7 Major Challenges Of Setting Up Business In India
India is one of the most rapidly growing economies in the world. Not only homegrown entrepreneurs but overseas investors are looking for setting up business in India. Last year, the country jumped an astounding 23 places in the World Bank’s ease of doing a business index.
It is currently positioned at number 77 and is the top-ranked nation in the South Asian region. However, this does not mean that people do not face problems in creating a business set-up in India. The country is still in the transitory phase in most areas.
While the government has liberalized a lot of policies, a lot still remains to be done. Let’s take a look at the kind of challenges faced by new business owners in the country.
1. Complicate Land Acquisition Process
The land is a basic requirement of setting up a business but its acquisition is one of the biggest challenges faced by businesses in India. It is governed by a central law which has been modified numerous times over the past many years.
Even then there are concerns about landowners being insufficiently compensated or land-use being arbitrarily changed by the authorities. Various state governments have devised their own regulations for ensuring fair compensation and transparency in land deals.
Due to these reasons, acquiring the land for setting up a commercial facility can be a long and arduous process for most entrepreneurs.
2. Infrastructure Is Still Being Developed
All developed economies have a state of the art infrastructure which enables businesses to operate smoothly. Industries require access to multiple means of transportation and power sources to conduct their processes. India is still in the process of developing its basic infrastructure.
There are multiple projects going on in the country to expand its road and rail network. Programs are underway to make new ports and modernize existing ones. The country is also looking at using its extensive network of rivers as a viable means of business transport.
It is also testing out alternative power generation sources like solar and wind energy. However, all the projects will take a few years to complete and till then businesses will have to face the problem of inadequate infrastructure.
3. Time-taking Dispute Resolution Framework
One of the biggest roadblocks in improving the investor-friendliness quotient of the country is its time-consuming dispute resolution framework. India is one of the few countries in the world with a written constitution and extensively detailed law codes.
Experts working with top legal firms in India are renowned for their knowledge and expertise. However, the extremely poor legal infrastructure with 19.66 judges per million people against the requirement of 50 judges per million people.
The situation is the same at various tribunals handling matters like tax disputes and bankruptcy resolution. This means that businesses caught up in litigation have to spend a significant amount of valuable resources in settling the issue.
4. Complex Tax Regime
Taxes are an integral part of a business. Most investor-friendly locations around the world have simple tax structures with clear and unambiguous laws and slabs. This helps investors in making accurate assessments and creating effective plans to lower their tax burden.
India has a complex tax regime and according to the same World Bank report quoted earlier in this article, assessees require 277.5 hours in a year to fulfil their liabilities. Moreover, some laws are ambiguous and can be interpreted differently by parties.
This leads to disputes which usually take a long time to resolve. The complicated tax regime is one of the biggest hurdles in easily setting up business in India.
5. High Price Sensitivity
India is one of the most competitive markets in the world. The average customer gives a lot of importance to the price of the products while making a selection. It is seen that while choosing a product people gravitate towards the one with an attractive price rather than an item with more features.
Businesses, especially multinational enterprises, have to develop an effective pricing strategy that takes into account the high sensitivity of the average Indian consumer. They have to devise innovative plans which include discounts and other beneficial offers to offset a high price tag.
6. Poor Implementation Of Intellectual Property Laws
The importance of intellectual property assets has grown with the emergence of the IT sector. However, even traditional enterprises need to safeguard their IP assets like logos and trademarks from unauthorized use. India does not have an exceptional record in implementing IP laws.
The agencies are still not aware of the kind of losses companies incur because of the violation of such regulations. Copyright infringement is a serious problem because the enforcement agencies are not serious about the implementation of the relevant laws. Lax IP protection remains a big hurdle in running a profitable business venture in the country.
7. Requirement Of Multiple Licenses
A business needs multiple licenses before it can start its operations. Companies need permissions for construction, power and water connections, beginning manufacturing besides legal incorporation. Additionally, they may require more permits depending on the nature of their operations.
All these processes are conducted by various agencies and most of the time entrepreneurs face a lot of problems in getting the permits quickly. The time and other resources spent in acquiring the permissions affect the productivity of an enterprise even before it starts functioning.
Some effective steps have been taken to reduce the problems for people setting up business in India. The implementation of the Insolvency and Bankruptcy Code and the introduction of the simplified company incorporation form are good measures.
However, some more reforms are needed to improve the scenario and make it even more easy to start a company in the country.
Author Bio Amy Jones has been serving as an experienced legal expert in Ahlawat & Associates, She is a passionate writer and always on the lookout for opportunities for sharing her knowledge with the legal community.