling, India is the worst performing. Table 6: Obtaining Construction Permits
Quite notably though, the aspect of – New Delhi and Mumbai
construction permits looks equally wanting Parameters New Delhi Mumbai
in case of China, Brazil and Russia as well; Procedures 24 27
number of days it takes in these three (number)
countries for construction permits is even Time 207 162
higher than India. This is little reason for required to Top 4 most time Top 4 most time
comfort though; India is way too low on the complete consuming consuming
each  64 days: water &  45 days -Obtain
distance to frontier (30.9) measure. Also,
procedure sewer plan water & sewer
the cost of obtaining construction permits is (calendar clearance, connection
abnormally high in India as compared to all days) inspection and  30 days -
other economies in the group. This cost approval Completion
 60 days; Obtain certificate
includes only the official costs of procedures
building permit  30 days -NOC
and does not account for money paid as  49 days: from Tree
bribes/informal payments. Occupancy Authority
Permit  29 days -
On the other extreme is South Africa, way  30 days: consent Intimation of
ahead of the pack ranking at 32 and with to establish from disapproval
DTF of about 82. It takes less than 50 days pollution control
to grant construction permits, costing less Cost 12.3 46.1
than 1 per cent of the structure value, in required to Top 2 most Top 2 most
stark contrast to an excessive 28 percent complete expensive: expensive-
each  4.5 Lakh:  10Lakh:
cost in case of India. South Africa also has procedure Water and Intimation of
the least number of procedures to comply (% of sewer disapproval
with to obtain construction rights. construction connection  8.4Lakh:
value)  0.6 Lakh: Development
Building permit charges
Table 5: Dealing with Construction Source:
Permits – Comparison across BRICS
Countries However, there are signs of improvement as
Russian South well. On a positive note, India has recently
Parameter India Brazil China
Fed Africa reduced the time required to obtain a
Rank 184 174 156 179 32
DTF 30.9 48.3 56.7 43.8 81.7
building permit by establishing strict time
Procedures limits for preconstruction approvals at the
25.4 18.2 19.8 22 16
(number) municipal-level. While India has gone down
Time (days) 185.9 426.1 238.4 244.3 48
Cost (% of
by one rank, it has inched closer to the
warehouse 28.2 0.4 1.9 7.6 0.9 frontier between 2014 and 2015 (from DTF
value) score of 29.7 to 30.89). These are
noteworthy but incremental improvements
The break-up of the three components and a lot of ground still needs to be covered.
involved in obtaining construction Certain other bigger reforms are also
underway. A high-level Committee headed
permits in India showing critical areas, as
by the former Cabinet Secretary T S R
evaluated by the DB rankings for two cities
Subramanian, constituted by the Union
– New Delhi and Mumbai, are tabulated
Ministry of Environment, Forests and
to build a warehouse Climate Change (MoEF&CC) to review the

Page 12 of 34
environment laws in the country has very necessary environment clearances for
recently recommended a new over-arching undertaking construction.
law to streamline the process of
Illustrated on a timeline below are relevant
environment clearances for development
reforms undertaken by other countries,
projects in the country.
under BRICS. The Russian Federation seems
The proposed new Environment Law to have made the biggest leap towards the
Management Act (ELMA) will have two full- frontier in last couple of years, from a DTF
time expert bodies – National Environment of 25.45 in 2010 to a remarkable 56.70 in
Management Authority (NEMA) and State 2015. This is better than China’s climb on
Environment Management Authority DTF from 24.4 to 43.75 between the same
(SEMA), to be constituted at the Central and five-year period. This improvement in DTF
State-levels respectively to evaluate project scores is supported by some notable
clearance (using technology and expertise), reforms made to ease construction permits,
in a time bound manner, providing for both by China and Russia during these years
single window clearance. A ‘fast track’ (figure 3 below). At the same time, South
procedure for ‘linear’ projects (roads, Africa only retained its position closest to
railways and transmission lines), power and the frontier (81.81 in 2010 to 81.65 in
mining projects and for the ‘projects of 2015) without any significant effort seen on
national importance’ has also been reforms. Infact, while Russia established a
prescribed in the new mechanism. Adoption one-stop shop to facilitate processing of
and successful implementation of these construction permits, South Africa still does
reforms can do much to ease obtaining not have one.
Figure 4: Reforms Timeline


Page 13 of 34
Figure 5: Dealing with Construction Permits: Distance to Frontier (DTF) Scores for BRICS


60 RUSSIAN FED, 56.7

BRAZIL, 48.2
50 BRAZIL, 48.3

40 CHINA, 43.8

INDIA, 30.9
INDIA, 21.3
CHINA, 9.1
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



Any notable reform on easing construction Recommendations

permits seems to have been made
essentially by China and Russia within Before attempting any prescription, it is
BRICS during the period mapped above. important to clarify that construction as an
These reforms – whether to eliminate activity will have to continue to be
certain approval requirements or to reduce sufficiently regulated, given that the aspects
delays or introduction of single window of safety and environment sustainability
mechanisms by China and Russia have cannot be risked or compromised. The
mostly been effective. Russia has improved essence, therefore, for any improvement
considerably from second lowest at 11.9 in should be on bringing about linearity in
2004 to the second highest 56.7 in 2015. processes, with enhanced inter-
China has also been successful in
departmental coordination, predictability
progressing from the lowest-level of 9.1 in
and transparency. Speed will be critical. A
2004 to a modest 43.8 by 2015. While Brazil
study in the United States shows that
and South Africa have both remained static
accelerating permit approvals by three
at their levels during the last decade, South
Africa is considered significantly advanced months in a 22-month project cycle could
in managing construction permits. India has increase construction spending by 5.7
clearly not kept pace with the business percent and property tax revenue by 16
needs, having improved only marginally percent20. At the same time, reducing
(from 21.3 in 2004 to 30.9 in 2015) and
being the farthest from the frontier among 20
PricewaterhouseCoopers. 2005. “Economic Impact of
the BRICS. Accelerating Permit Processes on Local Development and
Government Revenues.” Report prepared for the American
Institute of Architects, Washington, DC.

Page 14 of 34
manual interface should help in bringing Similarly, Burkina Faso in Africa opened a
down both official and non-official cost, one-stop shop for construction permits in
which is another important factor. 2008, under a new regulation that merged
32 procedures into 15, reduced the time
Single window/One-stop permits shop
required from 226 days to 122 and cut the
This model will facilitate the suggested cost by 40 percent.
process linearity and reduce current
Capacity Building
complexity leading to unacceptable delays.
It will basically involve having all agencies Urban planning bodies often have semi-
or their representatives required for skilled staff lacking the proficiency and the
technical/administrative oversight in the capacity to undertake the complex permit
process to be physically located in a single process. India will have to significantly
facility, often connected by a shared invest in capacity building and training of
computer system. To this end, an its personnel to efficiently exercise
overarching legislation will be required to technical and administrative regulation of
establish oversight mechanism and to the construction sector. This would involve
ensure coordination and information setting up training institutes and course
sharing. To the extent a single stop having curriculums in construction safety,
both State and Centre units might be environment impact assessment etc. CUTS
difficult to establish, single point application has recently concluded a study on impact
facilitation and processing centre should at assessment of environment and forest
least be setup in each district with clearance laws in India and capacity
personnel trained to assist the applicants in building is one of the major
filing and to guide on the compliance recommendations. The study will be in the
requirements. Once verified and endorsed public domain soon
by these authorised fee-based facilitation Restraining deficient performance
services, the applications can be expected to
Changing laws and procedures alone are
be cleared by respective departments much
insufficient to deal with the endemic delays.
faster minimising any wasteful back and
Currently deficient transparency and
accountability mechanisms need to be
According to the World Bank, ‘Today only 37 strengthened and written down in law for
economies around the world have some kind improved service delivery. We need a
of one-stop shop for construction permitting. bonus-malus (the return of performance-
Since 2009, 17 economies have successfully related compensation upon the discovery of
implemented one-stop shops for permit deficient performance) system21. The bonus
applications. In 2011 Taiwan, China will help cover the lost rents, while malus
established its first one-stop shop for will help in fixing responsibility at the right
construction permits and continues to levels. Certainly, this is easier said than
improve its operations. By 2012 the number done, but making an effort in this direction
of procedures required to process permit will result in incremental changes and,
applications had fallen from 25 to 11 and the hopefully, a sustaining impact
time from 125 days to 94.” Russia also
Construction risk grading
established a single window recently
(2011) to facilitate all procedures related to
land use. China recently centralised the
Will India ever change? The Hindu Business Line,
processes for preconstruction approvals.
November 06, 2014; article by Pradeep S. Mehta, Secy.
General, CUTS International

Page 15 of 34
Not a lesson from partners in BRICS, but Figure 6: Certain international best
rational and worth considering. Since practices noted by Doing Business 2015
construction projects could significantly Report
vary in their design complexity, use and Ukraine UK Korea
location it is only rational to grade them for Overall Overall Overall
associated social, cultural, economic or Rank:96, Rank:8, Rank:5,
DTF:61.5 DTF:80.9 DTF:83.4
environmental risks. The requirement for
Construction Construction Construction
approval and clearances should, therefore, Permits Permits Permits
be accordingly calibrated; construction of a Rank:70, Rank:17, Rank:12,
hospital or a multiplex cannot be compared DTF:75.3 DTF:85.1 DTF:85.9
with the construction of a two storey •2012: The •2007: •2005/06:
commercial warehouse. A rigorous yet Government Modified Introduced
adopted a building risk-based
differentiated construction permitting risk-based control approvals in
processes to consider buildings according to approval system in 2005/06.
their risk level and location needs to be system, 2007 to add •Small
classifying a risk-based construction
thought through. This is to say that construction component projects
uncomplicated or low-risk structures projects into •High-risk allowed to
five projects, choose a
should need less documentation and categories such as fast-track
approved much faster than more complex based on hotels and option
their movie •Allowed
structures. Such an approach would also complexity, theaters regulators to
allow efficient use of scarce resources with require focus their
available with authorities. According to the categories 1- atleast as time and
3 being many resources on
doing business report of the WB, simpler inspections more
“Worldwide, the main criteria used to classify buildings. as low-risk complex
a construction project by its potential risk •For example, projects at projects
warehouses key stages of
are based on the building’s use, location and fall in construction
size. Today 88 economies have a risk- category 3- Plus
construction additional
differentiated approach”. permit not inspections
required, on Safety
instead •Since 2008 it
requiring has
notification eliminated
that eight
construction procedures
works had and 49 days


2.3. Starting a Business (158)

Registering a company is often the first step
towards starting a business and has benefits
for the company as also for the economy. In
order to maintain comparability, the WB
Doing Business Report takes into all the
procedures relating to registration of
companies for a 100 percent domestically
owned Limited Liability Company.

Page 16 of 34
Registered companies can avail of the legal on an average 12 procedures that a
and financial services provided in the business must complete in order to have
country and also any subsidies and tax their business registered. Many countries
benefits provided by the government. The have significantly lower number of
economy in turn benefits with enhanced procedures with many completing the
revenue generating products and services processes within a day.
as the number of registered companies
increases. However, starting a business in High paid-in minimum capital
India is not easy, beset with multitude of requirements
procedures that are often extremely time This is a major cause of concern for the
consuming involving different agencies and process of registration as India has one of
offices such as the Ministry of Corporate the highest paid-in minimum capital
Affairs, Income Tax Department, Employees requirements. This signifies the share
Provident Fund Organisation among others. capital that must be deposited by the
Another major concern is dealing with red- entrepreneurs prior to starting operations.
tape are the resultant time and cost over The Companies Act 2013 mandated the
runs. The various reforms and big bang declaration of minimum paid-up capital to
projects being proposed by the government the Registrar of Companies (RoC). This
will not be successful until these processes declaration is essential for obtaining a
are streamlined and corruption removed certificate for commencement of business.
from the system. Some of the issues Additionally, the RoC also faces capacity
plaguing this process are mentioned in the constraints which can cause further delays.
subsequent sections. However, it is According to data, the number of companies
important to note that the government has registered in May-October, 2014 were
of late taken some initiatives to ease the 31,461, which is significantly lower as
processes, which will also be discussed. The compared to the same period last year
government has recently drafted the when it was 48, 63622. The high paid-up
Companies (Amendment) Bill 2014 to capital requirement in India is possibly
remove some of the hurdles faced by creating an entry barrier for entrepreneurs.
businesses in India, which has been passed
by the Lok Sabha and awaits approval by High costs of registration
the Rajya Sabha.
The cost of registration is another aspect,
Cumbersome Procedures which is on the higher side for the country.
India is at 98th place in terms of costs of
A major cause of concern is the multiple registration and the most expensive in
procedures and separate registrations comparison to all BRICS countries.
required. Often these involve dealing with
different departments, which only Timely approvals not provided
intensifies the problem. A new business is
required among other procedures, to Each of these procedures have a stipulated
separately register for a Tax Account time frame associated with it, however,
Number (TAN), a Permanent Account these are often not observed. There is poor
Number (PAN) and also register to pay VAT. accountability i.e. no penalties in place for
Some of these procedures could be delays in approval, which further
combined with others or be done at one 22
place to ease the process. Overall, there are policy/govt-proposes-doing-away-with-minimum-paid-up-

Page 17 of 34
exacerbates the situation. The absence of measure accounted for by this indicator. A
periodic capacity review may also result in comparison of this indicator across BRICS
delays in the processes. nations points that one of the most alarming
aspects of registering a business is the high
Lack of Transparency costs and paid-in-minimum capital
Another challenge is the lack of involved. The paid-in-minimum capital,
transparency in dealing with some of the which is 111.2 percent of the income per
government agencies for procedures and capita in India is in stark contrast to almost
approvals. This often increases the time and ‘nil’ requirement in other countries.
costs involved for the entrepreneur along South Africa and Russian Federation fare
with increased probability of corruption. It better than India on all parameters tested,
further adds to the uncertainties associated under the indicator. It takes around 12
with the process. procedures and approximately 28 days to
Corruption register a business in India while the same
are much lower in South Africa and Russian
Red tape is now seen as a part and parcel of Federation. Even though Brazil and China
the systems in the country. Entrepreneurs are at par or worse off in comparison to
have been known to face a high degree of India in terms of number of procedures and
corruption where favours have to be time taken, the costs and paid-in-minimum
granted for assuring completion of capital are significantly lower even in these
procedures. countries. This is a major cause of concern
for India.
Differing requirements across cities
Table 7: Starting a Business: Comparison
The procedures are not standardised across across BRICS Countries
the country with different additional
Parameter India Brazil Russian China South
procedures required across cities. In the Fed Africa
Doing Business 2015 report it is seen that Rank 158 167 34 128 61
Distance to 68.82 63.37 92.17 77.43 89.43
the number of procedures differ in Mumbai Frontier
(13) and Delhi (11), which can further add Procedures 11.94 11.61 4.4 11 5
to the challenges faced by entrepreneurs. Time 28.41 83.58 11.2 31.35 19
Uncertainties associated with policies Cost (% of 12.21 4.31 1.16 0.94 0.28
income per
and regulations capita)
The uncertainties associated with Minimum
Capital (% 111.21 0 0 0 0.001
regulations and procedures can also create of income
challenges for operations in India. per capita)
According to the recent Doing Business
A comparison across Indian cities indicates
2015 rankings, India ranks 158 out of 189
that the procedures and number of days is
countries on the ‘Starting a Business’
marginally higher for Mumbai as compared
indicator. The ranking has declined in 2015
to New Delhi. However, the costs involved
as compared to 156 in 2014. This indicator
are almost double in Mumbai. The paid-in
accounts for all the procedures formally
minimum capital is similar in both cities
required to start business operations along
(not in figure).
with the time and costs of these procedures.
The paid-in minimum capital is another

Page 18 of 34
Figure 7: Registering a Business – paid-in minimum capital requirements.
Comparison across Indian Cities Easing the registration process leads to
more number of firms registering their
business, which would mean a greater tax
base, more opportunities to grow and for
Procedures (no.)
13 employment. Additionally, a greater
proportion of unregistered firms would
provide that many more opportunities for
Time (days)
30 corruption.

8.6 Reforms to Assist Starting a Business:

Cost (% of income per International Experience
capita) 16.3
The reforms made in the Russian
0 10 20 30 Federation have resulted in a rise in the
DTF from 82.2 in 2010 to 92.2 in 2015. The
Delhi Mumbai
number of procedures has declined from 8
to 4.4 and the time taken dropped from 29
to 11.2 days in this five year period.

China has improved its DTF from 62.67 in

Many countries have been undertaking
2010 to 77.4 in 2015 mainly on account of
reforms to make the process of starting a
reduction in costs and removing the paid-in
business easier. These reforms largely
minimum capital requirements from 130.9
involve simplifying procedures, removing
percent in 2010.
redundant processes and eliminating the
Figure 8: Reforms Timeline


Page 19 of 34
Figure 9: Starting a Business – Distance to Frontier (DTF) Scores for BRICS Overtime
CHINA, 77.4
70 RUSSIAN FED, 69.9 INDIA, 68.4

BRAZIL, 63.4
BRAZIL, 49.8

40 CHINA, 43.2

30 INDIA, 33.7



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



As can be seen from the figure above, the register their business on their own. It
DTF score for ‘Starting a Business’ has provides facilities of registration, filing with
significantly improved for India and China, an information retrieval system,
even for Brazil. Russia too has improved significantly reducing the time for
considerably and is the frontrunner within registration. While earlier information on
the BRICS group with a current DTF as high successful filing was updated within 14-21
as 92.2; it has done away with couple of days, now it takes only 30 minutes. In case
formal requirements both procedural and approvals are required from other
financial. While the score for Brazil has government agencies, this system emails
improved from 51.9 in 2009 to 63.4 in the said department, which can then log on
2015, China’s score has increased to 77.4 in to Bizfile and retrieve the application for
2015 from 64.7 in 2012 during the period of approval. The costs dropped to SGD 300,
reforms undertaken in the country. The two which earlier cost between SGD 1200-
major reforms in Russia took place from 35000 while the time taken to register
2014 and the DTF score improved from reduced from 24 hours to 15 minutes.
85.0 in 2013 to 92.2 in 2015. South Africa
Computerised Registrations, Mauritius23
undertook reforms in 2009 and 2012 and
the DTF score improved from 81.2 prior to The country began computerised
the reforms to 89.4 in 2015. registrations of companies in October 2006

Global Best Practices

Bizfile, Singapore4: This is an online 23
Doing Business Report, Starting a Business, 2015, World
system that enables entrepreneurs to Bank

Page 20 of 34
which reduced the total registration time Simplifying procedures
from 46 days to less than a week.
The Government should focus on removing
Mi Negocio, Guatemala5: Introduced in redundant procedures or combining
March 2013, it is an online system through procedures where possible. This would help
which entrepreneurs can register with the save time and also reduce the number of
Commercial Registrar, the Tax Authority, visits to multiple departments that are
the Social Security Institute and the currently required. Also, a combined
Ministry of Labor through the system. This application form would be helpful for the
helped reduce the number of procedures entrepreneur. Odisha has one common form
and time taken by more than half. accepted by all departments instead of the
Minimum capital requirement, Africa24: multiple forms for each department26.
The Organisation for the Harmonisation of When the procedures across India, Russian
Business Law in Africa (OHADA) required Federation and South Africa are compared,
the 17 Sub-Saharan African member it is seen that many procedures in India
countries to have a minimum capital could be combined to ease the process. In
requirement of at least 1million local South Africa and Russian Federation,
currency units. This provision was removed registrations for taxes and VAT are done in
in 2014 and as a result Benin, Côte d’Ivoire one step while in India we require multiple
and Togo made significant reductions in procedures for VAT, other taxes registration
their requirement. These 3 economies were and payment, which could be combined to
among the top 20 improvers in the ease of ease the processes. Thus, many of these can
starting a business in 2013/14. be removed or combined with other
Recommendations procedures for simplicity.

Reducing/removing the minimum Moreover, the Government is also

capital requirements proposing to integrate the procedure
relating to name availability, allotment DIN,
Out of the 189 economies covered in the company incorporation and
Doing Business Report, 104 economies do commencement of business through a
not have any minimum capital unified e-portal27. Also, the requirement of a
requirements. Only 18 countries have certificate for commencement of business
minimum capital requirements higher than has been removed and the company
India’s, thus indicating the need to reduce presently has to inform the RoC through an
or completely remove this criterion. The online procedure.28
impact of this parameter on the ease of
starting a business has been acknowledged
by the present government, which has
proposed the removal of this requirement
thorough the Companies (Amendment) Bill

Ease of doing business in India, May 2014, KPMG, CII
25 28
policy/govt-proposes-doing-away-with-minimum-paid-up- 04/news/58795841_1_business-rankings-business-
capital-114120800216_1.html operations-corporate-affairs

Page 21 of 34
Figure 10: Starting a Business: Comparison of Process

India (Mumbai) Russian Fed (Moscow) South Africa

Register at the Companies and
Obtain director identification number Notarise the signature made in
Intellectual Property Commission
(DIN) online the registration application
Obtain a digital signature certificate Pay registration fee Open a bank account
Register for income tax, VAT, and
Make a seal in a private
Reserve the company name with the employee withholding tax (PAYE
company in order to open a
Registrar of Companies (ROC) online and SITE) at the South African
bank account
Revenue Service (SARS)
Register with the unified
Pay stamp duties online, file all
register at the Federal Tax Register for unemployment
incorporation forms and
Service, to obtain the single insurance at the Department of
documents online and obtain the
number of state registration and Labour
certificate of incorporation
the number of tax registration
Register with the Commissioner
Open the company bank
Request and obtain certificate to in deference to the
account; certify and register the
commence operation Compensation for Occupational
owner's signature
Injuries and Diseases Act
Make a seal --- ---
Obtain a Permanent Account Number
--- ---
Register with Employees' Provident
--- ---
Fund Organisation
Register for VAT online --- ---
Register for medical insurance (ESIC) --- ---
Obtain a tax account number for
--- ---
income taxes deducted at source
Register with the Office of Inspector,
--- ---
Mumbai Shops and Establishment Act
Register for profession tax --- ---

Single Window Clearance Mechanisms entrepreneur would still need to complete

the other procedures with the different
According to the Doing Business Report departments. Thus, the need of hour is a
2015, close to 100 economies have some single window mechanism, online or offline,
form of one-stop shop for registration of through, which all formalities can be
business. The process in countries with one- completed. Another initiative is the e-Biz
stop shops is more than twice as fast as portal, which acts as a one stop shop for
countries without such systems29. In India some of the registrations, clearances,
too, this system has been successful in some licenses required. Recently, the Employees’
states. However, the scope and scale of such State Insurance Corporation of India (ESIC)
systems need to be expanded. The MCA-21, processes have also been integrated within
which is an e-governance initiative by the this portal31 and many more are also being
Ministry of Corporate Affairs, aims to included with time. However, all the
reduce the time taken for all procedures processes necessary for starting a business
with the Ministry30. However, an should be moved online on a single

Doing Business Report, Starting a Business, 2015, World 31
Bank stories/web-service-for-registration-of-employers-under-
30 esic-launched-114121200620_1.html

Page 22 of 34
platform. The forms should be easy to fill Timely approvals
and there should be a provision of paying
the necessary fees online itself. The Another challenge is obtaining approvals in
applicant should also be able to track the a time-bound manner. Greater usage of
progress of the applications and raise any technology and online approvals could help
grievances. the scenario. Additionally, deemed
approvals could also be considered in cases
Increased usage of technology where the authority delays the decision, the
investor may consider the same approved
The use of technology, wherever possible, and proceed. The government has identified
should be encouraged in order to simplify bottlenecks and is working to reduce the
procedures and reduce the time and costs. time taken to register from the current 27
Provision of online applications, approvals days to a single day33.
and payments should be initiated. The
government is moving towards online Single unique ID
approvals for more than 200 permits which
could aid the process of starting a business. At present, a business needs to register
Tracking of status would be provided online separately for Tax Account Number (TAN),
and in time will also be available on mobile and Permanent Account Number (PAN).
phones32. Increased use to technology and Instead one single unique ID could be
online systems will minimise interaction generated and used for both.
with public officials and thus reduce the Departmental coordination
chances of corruption.
Currently, an entrepreneur has to visit
Transparency multiple departments and comply with
Greater transparency in procedures across their varied procedures and requirements
departments will also be helpful in which is a major limitation. The government
combating corruption which remains a needs to adopt a business centric approach
major limitation in most processes in the as opposed to a department centric one.
country including registering a business. Greater coordination and cooperation
Greater clarity and visibility will not only between departments would go a long way
boost investor confidence, but will also in simplifying the process.
reduce the unwarranted role of brokers or Facilitation Cell
All the information regarding procedures,
Reduce cost documentation requirement etc. should be
At present, the costs involved for starting a available to entrepreneurs in one place.
business (12 percent of per capita income) Thus, a facilitation cell which provides
are high and need to be significantly information, guidance and assistance with
brought down. As mentioned above, the procedures would be a positive step.
reducing and simplifying the procedures, The Government has taken some positive
and moving towards online system could steps by creating Invest India, which is a
help in reducing costs. joint venture between Federation of Indian
Chambers of Commerce and Industry

32 policy/govt-working-on-enabling-1-day-business-
28/news/56540371_1_india-inc-pm-modi-business-index registration-down-from-27-report-114102200354_1.html

Page 23 of 34
(FICCI) and Department of Industrial Policy incorrect to say that tax regime in India has
and Promotion (DIPP). This agency is so far followed what is internationally
created for work towards investment termed as ‘adversarial approach’ while the
promotion and facilitation for the global world is moving towards a ‘collaborative
investment community. However, until the approach’ or ‘co-operative approach’. As a
implementation is effective, the impact of result, India fares poorly on the paying
this initiative on the overall ease of doing taxes indicator, under the ‘Doing Business
business will be limited. 2015’ Report, as in the past years. Of the
189 countries studied, India ranks 156 in
Grievance Redress terms of overall ease in tax payment.
This is another critical aspect which is The Indian tax regime is characterised by
essential to improve the business high tax rates, massive build-up of tax
environment. A dedicated agency or team disputes, arbitrary interpretations, multiple
within the departments is essential to taxes and inadequate infrastructure to cope
address entrepreneur concerns. As part of up with changing situations such as
the Make in India initiative, an auto proposed Goods and Service Tax (GST) law
response mechanism will be available to and Direct Tax Law (DTC), etc. These issues
address entrepreneur queries online within make it excessively expensive for smaller
24 hours. An eight member team of and mid-sized firms to do business. Some of
specialists is also proposed to provide the key challenges/problems are
solution to entrepreneurs within a highlighted below:
stipulated time34. However, the impact and
High tax rates
success of this initiative still remains to be
seen. Each country fixes a particular tax rate
depending upon various factors including a
2.4. Paying Taxes (156) mix of historical baggage it carries, the
Taxes matter for the growth of any current state of economy, funds required
economy. Increasingly, it is seen across the for socio-economic development, rates fixed
globe that governments recognise tax as an by other competitor countries, etc. The tax
important dimension of an economy’s rates in India are much higher, which
competitiveness with an ability to help consequently makes cost of doing business
encourage domestic investment and attract significantly excessive. For instance, a
inward investment. In addition, taxes also comparison of the corporate tax rate of
provide the sustainable funding needed for India with that of other BRICS nations
social programmes and cultivation of suggests that while the tax rate in India
infrastructure to promote economic growth (33.99 percent at present) is comparable to
and development, and build a prosperous that of Brazil (34 percent), it is still
and orderly society. considerably high as compared to the tax
rate of Russia (20 percent), China (25
Unfortunately, how rest of the world gazes
percent) and South Africa (28 percent)35,
India with respect to its taxation framework
which make all these countries favourable
is neither soothing nor morale boosting at
business destinations.
all. The consensus among the masses is that
the Indian tax regime is not conducive to
fostering growth. It would further not be 35Corporate Tax Rate Table, available at
34 and-resources/pages/corporate-tax-rates-table.aspx, last
e-in-india-most-issues-to-be-sorted-out-within-72-hours/ visited on January 30, 2015

Page 24 of 34
Massive tax litigation multiple tax requirements (with different
authorities at the Centre and State level)
Unprecedented increase in litigation and and payment of copious taxes makes the
long pendency of adjudicating proceedings entire framework cluttered, and eventually
dents the confidence of investors. The resulting in unhealthy business
disputes arising at the assessment stage environment.
may take between 12 to 20 years before it
attains finality at the Supreme Court level.36 Transfer pricing controversies
However, in recent times, even this has not
been seen as final, because of many With increase in FDI and cross border trade
instances of retrospective amendments in the recent past, transfer pricing (TP) has
which undo the impact of a court decision. been an area of focus both for multinational
The dispute resolution infrastructure in enterprises (MNEs) and the tax authorities
India also suffers because of challenges like due to direct linkage with revenue earning
absence of reliable economic model capable ability of both sides. The level of economic
of making meaningful revenue projections interest of both MNEs and tax
and budget targets of the Government, administration in cross-border inter-
‘Boxed-in’ approach (bunching of cases) company transactions, developing and
adopted by the adjudicating authorities growing phase of the economy and nascent
towards the end of the deadline takes a toll TP regulations in India have led to
on the quality of the decision, increased tax controversies in the country.
arbitrary/irrational interpretations, etc.37 The business world has seen tax
controversies in TP moving up from
Chaotic tax regime computational errors in arithmetical
margins, selection of the most appropriate
The way in which the tax system collects
TP methods, selection of comparables,
and administers its taxes has an impact on
marketing intangibles, management cross
businesses in terms of the time required
charges, royalty payments, and allocation to
and the costs associated with that time. In
profits to permanent establishments (PE),
the Indian scenario, the right to tax subjects
etc. All these issues put India on the back-
is distributed between the Centre and the
seat in terms of inviting the world to
State Government in accordance with the
business in the country. 38
Constitutional provisions. While the
enumeration of taxation powers placed in However, such controversies and huge
the Union List comprises tax on income stakes involved therein have also brought
(other than agricultural income), excise along a more matured tax litigation regime
duty, custom duty and service tax; the State with the introduction of Dispute Resolution
List contains land revenue, tax on sale of Panel (DRP) mechanism, Advance Pricing
goods (VAT), stamp duty, tax on motor Agreements (APAs) and Safe Harbour
vehicles and road transportation, tax on Provisions. Very recently, the Government
agricultural income, etc. Compliance with has decided not to challenge Bombay High
Court ruling in Vodafone TP matter, to
36 “Navigating tax controversy in India”, PwC, October, 2014,
available at convey a clear and positive message to
last visited on February 11, 2015
37 “Navigating tax controversy in India”, PwC, October, 2014,
“Navigating tax controversy in India”, PwC, October,
available at 2014, available at
4/navigating-tax-controversy-in-india-october-2014.pdf, 014/navigating-tax-controversy-in-india-october-
last visited on February 11, 2015 2014.pdf, last visited on February 11, 2015

Page 25 of 34
investors globally that its litigations would (Budget being a confidential exercise). An
be “fair, transparent and within the four ex-ante impact assessment (IA)42 of the
corners of law”.39 legislations, which provide for participatory
approach at the time of law making and
Inadequate technological infrastructure legal drafting, to assess the impact of
legislations and regulations on relevant
India is currently in the phase of
stakeholders could help in regaining
revolutionary changes in information
confidence from rest of the world to look
technology, which also gives a great
towards India as a business friendly
advancement in e-filing field of the tax
department. There is a lump sum 9.6
percent increase in e-filing from financial The ‘Doing Business’ ranking exercise
year 2007-08 to 2013-14. However, this records the taxes and mandatory
growth is quite restricted. According to the contributions that a medium size company
Central Board of Direct Taxes (CBDT), must pay in a given year and also measures
around 82 lakh returns were e-filed till July the administrative burden of paying taxes
29, 2013, which makes around 40 percent and contributions. It measures the ease of
of the returns e-filed during the same paying taxes using the following three sub-
period last year40. Also, scrutiny indicators:
assessments are presently being done in
physical mode despite the fact that the  Total Tax Rate is the measure of tax cost
selection of the scrutiny cases is random the total of all taxes borne as a
and computer based. Further, many states percentage of commercial profit43,
are still not able to implement passable  The time to comply – this captures the
online system for paying state taxes and time required to prepare, file and pay
filing returns. different taxes, and
 The number of payments - the frequency
Poor drafting
with which the company has to file and
According to a recent report submitted by pay different types of taxes and
the Tax Administration Reform Commission contributions, adjusted for the manner in
(TARC)41, many provisions in Indian tax which those filings and payments are
laws suffer from poor drafting and are made.
amendable to multiple interpretations. On most of these measures, India’s position
Further, stakeholder participation in the compared to other countries is not
drafting stage is also close to non-existent. promising. Below is the comparative
Certain crucial amendments to tax laws are analysis of rankings and broad parameters
passed along with the budget without any with respect to ‘Paying Taxes’ across BRICS
public debate in the name of confidentiality countries.
Govt. not to challenge TP rulings in Vodafone, other cases”,
available at
case/36110/, last visited on January 30, 2015
Ibid 42
Recognising the need for an emerging economy to have a In this regard, CUTS is undertaking facilitating the adoption of
tax system that would reflect best global practices, the an IA framework in India as part of its overall agenda of
government has set up a Tax Administration Reform regulatory reforms. For more details, please visit
Commission (TARC) under the Chairmanship of Dr
Parthasarathi Shome, which submitted its first report titled Commercial Profit is essentially net profit before all taxes
“Tax Administration Reforms in India–Spirit, Purpose and borne. It differs from the conventional profit before tax,
Empowerment” dated May 30, 2014. reported in financial statements.

Page 26 of 34
Table 8: Paying Taxes – Comparison considerably high as compared to Russia
across BRICS and South Africa. Last but not the least, total
Russian South tax rate is again significantly high in India,
Parameter India Brazil China
Fed Africa though lower than Brazil and China.
Rank 156 177 49 120 19 Comparing it with tax rate prevailing in
DTF 55.5 41.3 80.7 67.4 88.7 South Africa (28.8 percent), it is more than
double in case of India (61.7 percent).
Payments (no./yr) 33 9 7 7 7

Time (hours/yr) 243 2600 168 261 200 Reforms on Paying Taxes: International
Profit tax (%) 25.3 24.7 8.4 7.8 21.7 Experience
Labour taxes and Many countries have been undertaking
20.7 40.3 35.4 49.3 4.0
contributions (%)
reforms to make the ease of paying taxes.
Other taxes (%) 15.7 4.0 5.1 7.4 3.1
The most common feature of tax reforms in
Total tax rate (%) 61.7 69.0 48.9 64.5 28.8
the past year was the introduction or
enhancement of electronic systems for filing
The number of tax payments is significantly and paying taxes. Reduction in the profit tax
high in case of India vis-à-vis rest of the rates is the second most common feature of
BRICS nations. India is the only country tax reforms. The timeline below traces
across BRICS wherein the number of tax some of the tax reforms taken by the BRICS
payments in a year is in double digits (33). nations through the last many years. The
With respect to time to prepare, file and pay reforms made in tax areas have shown
taxes in India, it is comparable or even substantial benefits to all countries
better than Brazil and China, but still including BRICS nations.

Figure 11: Reforms Timeline


Page 27 of 34
Figure 12: Paying Taxes – Distance to Frontier (DTF) Scores for BRICS Overtime



70 RUSSIAN FED, 57.6
CHINA, 67.4

50 INDIA, 55.5
BRAZIL, 40.7
INDIA, 39.4 BRAZIL, 41.3

CHINA, 19.5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



Thus, it can be deduced from the above that Recommendations

while Brazil showed a range bound DTF
(40.74-43.32) from the year 2006-15, China, Reduce tax rates
Russia and South Africa pursued a much
To make India an attractive business
steeper trajectory. China’s climb has been
destination, it should consider reviewing
the most impressive with particular
and lowering the tax rates in the phased
upsurge in 2009 (from 18.5 in 2008 to 46 in
manner. Presently, there are different tax
2009) when it reduced the corporate tax
rates for resident entities and non-resident
rate and improved upon accounting
entities under the Indian Income Tax Law.
methods. China has been on a growth
While foreign entities (corporates, firm,
trajectory ever since, though not as sharp,
Limited Liability Partnership (LLP), etc.) are
reaching a respectable 67.4 by 2015.
liable to be taxed at the rate of 40 percent,
Similarly, there has been noticeable
resident entities are taxed at the rate of 30
increase in DTF in case of Russia and South
percent. The applicable for non-resident
Africa as well subsequent to the periods
entities could be reduced to 30 percent in
when major tax reforms took place in these
line with the tax rate applicable for Indian
respective countries. Interestingly, India has
resident entities. Likewise, the Government
also shown encouraging progress, with DTF
could also consider doing away with
increasing from 39.4 in 2006 to above 55 by
surcharge and cess, which could reduce the
2015; significant improvement is noted
marginal rate of tax substantially. This
between 2011 and 2012. However, India is
would encourage foreign entities to
still just about halfway distance to frontier
consider India as an important business hub
and needs to bring about significant
and this would also be in conformity with
reforms in payment of taxes.
Prime Minister Narendra Modi’s call to
companies to his ambitious ‘Make in India’

Page 28 of 34
campaign! 44 However, such changes should mechanism for cross-border transactions
be made only after undertaking a proper should be strengthened to reassure
cost-benefit analysis (CBA). investors.47

Structural reforms Improved technological infrastructure

A progressive tax regime can lead to Paying taxes should be made easier for
efficient resource allocation and provide a companies by enhancing the electronic
fillip to manufacturing. This includes system for filing and paying. E-payment and
reduction in the number of levies and e-filing should be made mandatory for all
simplification of their nature. In this regard, categories of assesses/ tax payers. In this
GST is one of the immediate recourse which regard, the Government should ensure that
should be implemented without any delay all the tax payers should be made aware
as it could address the existing indirect tax about the benefits of online payments and
system like tax cascading complexity and filings. Also, capacity building programmes
poor infrastructure along with high cost of should be organised for the tax department
compliance. According to National Council to equip them with the capacity to handle
of Applied Economic Reseach (NCAER), technological issues, if any.
comprehensive rollout of the GST alone can
lead to 0.9-1.7 percent increase in GDP and Transparent public system
3.2-6.3 percent y-o-y gains in exports. To bring about transparency in the public
Similarly, reoriented Direct Tax Code (DTC) system draft amendments along with the
would also help in strengthening the tax purpose of such amendments, should be
framework in India, once implemented kept open for public comments and
comprehensively45. rationale should be given for acceptance or
Time-bound dispute resolution rejection of the same. Also, certain crucial
amendments to the tax laws other than the
Steps to create a transparent dispute tax rates should be delinked from the
resolution mechanism like e-courts can Budget exercise48. In addition, a system of
substantially improve investor sentiment. periodic review of utility of existing
The adjudicating officer can issue a notice statutory provisions must be
electronically specifying the issues/ queries institutionalised.
and asking the tax payer to submit reply
with evidences via electronic mode only.46 Comprehensive General Anti-avoidance
Also, retrospective application of tax laws Agreement (GAAR)
must be avoided and advance ruling The tax regime in India also needs
operational reforms by laying emphasis on
44 ‘Is corporate tax rate high in India?’, The Hindu Business
Line, September 10, 2014, available at
getting the tax base right and ushering in certainty and stability. In this regard, there
corporate-tax-rate-high-in-india/article6397953.ece, last
visited on January 29, 2015.
45 ‘Reforms vital to encourage doing business in India’, DNA, 47 ‘Reforms vital to encourage doing business in India’, DNA,
December 13, 2014, available at December 13, 2014, available at
encouraging-business-in-india-2043515, last visited on encouraging-business-in-india-2043515, last visited on
January 30, 2015. January 30, 2015.
46 “Tax laws still adversarial, reforms must in tax 48 “Tax laws still adversarial, reforms must in tax

administration: ASSOCHAM plea to PM”, available at administration: ASSOCHAM plea to PM”, available at
laws-still-adversarial-reforms-must-in-tax-administration- laws-still-adversarial-reforms-must-in-tax-administration-
assocham-plea-to-pm-115013000027_1.html, last visited on assocham-plea-to-pm-115013000027_1.html, last visited on
January 30, 2015 January 30, 2015

Page 29 of 34
is a need for comprehensive General Anti-
avoidance Agreement (GAAR) involving
grandfathering of investments made prior
to April, 2015.49

Lessons from home

There are lessons available closer home as

well. Certain states in India have made
notable reforms in providing an easier to-do
business experience than the others. A
record of such in-house improvements,
which could be more easily absorbed and
replicated in the select weak areas
discussed above, is made here.

49 Ease of doing business in India, May 2014, KPMG, CII

Page 30 of 34
Table 9: Lessons from Home

Area Sub-area of Reform Characteristics Model State(s)

Computerisation of DharaBhulekh(GIS-enabled
land records, Computerisation) initiative
registration and title Has reduced property registration time
mutation process. from three days to three hours.
Online Application system for land
allotment and building plan approval and Andhra Pradesh,
application status tracking Gujarat, Madhya
 Gujarat developed geographic mapping Pradesh,
Change of land use of industrial areas, utilities, highways Nagaland,
and building plan  Haryana developed land pooling scheme Tripura, West
Construction approvals to allow owners to become partners in Bengal,
Permits development Uttarakhand,
 Odisha and Chhattisgarh promote Rajasthan, Tamil
allocating land to Micro Small and Nadu
Medium Enterprises (MSME) etc.
Introduced IT enabled system into Chhattisgarh,
Obtaining a new
obtaining a utility and streamlined Gujarat, Haryana,
power connection;
processes for enhanced user experience Madhya Pradesh,
water connection and
 Average time for power connection < 3 Maharashtra,
months; Nagaland,
Certificate (NOC)  water connection and fire license Rajasthan, Tamil
from Fire <1.5months Nadu,
At present, applicable for investments Rajasthan,
above a certain threshold: Punjab,
 Provides information and guidance Karnataka,
Single window  Common interface to apply for multiple Maharashtra
clearance systems clearances across departments (Maharashtra
 Provision for online applications Industry, Trade
 Grievance redress & Investment
Starting a  Facility for tracking application status Facilitation Cell)*
Business Introduced in Delhi in 2008
 Computer based
 Provides e-stamping of registration
E-Stamping Delhi
 Records maintained in electronic format,
reducing chances of duplication or
 Saves time and cost
Introduced E-registration application
 To help dealers to apply for VAT
registration online.
Online registration,
 Registration certificates are also issued
filing and payment of Andhra Pradesh,
Paying Taxes through that online system
state VAT and related Rajasthan*
 All payments and returns have been
made online compulsorily
 Dealers can view their details of returns
and payments filed by them using
‘dealer ledger’ application

Page 31 of 34
Simplified categories of rates of VAT
VAT simplification Fast-track mode of return filing in addition
and improvement. to mandatory online payments and
A geographical information system (GIS)
based system is deployed
 To bring all properties, under the tax net
 Facilitates property assessment and
property records
 Real time data on the collection of Karnataka,
Property tax
property tax by the ULB Gujarat*
 Facilitates tracking of property tax
 Online property tax calculator
application helps citizens to calculate
property tax
Source: Insight into States (i3S), CUTS International;

The discussion on the four weakest workable reforms or good practices in its
considered elements of business regulatory weakest ranked areas can be attempted to
environment in India is essentially to advance it towards the frontier. To this end,
contribute to the discourse and to assist a comparative statement on DTF for BRICS
India to focus on specific areas as it charts is presented below, with India expected to
its course towards the desired doing move at least close to the next best DTF
business rank of 50 in next two years. score on each of the indicator.
To Conclude
While it may be difficult to argue on a
particular rank for India to achieve in the
short term, a guided movement along
India Brazil China South Africa
Indicators Federation
DTF Scores
25.81 53.6 75.85 68.21 66.14
 Process of e-filing of proceedings initiated by Supreme Court and some high
courts, needs to flow even to lower courts
 Setup independent enforcement bureaus within courts
Reforms  Adopt case management practice system
necessary  Enhance system capacity and accountability – the National Mission on
Justice Delivery and Legal Reforms needs to be accelerated
 Government to follow National Litigation Policy and curb unnecessary
Dealing with
Construction 30.89 48.31 56.7 43.75 81.65
 Club processes and facilitate concurrent application processing rather than
 Establish single window permit shop – will require an overarching
 States will have to incentivize municipal governments to ensure efficient

Page 32 of 34
and timely disposal
 The Union Ministry for Urban Development could do comparative
assessment of efficiency of States in clearances as is being done for doing
business by the DIPP
 Significantly invest in capacity building and training of personnel to
efficiently exercise technical and administrative regulation
 Formulate construction risk grading parameters – low-risk structures
should need less documentation and approved much faster
Paying Taxes 55.53 41.31 80.63 67.44 88.73
 E-payment and e-filing should be made mandatory for all categories of
assesses/tax payers
 Reduce the number of taxes and lower tax rates to improve country’s
attractiveness for investors
 Unify tax regimes for domestic and foreign companies
 Make tax calculation easier for firms through user-friendly tax reckoners,
manuals and online tools
Starting a
68.42 63.37 92.17 77.43 89.43
 Simplify procedures: a combined application form accepted by all
departments would be helpful for the entrepreneur
 Expand the scope and scale of single window clearance systems
(government is already planning to facilitate 200 permits online)
 Reduce/removing the minimum capital requirements
 Single Unique ID: one single unique ID for TAN and PAN could be generated
and used for these multiple requirements

Page 33 of 34
Annex I

Facilitating doing business in India - Recent Initiatives by the Govt. of India

1. Government moving to online approval system for over 200 permits needed to start business ,
Nov. 28, 2014 Economic Times
2. PMO acts to boost doing business ranking, Dec. 9, 2014, Times of India

Page 34 of 34
About CIRC
CUTS Institute for Regulation & Competition (CIRC) was established in 2008 by
CUTS International ( With the mission to be a Centre
of Excellence on Regulatory and Competition Issues, CIRC primarily focuses on
economic regulation in infrastructure sectors, and competition policy and law
with an objective of reaching out to the target audience in India and other
developing countries in Asia and Africa. Its crucial role in research and capacity
building in the area of competition policy and law and regulatory reforms has
created an intellectual knowledge base. This rich experience of working on
regulatory issues and competition policy and law has resulted in many national
and international publications which has enriched a more informed discourse on
public policies and greatly benefited different stakeholders in the society. Since
its inception, CIRC has been undertaking several trainings, seminars and public
lectures on competition policy and law in India and abroad. It also organises
international symposia on the political economy of competition and regulation in
the developing world and India.
CIRC offers practical focus on educational and training programmes on economic
regulation, and competition policy and law. The Institute aims to facilitate
research to enhance understanding and explore inter-disciplinary linkages
among the identified subjects. Increasing demand of long and short-term courses
offered by CIRC is appreciated by many national and international organisations.
The Institute has also made cerebral contribution in the work of the High Level
Committee on National Competition Policy.

CUTS Institute for Regulation & Competition

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