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Startups: Why low ‘Ease of Doing Business’?

India is the third largest in number of start-ups hosted because of the new government’s well-executed action plan on improving infrastructure, raising foreign investment limits, and digitizing approvals and registrations. Despite this, World Bank’s latest ‘Doing Business 2017: Equal Opportunity for All ‘ report ranked India 130 among 190 nations on ease of doing business.

The main reason for this issue is the difficult compliance requirements of a complex set of laws and regulations of various government bodies like the state governments, the Department of Revenue, the Department of Industrial Policy and Promotion (DIPP) and the Ministry of Law & Justice. The compliance requirements are further complicated by the need to adhere to various labour laws and regulations of entities like the Employees State Insurance Corporation (ESIC) and Employees Provident Fund (EPF). Adhering with all these requirements is a challenge for startups. It results in unfortunate and unintended non-compliance issues and the imposition of penalties. Consequently, it increases both the cost and the hardships of doing business in the country.

Several suggestions have been made to improve the current situation:

  • A single window should be established for obtaining approval and licenses from all the aforementioned government bodies.
  • The frequency of filling requirements under relevant labour, indirect tax and direct tax laws should be reduced.
  • Labour and tax statutes should be amended to extend timelines from the imposition of penalties.
  • The Standing Orders Act of 1946, Payment of Wages Act of 1936, and Industrial Dispute Act of 1947 should be amended to exclude startups from the definition of ‘industrial establishment’, ‘industry’ and ‘industrial establishment or undertaking’.

 


Author: Ananya Singh

Disclaimer: THE STATEMENTS HEREIN REPRESENT THE CURRENT OPINION AND BELIEFS OF THE AUTHOR ONLY AND NOT START-UP INDIA ASSOCIATION (SIA). UNDER NO CIRCUMSTANCES SHOULD ANYTHING IN THIS POST BE CONSTRUED AS INVESTMENT, LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING OR OTHER ADVICE.

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