India is one of the biggest economies in the world attracting investors from all corners of the globe. Liberalized government policies, enterprising local population, and large markets are just a few factors that encourage people for setting up a business in India. A largely young and educated workforce and a huge potential customer base notwithstanding, the country poses a lot of challenges to any entrepreneur starting operations in India. The nation has shown improvement as reflected in the improved rankings of the World Bank’s ease of doing business survey. Some problems still remain, though and there is ample room for improvement. Let’s discuss the major issues that a business owner faces while setting up a company in India.
Time-consuming Procedure For Starting A Business
A business owner needs to complete several procedures in order to legally start a company setup in India. The time taken to complete all the formalities takes months which results in financial strain on the investor even before starting the business. Depending on the nature of the business an entrepreneur needs to take permissions from multiple government agencies at the state as well as central level. Failure in acquiring sanction may lead to financial as well as legal penalties. This complicates matters further and discourages a lot of people from starting a commercial venture.
Complex Taxation Structure
The country has one of the most complex tax structures in the world. Complex laws and ambiguous rules are interpreted differently by taxpayers and authorities leading to issues. While tax reforms like the implementation of Goods and Services Tax (GST) have been initiated, more such measures are needed to transform the taxation landscape. The long list of payable taxes apart from meeting compliance requirements need the investment of valuable resources which affects the profit margin as well as the productivity of a company.
Shortage Of Skilled And Semi-skilled Labor
A large number of people with high skills are coming out of the country’s educational institutions mainly in the disciplines of engineering and information technology. The same cannot be said about skilled and semi-skilled labor. Most overseas entities who are not running a full-fledged business but have only set up a project office in India complain that while the labor is cheap as compared to most other countries it is not as productive.
Infrastructure Is Not Fully-developed
The past few years have seen the government moving ahead with various infrastructure projects. Development of road infrastructure, modern ports, increasing the power generation capacity besides identifying alternate renewable energy sources are all part of the initiative but it will take several years before the projects are completed. The present infrastructure is under immense pressure and this causes problems such as delays in freight transport or interrupted power supply which many investors count as major roadblocks.
Land acquisition Is Not Hassle-free
Another area that most people setting up a business in India are wary about is land acquisition. The rules and regulations for acquiring land for business purposes differ from state to state. Most of the time, the sentiments of the local population also plays a huge role in the process. It can be an uphill task for a business owner to start a project if the people are not favorably inclined towards it. This can result in delays and litigations which take a lot of time to resolve.
Weak Implementation Of Intellectual Property Laws
The country’s record in implementing laws is not exceptional. There are appropriate laws for copyrights, trademarks, and patents with a mechanism for penalties in case of violation but they are not implemented. The lack of will on the part of the administration in enforcing the law has resulted in infringement which has affected all business verticals. The government needs to educate its agencies about the negative image it creates in the minds of overseas investors and discourages them from starting a venture here.
Delay In Construction Permits
Getting a permit for constructing a business setup is a time-consuming process and investors have to wait for a couple of months before they get an approval. Earlier it was worse and the time taken for granting a license could go up to 5 months depending on the location. The process to acquire a permit is also complicated and needs expert assistance to complete it successfully. All this adds up to the cost of starting operations in the country.
Time-consuming Dispute Resolution Mechanism
One of the biggest obstacles in running a business smoothly in India is the inadequate dispute resolution mechanism of the country. The legal justice framework is understaffed and there is a huge backlog of pending cases which means that corporations have to wait for years if not months to get a verdict from courts. Other forums like the Income Tax Appellate Tribunal (ITAT) also take a lot of time in resolving matters. Ambiguous laws and rigid authorities only add to the problem making it one of the biggest challenges that entrepreneurs face.
Corruption Remains An Issue
Corruption still remains a major obstacle in beginning a commercial venture in the country. Government officials asking for undue favor in return for discharging their duties is a common problem. Business owners who refuse to meet such unjustified demands have to face inordinate delays in receiving sanctions. The levels of corruption have come down significantly after e-governance initiatives were started to minimize human involvement. Enactment of laws like the right to information also proved to be valuable in this regard but there is still a lot of work that needs to be done.
The objective of listing these major problems encountered while setting up a business in India is not to discourage potential business owners but only to provide information that can help them prepare for beginning their venture.