IFC-Doing Business in India 2009

8/6/2019 IFC-Doing Business in India 2009

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A publication of the World Bank and the International Finance Corporation


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2009 The International Bank for Reconstruction and Development / The World Bank

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All rights reserved

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A copublication of the World Bank and the International Finance Corporation

Tis volume is a product o the staf o the World Bank Group. Te ndings, interpretations, and conclusions expressed in this

volume do not necessarily reect the views o the Executive Directors o the World Bank or the governments they represent. Te

World Bank Group does not guarantee the accuracy o the data included in this work.

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Copies oDoing Business 2009, Doing Business 2008, Doing Business 2007: How to Reorm, Doing Business in 2006: Creating

Jobs, Doing Business in 2005: Removing Obstacles to Growth, and Doing Business in 2004: Understanding Regulation may be

obtained at www.doingbusiness.org.

Doing Business in India 2009 and other subnational and regional Doing Business studies can be downloaded at no charge at

http://subnational.doingbusiness.org.


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Contents

Doing Business in India 2009 is the rst

country-specic subnational report o

the Doing Business series that measures

business regulations and their enorce-

ment across India. It builds on ben-

chmarks previously published in the

regional Doing Business in South Asia

20057 series. Doing Business in India

2009 covers 10 out o the 12 previously

measured cities, and documents their

progress.It adds 7 new locations, expan-

ding the study to 17 locations.

Te Indian cities and states covered

in Doing Business in India 2009 were se-

lected together with the Indian Ministry

o Commerce and Industry. Tey are:

Ahmedabad (Gujarat), Bengaluru (Kar-

nataka), Bhubaneshwar (Orissa), Chennai

(amil Nadu), Guwahati (Assam), Gurgaon(Haryana), Hyderabad (Andhra Pradesh),

Indore (Madhya Pradesh), Jaipur (Rajast-

han), Kochi (Kerala), Kolkata (West Bengal),

Ludhiana (Punjab), Mumbai (Maharashtra),

New Delhi (Delhi), Noida (Uttar Pradesh),

Patna (Bihar), and Ranchi (Jharkhand).

Comparisons with the rest o the

world are based on the indicators in Doing

Business 2009. Te indicators in Doing

Business in India 2009 are also comparable

with the data in other subnational and

regional Doing Business reports.

Doing Business investigates the regu-

lations that enhance business activity and

those that constrain it. Doing Business in

India 2009 presents quantitative indica-

tors to measure the regulations afecting

7 stages in the lie o a business: start-

ing a business, dealing with construc-

tion permits, registering property, paying

taxes, trading across borders, enorcing

contracts, and closing a business. Tese

indicators have been selected because they

cover areas o local jurisdiction and prac-

tice. Data in Doing Business in India 2009

are current as o February 2009.

Te indicators are used to analyze

economic outcomes and identiy what re-

orms have worked, where, and why. Other

areas that signicantly afect business

such as a countrys proximity to mar-

kets, the quality o inrastructure services

(other than services related to the trad-

ing across borders indicator), the security

o property rom the and looting, the

transparency o government procurement,

macroeconomic conditions, or the un-

derlying strength o institutionsare not

directly studied by Doing Business.Tis report was requested by the Gov-

ernment o India. It was prepared by the

World Bank Group with the support o

the Department o Industrial Policy and

Promotion o the Indian Ministry o Com-

merce and Industry.

About Doing Business and

subnational Doing Business in India 1

Overview 7

Starting a business 14

Dealing with construction permits 19

Registering property 24

Paying taxes 28

Trading across borders 31

Enorcing contracts 35

Closing a business 40

Data notes 42

City tables 51

Doing Business indicators 57

List o procedures 63

Starting a business

Dealing with construction permitsRegistering property

Acknowledgments 134


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1

About DoingBusiness andDoing Business

in India

In 1664, William Petty, advisor to King

Charles II o England, compiled the

rst national accounts in history. Tese

consisted o only our entries. Expenses

were listed as ood, lodging, clothes,

and other necessaries, calculated at 40

million pounds. National revenues were

divided into three sources: 8 million

pounds rom land, 7 million pounds

rom other personal estates, and 25 mil-

lion pounds rom labor income.

In subsequent centuries, estimates

on national income, spending, and the

inow and outow o capital becamemore abundant, although a system-

atic ramework or measuring national

accounts was not developed until the

1940s, under the direction o British

economist John Maynard Keynes. As this

methodology became an international

standard, it became possible to compare

the economic positions o diferent coun-

tries. oday, macroeconomic indicators

o national accounts are standardized in

all countries.

Governments committed to the eco-nomic welare o their countries and to

providing opportunities to their citizens

today do not limit themselves to the

macroeconomic sphere, however. Tey

also devote themselves to the laws, regu-

lations, and institutional provisions that

model day-to-day economic activity.

Until quite recently, however, there

was no one group o indicators available

internationally to monitor these micro-

economic actors and analyze their im-

portance. Te rst eforts to compile such

a group o indicators date rom the 1980s,

and were based primarily on opinion

surveys in academic or business circles.Tese surveys are useul indicators o

economic and political conditions, but

the act that they are based on percep-

tions, and that they provide only partial

inormation on poorer countries, limits

their useulness as an analytical tool.

Te Doing Business project began

seven years ago, and aspires to go urther

than these initial surveys. Te project

ocuses on small- and mid-sized busi-

nesses in each economy, and analyzes

the regulations that govern each cycle o

that economys existence. Doing Business

and the standard cost model, developed

and applied initially by Netherlands, are

today the only standardized tools that

analyze the ull range o jurisdictions to

quantiy the impact o government legis-

lation on business activity.

Te rst Doing Business report, pub-

lished in 2003, covered ve groups o

indicators in 133 economies. Doing Busi-

ness 2009 covers 10 groups o indicatorsin 181 economies. Te project has ben-

eted rom eedback rom governments,

academics, practicing proessional ex-

perts, and qualied reviewers. Te initial

goal remains: to provide an objective

basis or understanding and improving

the regulatory environment and a guide

or improving perormance in the sphere

o business.

In the Doing Business report, each

economy is represented by its largest

business cityMumbai, or India, or ex-ample, or Mexico City, or Mexico. Busi-

ness regulation and their enorcement,

particularly in ederal states and large

economies, present marked diferences

within a single country. In recogniz-

ing the interest o governments in these

variations, the Doing Business report has

complemented its global indicators with

subnational studies in Mexico, in Brazil,

China, Colombia, India, Nigeria, Phil-

ippines, Pakistan, the Russian Federa-

tion, and others. Doing Business has also

begun a program on small islands that

are independent states.

Te Doing Business in India is an ex-tension o the Doing Business project be-

yond Mumbai. By adopting the method-

ology o the Doing Business report, Doing

Business in India allows or comparisons

o specic Indian cities perormances

in terms o business regulations and en-

orcement, and between these and 181

economies around the world. National

and international comparisons encour-

age competition between cities and align

the incentives o public servants toward

the reorm and implementation o best

national and international practices.

Doing Business in India 2009 is the

rst subnational report on this country

but a number o Indian cities have been

previously covered by regional Doing Busi-

ness in South Asia 2005-7 series. In 2005

and 2006, quantitative indicators were

compiled regarding regulations on busi-

ness activity and their enorcement in 9

Indian cities and states. Te third report,

Doing Business in South Asia 2007, ex-tended the coverage to 12 Indian cities and

states. Doing Business in India 2009 covers

10 out o 12 previously measured cities1

and documents their progress. It adds 7

new locations and measures the impact o

recent reorms on the indicators.

ASPECTS COVERED BY

DOING BUSINESS IN INDIA

Doing Business in India provides a quan-

titative measure o the national, state andmunicipal regulations involved in start-

ing up a business, dealing with construc-

tion permits, registering property, paying

taxes, trading across borders, enorc-

ing contracts and closing a businessas

they apply to domestic small- and mid-

sized enterprises.

A undamental premise o Doing


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2 DOING BUSINESS IN INDIA 2009

Business is that economic activity re-

quires good rules. Tese include rules

that establish and clariy property rights

and reduce the costs o resolving dis-

putes, rules that increase the predictabil-

ity o economic interactions, and rules

that protect contractual partners againstabuse. Te objective is: regulations de-

signed to be ecient, to be accessible

to all who need to use them, and to be

simple in their implementation. Accord-

ingly, some Doing Business indicators

assign a higher score or more rigorous

regulation, or example in contract en-

orcement. Others give a higher score

or introducing simplied procedures or

implementing existing regulation, such

as completing business start-up ormali-

ties at a single service window.

Doing Business in India encom-

passes two types o data. Te rst come

rom a review o laws and regulations.

Te second are time and motion indi-

cators that measure levels o eciency

in completing legal requisites (such as

granting legal identity to a business).

Within the time and motion indicators,

cost estimates are recorded rom o-

cial ee schedules where applicable. In

this area, Doing Business has built onHernando de Sotos pioneering work in

applying the time and motion approach

rst used by Frederick aylor to revolu-

tionize the production o the Model

Ford. De Soto used the approach in the

1980s to illustrate the obstacles to setting

up a garment actory on the outskirts o

Lima, Peru.

ASPECTS NOT COVERED BY

DOING BUSINESS IN INDIA

It is important to know the scope and

limitations oDoing Business in India in

order to correctly interpret the results o

this report.

LIMITED IN SCOPE

Doing Business in India ocuses on

seven areas, with the specic aim o

measuring the regulations and red

tape that inuence the lie cycle o a

small or mid-sized domestic company

at the local level. Accordingly: DoingBusiness in India does not measure

all 10 indicators covered in the gen-

eral Doing Business report. Te report

covers those seven areas o business

regulation that are the provenance o

municipal or state governments and

where local diferences exist.

Doing Business in India does not mea-

sure all aspects o the business envi-

ronment that matter to companies

or investors, nor all o the actors

that afect competitiveness. It does

not, or example, measure security,

macroeconomic stability, corruption,

labor skills, the underlying strength

o institutions or the quality o inra-

structure. Nor does it ocus on regula-

tions specic to oreign investment.

Doing Business in India does not cover

all regulations, or all regulatory goals,

in any city or state. As economies

and technology advance, more areas o

economic activity are being regulated.

BASED ON STANDARDIZED CASES

Te indicators analyzed in Doing Busi-

ness in India are based on standardized

case scenarios with specic assumptions,

such as that the business is located in

certain cities in one o the 17 states o

India. Economic indicators commonly

make limiting assumptions o this kind.

Ination statistics, or example, are oen

based on prices o consumer goods in a

ew urban areas. Such assumptions allowglobal coverage and enhance compara-

bility, but they inevitably come at the

expense o generality.

In areas where regulation is com-

plex and highly diferentiated, the stan-

dardized case used to construct each

Doing Business in India indicator needs

to be careully dened. Where relevant,

the standardized case assumes a lim-

ited-liability company. Tis choice is in

part empirical: private, limited-liability

companies are the most prevalent busi-

ness orm in most economies around the

world. Te choice also reects one ocuso Doing Business: expanding opportu-

nities or entrepreneurship. Investors

are encouraged to undertake a business

when potential losses are limited to their

capital participation.

FOCUSED ON THE FORMAL SECTOR

In dening the indicators, Doing Business

in India assumes that entrepreneurs are

amiliar with all regulations that apply to

them and comply with them. In practice,

entrepreneurs may spend considerable

time nding out where to go and what

documents to submit or they may avoid

legally required procedures altogether

not registering or social security, or

example.

When regulation is particularly bur-

densome, levels o inormality are higher.

Inormality has its cost: rms in the in-

ormal sector typically grow more slowly,

have poorer access to credit, and employ

ewer workers, and these workers re-main outside the protections o labor law.

Doing Business in India studies one set o

actors that helps explain the prevalence

o inormality and give policy makers a

better understanding o potential areas

o reorm. Gaining a uller understand-

ing o the broader business environment,

and a broader perspective on policy chal-

lenges, requires combining insights rom

Doing Business in India with data rom

other sources, such as the World Bank

Enterprise Surveys. Published by theWorld Bank in 2009, the Indias Invest-

ment Climate Assessment study analyzes

the actors that inuence decisions by

rms on how to invest based on ace-to-

ace surveys o owners and managers o

rms, combined with extensive dataset

analysis and secondary data.2


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ABOUT DOING BUSINESS AND DOING BUSINESS IN INDIA 3

WHY THIS FOCUS?

Doing Business in India unctions as a

kind o cholesterol test o the regulatory

environment or domestic businesses. A

cholesterol test does not tell us every-

thing about the state o our health, butit can tell us when to change behaviors

in ways that will improve not only our

cholesterol rating but also our overall

health.

One way to test whether Doing Busi-

ness is truly representative o the broader

business environment and o competi-

tiveness is to look at correlations between

the Doing Business rankings and other

major economic benchmarks. Te group

o indicators closest to Doing Business

in the areas it analyzes are the product

market regulation indicators rom the

Organization or Economic Cooperation

and Development (OECD). Te correla-

tion with these is 0.80. Te World Eco-

nomic Forums Global Competitiveness

Index and IMDs World Competitiveness

Yearbook are broader in scope, but they

are also closely correlated with Doing

Business (0.80 and 0.76, respectively).

Tese data suggest that where countries

enjoy peace and macroeconomic stabil-ity, domestic business regulation makes

a sizeable diference in economic com-

petitiveness.

A larger question is whether the

areas addressed in Doing Business can

truly inuence development and reduce

poverty. Te World Bank study Voices

o the Poor asked 60,000 poor people

around the world how they thought they

might escape poverty. Te answer was

unanimous: both women and men pin

their hopes on income rom their ownbusinesses or wages earned rom a job.

Enabling growth, and ensuring that the

disadvantaged can participate in its ben-

ets, requires an environment in which

entrepreneurs with initiative and good

ideas can start a business regardless o

their gender or ethnic origin and where

companies can invest, creating more jobs.

Small- and mid-sized enterprises

are key drivers o competition, growth,

and job creation, particularly in develop-

ing countries. Still, in these economies

up to 80% o economic activity is con-

ducted in the inormal sector. Firms may

be reluctant to enter the ormal sectorbecause o excessive bureaucracy and

regulation.

Where regulation is burdensome

and competition limited, success tends to

depend more on contacts than on what

the entrepreneur can actually do. In con-

trast, where regulation is transparent and

ecient, it becomes easier or entrepre-

neurs, regardless o their connections,

to operate within the rule o law and to

benet rom the opportunities and pro-

tections that the law provides.

Doing Business thus considers good

rules as key to social inclusion. It also

provides a basis or studying the efects

o regulations and their application. For

example, Doing Business 2004 ound that

the speed o tools available or contract

enorcement was associated with percep-

tions o greater judicial airness, suggest-

ing that, in act, justice delayed is justice

denied. Other examples specic to India

are provided in the chapters that ollow.

DOING BUSINESS IN INDIA AS A

COMPARATIVE EXERCISE

Because it brings together some key di-

mensions o regulatory regimes, Doing

Business in India can be useul or com-

parative purposes. Any such comparison

(o individuals, companies, or states) is

necessarily partial: it is valid and use-

ul i it helps to ground a judgment in

specic values, less so i it substitutes orjudgment.

Doing Business in India provides

two perspectives on the data it compiles:

it presents absolute indicators or each

city and or each o the seven areas

studied, and it also provides rankings

o cities, both by indicator and overall.

Careul judgment is required in inter-

preting these measures or each city and

in determining a reasonable and politi-

cally easible path or reorm.

Reviewing the Doing Business rank-

ings in isolation may yield unexpected

results. Some cities may rank high on

some indicators, while others that havegrown rapidly or attracted a great deal o

investment may rank lower than others

that appear to be less dynamic.

Even so, a higher ranking in Doing

Business in India tends to be associated

with better results over time. Economies

that rank among the top 20 in Doing

Business are those with high per-capita

income and productivity and ecient

regulations.

For governments committed to

reorm, improving the perormance o

their indicators matters more than their

absolute ranking. As economies develop,

they strengthen and add to regulations

to protect investor and property rights.

Meanwhile, their governments seek out

more ecient ways to implement exist-

ing regulations and eliminate outdated

ones. One nding o Doing Business is

that dynamic and growing economies

are constantly reorming and updating

their regulations and the ways they areapplied, while many poor countries still

work with regulatory systems dating

back to the 18th century.

DOING BUSINESS:

A USERS GUIDE

Quantitative data and benchmarking can

be useul in stimulating debate about

policy, both by exposing potential chal-

lenges and by identiying areas o op-

portunity where better practices mightbe introduced. Tese data also provide

a basis or analyzing how diferent pol-

icy approachesand diferent policy

reormscontribute to desired results

such as competitiveness, growth, and

greater employment and income.

Six years o Doing Business data

have ueled a growing body o research


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on how perormance on Doing Busi-

ness indicatorsand reorms relevant

to those indicatorsrelate to desired

social and economic results. Some 325

articles have been published in academic

journals, and about 742 working papers

are available through Google Scholar.Among the ndings:

are associated with a smaller inormal

sector.

entrepreneurship and reduce corrup-

tion.

translate into greater employment op-

portunities.

HOW DO GOVERNMENTS USE

DOING BUSINESS?

A common rst reaction is to doubt

the quality and relevance o the Doing

Business data. Yet the skepticism typi-

cally results in a deeper debate over the

relevance o the data to the economy and

about areas where reorm might make

sense.

Most reormers start out by seeking

new paradigms, and Doing Business is auseul tool in this regard. For example,

Saudi Arabia used the corporate laws o

France as a model or revising its own.

Many economies in Arica look to Mauri-

tiusthe regions strongest reormer ac-

cording to Doing Business indicatorsas

a source o good practices or reorm. In

the words o Egypts Minister o Invest-

ment, Dr. Mahmoud Mohieldin:

What I like about Doing Business is

that it creates a orum or exchangingknowledge. Its no exaggeration to say that

we checked the top ten in every indicator

and we just asked them, How did you do

it? I there is any advantage to starting

late in anything, its that you can learn

rom others.

Over the past six years there have

been many government initiatives to

reorm the regulatory environment or

domestic businesses. Most reorms relat-

ing to Doing Business topics were part

o broader programs o reorm aimed

at enhancing economic competitiveness.Te same can be said at the subnational

level. Nine o the twelve states covered in

the rst Doing Business in Mexico report

introduced reorms in at least one o

the indicators. Doing Business in Mexico

2009 shows that the momentum o re-

orm has continued: 28 states introduced

reorms in 20072008.

Doing Business in Mexico has a-

cilitated this change. First, it has con-

tributed to a diagnosis o the eciency

o business regulation in specic cities in

Mexico that can be compared with other

cities in the country and other economies

around the world. Second, it has served

as an instrument o institutional reorm,

because the measures presented reveal

where bottlenecks are and where the best

practices are in commercial procedures

across the country. Finally, each succes-

sive edition oDoing Business in Mexico

has served as a tool or monitoring and

evaluating reorms, creating incentivesor public servants to continue improv-

ing regulations, even across changes in

public administration.

In structuring their reorm pro-

grams, governments use multiple data

sources and indicators. Reormers also

respond to many stakeholders and inter-

est groups, all o whom bring important

issues and concerns into the reorm de-

bate. World Bank Group support or these

reorm processes is designed to encour-

age critical use o the data, sharpeningjudgment and avoiding a narrow ocus on

improving Doing Business rankings.

METHODOLOGY AND DATA

Doing Business in India covers 17 loca-

tions, including Mumbai. Te data are

drawn rom ederal, state, and municipal

laws and regulations, as well as on ad-

ministrative requirements (or a detailedexplanation o the methodology used

in Doing Business in India 2009, See

the data notes section at the end o this

report).

INFORMATION SOURCES

Most o the indicators are based on laws

and regulations. In addition, most o the

cost indicators are backed by ocial ee

schedules. Doing Business contributors

both ll out written surveys and provide

reerences to the relevant laws, regula-

tions, and ee schedules, aiding data

checking and quality assurance.

For some indicators part o the cost

component (in cities where ee schedules

are lacking) and the time component are

based on actual practice rather than the

text o the law itsel. Tis introduces a

degree o subjectivity. As a result, the

Doing Business approach has been to

work with legal advisors or proessionals

who regularly handle the transactionsinvolved. Following the standard meth-

odological approach or time and motion

studies, Doing Business in India breaks

down each process or transaction, such

as starting and legally operating a busi-

ness, into separate steps to ensure a bet-

ter estimate o time. Te time estimate

or each step is given by practitioners

with signicant and routine experience

in the transaction: corporate lawyers, at-

torneys, judges, architects, etc.

Te Doing Business approach to datacollection is diferent rom that o opinion

surveys, which record one-time percep-

tions and experiences o businesses. A

corporate lawyer registering 100 to 150

businesses a year will be more amiliar

with the process than an entrepreneur,

who may go through the process only


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ABOUT DOING BUSINESS AND DOING BUSINESS IN INDIA 5

once or twice. A judge ruling on dozens

o bankruptcy cases a year will have more

insight into the process than an indi-

vidual companys experience o it.

DEVELOPMENT OF THE METHODOLOGY

Te methodology or calculating eachindicator is transparent, objective, and

easily comparable. Renowned experts in

the academic sphere collaborate in the

development o the indicators, ensuring

academic rigor. Te background studies

underlying the indicators have been pub-

lished in leading economic journals.

Doing Business uses a system o sim-

ple averages or weighting indicators and

calculating rankings. Other approaches

were studied, including those using

principal components and unobserved

components. Te principal components

and unobserved components approaches

were ound to yield results nearly identi-

cal to those o simple averaging. Te

tests show that each set o indicators

provides new inormation. Te simple

averaging approach is thereore solid or

such tests.

IMPROVEMENTS TO THEMETHODOLOGY AND DATA

REVISIONS

Te methodology has been steadily im-

proved over the years. Changes have

been made mainly in response to sug-

gestions rom economies in the global

Doing Business sample. In accordance

with the Doing Business methodology,

these changes have been incorporated

into the Doing Business in India 2009

and Doing Business in South Asia 2005-7

series.

Another methodological improve-

ment reected in Doing Business in India

2009 is that it measures the cost o proce-

dures in proportion to Gross National In-

come (GNI) per capita rather than Gross

Domestic Product (GDP) per capita inthe state. Te reason or this change has

to do with practical issues and compa-

rability with the rest o the cities mea-

sured in the global Doing Business report.

First, certain developing countries do not

have GDP measurements available but

do measure GNI, so it is better to use

the indicator available in more countries

around the world. Second, international

comparisons between cities turned out to

be inconsistent, because the subnational

and global reports were using diferent

denominators to measure procedural

costs.

All the methodological changes are

explained in the Data Notes section o

this report and on the Doing Business in

India 2009 web page (www.doingbusi-

ness.org/subnational). Te web site also

provides data time series or each indi-

cator and city. Te web site also makes

available all original data sets used or

background papers. A transparent com-plaint procedure allows anyone to chal-

lenge the data. I errors are conrmed

aer a data-verication process, they are

corrected as promptly as possible.

1. wo cities, Chandigarh and Lucknow,covered by the regional Doing Businessin South Asia series, are not measured inthis report. Chandigarh is a joint admi-nistrative capital o two states, Punjab and

Haryana, which are now both includedwith their largest business cities. Noidareplaces Lucknow in Uttar Pradesh.

2. Ferrari, Aurora and Inderbir Singh Dhin-gra. 2009. Indias Investment Climate.Voices o the Poor. Washington, D.C.: TeWorld Bank.


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7

Long beore India existed as a country,

the Indian subcontinent was regarded as

a source o innumerable riches and trad-

ing opportunities by the worlds most

powerul empires. Riding the monsoon

winds, Roman ships would bring back

rom amil kingdoms and the main ports

o Barygaza, Muziris, and Korkai gold,

silver, red coral, and ne embroideries.

Other trading nationsthe Chinese, the

Egyptians, the Carthaginiansestab-

lished settlements on the subcontinent,

ollowed in the 15th century by the Eu-

ropeans, who had beneted rom theopening o a sea route via the Cape o

Good Hope.

Foreign trade proved a mixed bless-

ing or Indias economy in later centuries.

Te all o the Moghuls and the rise o

European chartered companies all but

obliterated Indias great merchants. Aer

Indias independence in 1947 a complex

system o business regulations and high

import tarifswidely known as the Li-

cense Rajcontributed to locking India

into a Hindu rate o growth ar belowIndias recognized potential.

oday, India owes much o its eco-

nomic success to the liberalization re-

orms initiated in 1991. Te reorms

contributed to liing the average gross

domestic product growth rate to 8.5%

in 20058 and 300 million people out o

extreme poverty.1 Still, recent growth has

small- to medium-sized domestic rm.

Mumbai represents the country in the

global Doing Business report, which com-

pares regulatory practices in 181 econo-

mies. However, in large ederal countries

like India, local business regulations and

their enorcement difer across locations.

Doing Business in India 2009 expands 7

o the 10 Doing Business topics (starting a

business, dealing with construction per-

mits, registering property, paying taxes,

trading across borders, enorcing con-

tracts, and closing a business) beyond

Mumbai to another 16 locations acrossIndia. Tese indicators have been se-

lected because they reveal diferences in

national, state, and municipal regulatory

policies and practices.8

Doing Business in India 2009 ranks

the 17 benchmarked cities based on their

perormance on each o the seven top-

ics. Te results are presented here (table

1.1). Doing Business is easier in Ludhiana

(Punjab), Hyderabad (Andhra Pradesh),

and Bhubaneshwar (Orissa). It is more

dicult in Kochi (Kerala), and Kolkata(West Bengal).

Mumbai, representing India in the

global Doing Business report, does not

rank highest among the benchmarked

cities on the 7 topics measured. While it

is quickest to start a business or export

a container there, Mumbai lags behind

other cities in the time required to en-

ailed to create enough jobs. A study by

the Indian Ministry o Statistics shows

that out o a total workorce o 397 mil-

lion, only 28 million workers are em-

ployed in the organized2 sector.3 Further-

more, an uneven pace o local growth

leads to increasing inequalities between

states. Promotion o inclusive growth is

one o Indias key development objectives

stated in the 11th Five Year Plan.4

o help local entrepreneurs unleash

their potential, national, state, and mu-

nicipal governments5 need to create a

regulatory environment that encouragesrms to ormally start up and grow. Te

World Banks 2009 Indias Investment Cli-

mate: Voices o the Poor study identies

red tape as a key constraint to improved

productivity.6 Te National Manuactur-

ing Competitiveness Council o India also

emphasizes regulatory reorm: Govern-

ment has a major role to play in provid-

ing the right market ramework and

regulatory environment as these provide

invaluable impetus to the competitive-

nessTe ramework should ensure aircompetition, better access to markets,

trade negotiations that ensure a level

playing eld or domestic manuacturers,

review o existing regulations and reduce

the burden o paper work and inspector

raj in respect o existing laws.7

Doing Business studies business

regulations rom the perspective o a

Overview


14/148


orce a contract, the ease to obtain a con-

struction permit, the time to transer a

property title, the cost to start a business,

or the total tax burden on businesses.

Still, Mumbais ranking has improved

in relation to other cities since the last

Doing Businessin South Asia. Hyderabad

remains at the top o the ranking while

other large business centers such as Ben-

galuru and Chennai dropped. Teir rank-

ing changed partly because the number

o benchmarked cities increased rom 12

to 17, and some o the added cities have

competitive regulatory rameworks. Te

lower ranking may also reect delays andhigher ees due to demand or business

services in ast-growing cities. On the

other hand, Bhubaneshwar and Jaipur

are examples o lower-income cities that

make it easier to do business by increas-

ing eciency and the use o technology,

while maintaining low costs.

Doing Business rankings do not

tell the whole story about an economys

business environment. Te indicators do

not account or all actors important

or Doing Businessor example, mac-roeconomic conditions, inrastructure,

workorce skills, or security. But im-

provements in an economys ranking do

indicate that the government is creating

a regulatory environment that is more

conducive to business.

For governments committed to re-

orm, it is the pace o reormsnot abso-

lute rankingthat is the most important.

Te pace o reorm is picking up. Doing

Business 2009 identied 239 reorms that

make it easier to do business in 113 coun-

tries. Other large emerging economies

like Egypt, China, and Indonesia were

among the reormers. With this competi-

tion, complacency is not an option.

CITIES ARE REFORMING

WHAT GETS MEASURED GETS DONE

Since 2004, India has introduced 7 major

business-environment reorms in busi-

ness entry, registering property, gettingcredit, paying taxes, and trading across

borders, becoming the regional top re-

ormer as reported in Doing Business

2009 (table 1.2).

rade is the area where India has

reormed the most. India was the top

reormer on the trading across borders

indicator in Doing Business 2008 and

continued reorming in Doing Business

2009. Te implementation o ICEGAE

(Indian Customs and Excise Gateway)

an electronic data interchange (EDI) sys-temat the countrys major entry points

has signicantly acilitated trading. Te

system enables shipping lines to submit

their cargo maniests electronically, ini-

tiating the clearance process even beore

the ship docks.

Another important milestone was

the Ministry o Corporate Afairs na-

tional e-government initiative, called

MCA-21, introduced in 2006, which laid

the groundwork or electronic business

registration. As part o this program, the

national government began computer-

izing company registration oces across

India and introduced an electronic lingsystem or company name approval and

registration. As a result o these reorms,

the registration time has been reduced.

Company name approval now takes 2

days in all cities, down rom 4 to 6 days

in 2006.9 Te time to obtain the certi-

cate o incorporation also dropped. Te

certicate is now available online in 2 to

3 days, as opposed to the 9 to 10 days it

took in 2006. But the reorm is not com-

pletethe applicant must still wait to

receive a physical copy o the certicate

by mail beore starting activities.

Well aware that an afordable and

ecient immovable property registration

system reduces inormality, the Minis-

try o Urban Development launched the

Jawaharlal Nehru National Urban Re-

newal Mission (JNNURM) in December

2005. It inspired important stamp duty

reductions, making it cheaper to register

property. Te program also introduced

land-record computerization programsacross the country.

Te national government initiated

several programs to increase the e-

ciency o central and local tax systems. In

2005, it started implementing a uniorm

VA rate in all states, eliminating some

TABLE 1.1

Doing Business in India: Where is it easiest?

1 Ludhiana, Punjab (easiest) 10 Mumbai, Maharashtra

2 Hyderabad,Andhra Pradesh 11 Indore, Madhya Pradesh

3 Bhubaneshwar,Orissa 12 Noida, Uttar Pradesh

4 Gurgaon, Haryana 13 Bengaluru, Karnataka

5 Ahmedabad, Gujarat 14 Patna, Bihar

6 New Delhi, Delhi 15 Chennai, Tamil Nadu

7 Jaipur, Rajasthan 16 Kochi, Kerala

8 Guwahati,Assam 17 Kolkata, West Bengal

9 Ranchi,Jharkhand

Note:The ease o doing business is calculated as the ranking on the simple average o city percentile rankings on each o the 7topics covered. The ranking on each topic is the simple average o the percentile rankings on its component indicators.

Source: Doing Business database.

TABLE 1.2

Top regional Doing Business reormerssince 2004

China

East Asia and the PacifcColombia

Latin America and Caribbean

EgyptMiddle East and North Arica

GeorgiaEastern Europe and Central Asia

INDIASouth Asia

MauritiusSub-Saharan Arica



15/148

O V E R V I E W 9

war and Hyderabad introduced single-

access points or value added tax and

proessional tax registrations and Patna

and Ranchi reduced the stamp duty on

incorporation documents.

Local governments also reormed

their processes or dealing with construc-tion permits. Among the most important

initiatives, the Municipal Corporations

o Ahmedabad and Chennai simplied

building-permit applications by allowing

online building-plan submission. Ben-

galuru, Gurgaon, and Hyderabad intro-

duced an efective single-window system

or building-permit applications. Te

Bhubaneshwar Development Authority

adopted a Geo-Inormation System that

provides inormation on each revenue

plot along with master-plan provisions

such as land-use zones, roads, drains,

and open spaces. Over the last ew years,

11 out o the 17 cities revised their build-

ing bylaws and development rules and

o the cascading efects caused by local

taxes. By 2008, all Indian states adopted

the VA system. In 2007, the central

sales-tax rate was decreased rom 4%

to 3%.

Indias legal and regulatory rame-

work in the areas o enorcing contractsand bankruptcy has advanced in the last

two decades. In 2008, the Supreme Court

allowed or electronic case ling.10 E-

ling systems are being planned or the

various state High Courts in the near u-

ture and eventually in the District Courts

as well.11 Indiancourts12 is a new web-

site that provides a single-point access

to inormation related to the Supreme

Court and all 21 High Courts. Litigants

can veriy case-status, and browse judg-

ments, rules, and judges o each court.

Te national government intro-

duced Debt Recovery ribunals (DRs)

to speed up the resolution o debt recov-

ery claims due to banks and nancial

institutions in 1993. Te Securitization

and Reconstruction o Financial Assets

and Enorcement o Security Interest

(SARFAESI) Act was enacted in 2002

and amended in 2004, with a view to

making adequate provisions or the re-

covery o loans and to enorce securityinterests without the intervention o the

courtor at least with minimum inter-

vention. Tese positive changes in the

law have only taken ull efect in practice

in the past couple o years. Until re-

cently, the validity o the SARFAESI Act

and beore that the validity o the DRs

were held up in court challenges, but

now both acts are used by creditors. As a

result, the DRs o Mumbai have started

working aster and more DR judges

were assigned recently. In Mumbai, debtenorcement through DRs takes now

on average 7 years.

Reorms at state and municipal lev-

els have accelerated, too. Tere has been

signicant progress9 o the 10 cities

benchmarked in Doing Business in South

Asia 2007and again in 2009 introduced

local reorms in at least one o the areas

o starting a business, dealing with con-

struction permits, and registering prop-

erty. As a result, the average time to start

up a company dropped rom 54 to 35

days, similar to Tailand. Te time to

obtain a building permit dropped by 25

days on average in the 10 cities. Four outo seven locations measured or the rst

time by this report reormed their local

regulations and practices in the 3 areas,

bringing the total number o reorming

cities to 14 out o 17 (table 1.3).

In the area o starting a business, 7

out o the 10 states benchmarked in 2006

introduced administrative, legal, and

technological reorms in addition to the

national reorms afecting all states. En-

trepreneurs in New Delhi and Ahmeda-

bad can now pay the stamp duty on

company documents electronically and

apply online or the value-added tax reg-

istration certicate and amendments to

the registration certicate. Bhubanesh-

TABLE 1.3

Local level reorms in 14 out o 17 Indian cities in 20069

Starting abusiness

Registeringproperty

Dealing withconstruction

permits

Ahmedabad, Gujarat

Bengaluru, Karnataka*

Bhubaneshwar,Orissa*

Chennai, Tamil Nadu*

Gurgaon, Haryana

Guwahati,Assam

Hyderabad,Andhra Pradesh*

Indore, Madhya Pradesh

Jaipur, Rajasthan*

Kochi, Kerala

Kolkata, West Bengal*

Ludhiana, Punjab

Mumbai, Maharashtra*

New Delhi, Delhi*

Noida, Uttar Pradesh

Patna, Bihar*

Ranchi,Jharkhand*

Note:The reorms took place between April 2006 and February 2009.

* Locations measured by Doing Business in South Asia 2007.



16/148


made them and the application orms

available online. welve cities have im-

proved their eciency o handling ap-

plications through ongoing computeriza-

tion and additional zonal oces, such as

the new civic centers in Ahmedabad.

Gurgaon, Indias top perormer orregistering property, increased the speed

o property transers by developing cus-

tomized soware and training registry

employees. Bengaluru computerized

ownership records and property titles

as part o the Karnataka Valuation and

e-Registration project (KAVERI). Four

states cut their stamp-duty rates. Bhu-

baneshwar, Jaipur, New Delhi, Patna, and

Bihar urther computerized land records,

making it easier or entrepreneurs to

search or encumbrances.

WIDE VARIATIONS ACROSS

CITIES AND STATES

I you were a graduate returning to

India rom her studies abroad with a

great idea or a new business, obtaining

authorization to start your company

would be astest in Noida, where it

takes 30 days, and least expensive in

Patna, at 38% o income per capita. InMumbai, it would cost almost twice

as much. Obtaining all clearances and

permits to build a new warehouse and

hook it up to utilities would take about

80 days in Bengaluru and Hyderabad,

twice as ast as the OECD average o 161

days. It would take six months longer

in Kolkata. I you decided to purchase

a property in Jaipur, your new estate

would be registered in 24 days, the

same as in Johannesburg, South Arica.

I in Bhubaneshwar, transerring theproperty title would take ve times lon-

ger. Resolving a dispute at the courts is

generally time-consuming across states,

but it would be aster in Guwahati at

20 months compared with 4 years in

Mumbai. Exporting a container o tex-

tiles would take you on average 17 days

through the Nhava Sheva port, but 11

days longer through the port o Kochi.

Tese examples show large varia-

tions in the way local government regula-

tions enhance or restrain business activ-

ity across India. Te economic reorms

o the 1990s have given the states greater

autonomy, especially in land and licens-ing matters. While local governments

share the same basic legal ramework,

they also interpret and implement na-

tional regulations diferently. Some states

have made their processes more ecient

with the help o technology.

More reorm, at the national, state,

and municipal levels is needed to reduce

the number o procedures as well as the

time and cost to do business. Global

competition is becoming increasingly

local in the sense that it is not only coun-

tries that compete with each other, but

increasingly specic locationsKolkata

versus Monterrey (Mexico) rather than

India versus Mexico. Indian cities and

states must expedite their pace o reorm

to convince investors that it is more

protable to invest scarce capital in cit-

ies like Hyderabad rather than Cairo or

Shanghai.

STARTING A BUSINESS

Te number o procedures to ormally

open a business ranges rom 11 to 13,

o which 8 are national in nature and

similar in all cities. Te high number

o procedures is due to requirements

ollowing business incorporation, such

as multiple tax and social-security reg-

istrations. States like Andhra Pradesh

and Orissa have simplied the process

or entrepreneurs by consolidating reg-

istration or both value-added tax and

proession tax at the Commercial axOce. Te time required to start a busi-

ness also varies among cities due to

diferent local practices and diferent

perormance levels o the local branches

o national agencies. Starting a business

is astest in Noida and Mumbai (30 days)

and lengthiest in Kochi (41 days). Difer-

ences in cost are pronounced. In Patna,

Kolkata, and Bhubaneshwar, entrepre-

neurs spend less than 40% o income

per capita to open a business; or those

in Bengaluru and Mumbai, the cost is

almost double due to local government

ees and taxes. Registration or value-

added tax costs the equivalent o 12%income per capita in Mumbai, but is

ree in Jaipur and Ahmedabad. Similarly,

entrepreneurs pay 15% o income per

capita in Bengaluru to register under the

Shops and Establishments Act, but pay

nothing in Chennai.

DEALING WITH CONSTRUCTION PERMITS

o comply with all the requirements to

build a warehouse is not easy or cheap.

Ahmedabad, Bengaluru, and Chennai

have the least procedures15while

the process requires 37 steps in Mumbai.

Hyderabad is astest with 80 days and

Kolkata slowest with 258 days. Varia-

tions are due mainly to the time it

takes to obtain pre-construction clear-

ances and zoning permits, the building

permit, and the electricity connection.

In Kolkata, Guwahati, and Chennai, it

takes at least three weeks to obtain the

zoning certicate. In comparison, the

approved layout can be obtained onthe spot in Bhubaneshwar. Hyderabad

and Bengaluru both process building

permits within the statutory time lim-

its o 30 working days, while entrepre-

neurs in Patna have to wait more than 3

months to start construction. Obtaining

the occupancy certicate is astest in

Kochi, where a silence is consent rule

automatically kicks in aer 15 days. In

Noida, the entrepreneur will have to

wait 5 weeks longer. Regarding costs,

construction-related procedures amounton average to 789% o income per capita,

above the same cost in Brazil and China.

Te computerization o the building-

permit processes is most advanced in

Ahmedabad, Bengaluru, Chennai, and

Hyderabad, which set an example or

other cities.


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O V E R V I E W 11

REGISTERING PROPERTY

Te procedures required to register

property are similar across the 17 cit-

ies. A potential property buyer must

obtain a non-encumbrance certicate

rom the Subregistrars Oce, have a

lawyer dra a sales deed, register thesales deed at the Subregistrars oce,

and then ocially transer the property

title at the Circle Revenue Oce. How-

ever, the time and money required to

complete these procedures vary substan-

tially across cities. In Gurgaon, it would

take an entrepreneur 26 days and 7.7%

o the property value to transer prop-

erty, while the same process would last

three times longer and cost 15.4% o the

property value in Guwahati. Variations

in time can be explained by diferent

degrees o eciency o the Subregistrar

and Circle Revenue Oces. Oces that

have computerized land records and are

adequately stafed with qualied person-

nel conduct procedures aster, as the

examples o Jaipur and Gurgaon show.

Diferences in cost stem mostly rom di-

erences in stamp-duty rates, set by the

states, which account or an average o

69% o all costs incurred. Stamp duties

can be as high as 12.5% o the propertyvalue in Kochi, or as low as 3% in New

Delhi.

TRADING ACROSS BORDERS

Importing or exporting has become

much easier in the past years. Te im-

plementation o an electronic data in-

terchange system, the construction o

inland container depots, and various

ambitious inrastructure projects have

signicantly reduced both the time and

cost to trade goods. Mumbais JawaharlalNehru Port (JNP) is the busiest port,

handling nearly 60% o Indias port tra-

c. At the subnational level, it is astest to

import and export rom Bhubaneshwar

through the port o Vishakapatnam. Te

port o Chennai is close behind. Despite

substantial achievements, important

challenges remain. Improving and in-

vesting in railway and road inrastruc-

ture, reducing interstate checkpoints,

and improving the Electronic Data In-

terchange systems are examples o how

Indias position as a regional trade hub

can be urther advanced.

ENFORCING CONTRACTS

Enorcing contracts is characterized by

lengthy proceedings. Te time needed

to go through trial and judgment is

the most burdensome among the three

stages o the commercial dispute

service and ling, trial and judgment,

and enorcement o judgment. It takes

around two years to resolve a commer-

cial dispute in Kochi, Bhubaneshwar,

and Hyderabad compared with almost

4 years in Mumbai. Case backlogs and

an insucient number o judges are

reportedly the main source o delays in

most cities. Te cost to enorce a contract

ranges rom 16.9% o the claim value in

Patna to 32.5% in Bengaluru and 39.5%

in Mumbai. Diferences in court ees,

legal ees, and the cost o enorcement

explain these variations. Te national

government introduced case manage-

ment by allowing or electronic ling o

cases at the Supreme Courts in 2008 andis planning e-ling systems at the High

Courts and District Courts. Te national

government has also recommended the

establishment o commercial divisions

within the High Courts to speed up en-

orcement o contracts.

PAYING TAXES

Cities do not difer much in terms o

the total tax-burden impact on business,

which ranges rom 66.5% to 70.3% o

commercial prots. Te state and localgovernments play a major role in tax

administration, although the central gov-

ernment collects the largest portion o

taxes. Hence, a high variation in the num-

ber o payments and the time it takes to

comply with all taxes across Indian cities.

While a business owner in Jaipur needs

233 hours a year to comply with all tax

obligations, she would spend 405 hours

to do the same in Patna. Diferences are

also evident in the number o payments

annually ranging rom 59 in Ludhiana,

Mumbai, Noida, and Bengaluru to 78

in Hyderabad. Te national government

has undertaken several initiatives, mosto which are still ongoing, to harmonize

the tax system across states. Te most

recent example is the unication o the

value-added tax (VA) rate among all

Indian states.

CLOSING A BUSINESS

Among the cities benchmarked, Hydera-

bad has the highest recovery rate in

insolvency cases at 15.9 cents on the

dollarar lower than Japans rate o

99.5 cents on the dollar. It takes 7 years

to close a business and costs 7% o the

value o the claim. In Kolkata, a busi-

ness will only recover 9.13 cents on the

dollarit takes almost 11 years and costs

10% o the value o the claim. Indias

legal ramework on insolvency and debt

recovery has been at the core o reorm

discussions or several years. Some o the

concerns have been addressed through

the Recovery o Debts Due to Banks

and Financial Institutions Act 1993 andthe SARFAESI Act 2002, amended in

2004. What is now needed is to build

consensus to urther implement reorms

in this area and create capacity to deal

with insolvency and debt recovery more

eciently. Bankruptcy laws are national

but there are local diferences in the

unctioning o the tribunals.

LEARNING FROM EACH OTHER:

ADOPTING GOOD LOCAL PRACTICES

Publishing comparable data on the ease

o Doing Business inspires governments

to act. Comparisons among cities within

a single economy are even stronger

drivers o reorm. Tat was the case in

Mexico, where a subnational Doing Busi-

ness study covering 12 states was rst

published in 2005. Te study inspired


18/148


competition to reorm, as governors and

mayors had a dicult time explaining

why it took longer or cost more to do

business in their city compared to their

neighbors. States that have not been

benchmarked asked to be measured in

subsequent reports. Te second roundexpanded the analysis to all states and

updated indicators or the rst 12 cities,

showing that 9 o the 12 states imple-

mented reorms in at least one o the

areas covered by Doing Business. Te

third Doing Business in Mexico report,

launched in 2008, shows that the impetus

to reom continues28 o the 31 states

introduced a total o 40 reorms.13

Cities in India can learn rom each

other and adopt good regulations and

practices that already exist elsewhere. I

a hypothetical city called Indiana were

to adopt the best practices ound in the

benchmarked cities, it would rank 67 out

o the 181 economies measured by Doing

Business 2009.14 By reorming in these 7

areas, India (as represented by Mumbai)

could improve its ranking by 55 levels,

placing the country well ahead o China,

Brazil, or Russia. Tis would reduce the

time to start a business to the 30 days o

Mumbai and Noida. Te cost would be38.5% o income per capita as in Patna,

same as the cost in Ecuador. Cutting

the time to get construction licenses to

build a warehouse to the level o Hydera-

bad80 dayswould put India ahead o

Germany. Adopting the time to register

property in Jaipur24 dayswould put

the hypothetical city Indiana at the 49th

ranking worldwide, the same as South

Arica. Te cost o enorcing contract o

16.9% o the claim value, as in Guwahati,

would be below the OECD average o18.9%. Te total tax rate would be re-

duced to 66.5% as in Noida and similar

to France. Te import time would drop

to Bhubaneshwars 16 days, the same

as Croatia. Te hypothetical city would

adopt Hyderabads practices or closing

a business with a recovery rate o 15.9

cents on the dollar, 2 cents higher than

Indonesia (table 1.4). With these regu-

lations in place, Indian entrepreneurs

would ace a business environment simi-

lar to that o aiwan, China, or urkey.

Payofs rom reorm can be large.15

Higher rankings on the ease o Doing

Business are associated with moregrowth, more jobs, and a smaller share

o the economy in the inormal sector.16

In Mexico, reorms cut the time to start

a business rom 58 to 27 days. A recent

study reports a boom in new business

entry: the number o registered Mexican

businesses rose by nearly 6%, employ-

ment increased by 2.6% and prices ell by

1% because o the competition rom new

entrants.17 Simplied regulations also

encouraged entrepreneurs to start their

own business in Egypt.18

Studies rom other countries sug-

gest that 85% o reorms occur in the rst

15 months o a new administration.19 For

India, there is no better time to reorm

than now.

TABLE 1.4

Best practices in India compared internationallyGlobal ranking

(181 economies)

Number o procedures to start a business

New Delhi, Patna (11 procedures)

137

Days to start a business

Mumbai, Noida (30 days)

104

Cost to start a business

Patna (38.5% o income per capita)

124

Number o procedures to deal with construction permits

Ahmedabad, Bengaluru, Chennai (15 procedures)

63

Days to deal with construction permits

Hyderabad (80 days)

19

Cost to deal with construction permits

Patna (204% o income per capita)

94

Number o procedures to register property

Gurgaon, Guwahati, Kochi, Ludhiana (4 procedures)

24

Days to register property

Jaipur (24 days)

49

Cost to register property

Ranchi (5.4% o the property value)

104

Days to enorce a contract

Guwahati (600 days)

111

Cost to enorce a contract

Patna (16.9% o the claim value)

31

Days to export

Ahmedabad, Bhubaneshwar, Mumbai (17 days)

59

Days to import

Bhubaneshwar (16 days)

50

Total tax rateNoida (66.54 % o the proft)

162

Tax payments

Ludhiana, Noida, Mumbai, Bengaluru (59 payments per year)

166

Recovery rate or closing a business

Hyderabad (15.9 cents on the dollar)

133

Best practices or 7 measured indicators

Hypothetical city o Indiana

67



19/148

O V E R V I E W 13

1. Ferrari, Aurora, and Inderbir Singh Dh-ingra. 2009. Indias Investment Climate:Voices o the Poor. Washington, D.C.: TeWorld Bank.

2. Te terms ormal and inormal

sectors are not used in the NationalAccounts Statistics (NAS). Te termsused are organized and unorganizedsectors. Te organized sector comprisesenterprises or which statistics are avail-able rom the budget documents and ac-counting reports. Te unorganized sectorreers to enterprises whose activities orcollection o data are not regulated underany legal provision.

3. Te National Sample Survey Organiza-tion (NSSO) carried out a sample surveyin 19992000, available at http://mospi.nic.in.

4. Te Planning Commission develops, ex-ecutes, and monitors ve-year plans orthe economy o India. Te eleventh planstarted in mid-2007. Among other objec-tives, it aims to create 70 million newwork opportunities and reduce educatedunemployment to below 5%.

5. Te Government o the Republic oIndia, ocially reerred to as the UnionGovernment, and also as the CentralGovernment, is the governing author-ity o a ederal union o 28 states and7 union territories. All states, and theunion territory o Puducherry and theNational Capital erritory o Delhi, have

elected legislatures and governmentspatterned on the Westminster model.A Municipal Corporation is the localbody that administers a city o popula-tion 200,000 and more. It consists omembers elected rom the wards o thecity. Te Mayor and Deputy Mayor areelected by the members among them-selves. A Municipal Commissioner, romthe Indian Administrative Service, is ap-pointed to head the administrative stafo the Municipal Corporation, imple-ment the decisions o the Corporation,and prepare its annual budget.

6. Ferrari, Aurora, and Inderbir Singh Dh-ingra. 2009.

7. http://nmcc.nic.in

8. Tree o the Doing Business indicatorsemploying workers, protecting investors,and getting creditare based solely onthe provisions contained in nationallaws.

9. World Bank. 2006. Doing Business inSouth Asia 2007. Washington, D.C.:World Bank Group.

10. World Bank. 2008. Doing Business 2009.Washington, D.C.: World Bank Group.

11. http://www.supremecourtondia.nic.in/new_links/speach.htm

12. http://www.indiancourts.nic.in

13. World Bank. 2009. Doing Business inMexico 2009. Washington, D.C.: WorldBank Group.

14. Tis is based on composite numbersincluding indicators not measured inDoing Business in India 2009. For thoseindicators the values reported in DoingBusiness 2009 were used to calculate theranking.

15. World Bank. Forthcoming. Colombia:

Inputs or Sub-Regional Competitive-ness Policies. Mimeo. Washington, D.C.:World Bank Group.

16. Djankov, Simeon, Caralee McLiesh,and Rita Ramalho. 2006. Regulationand Growth. Economics Letters 92 (3):395401.

17. Bruhn, Miriam. 2008. License to Sell:Te Efect o Business RegistrationReorm on Entrepreneurial Activity inMexico. Policy Research Working Paper4538, Washington, D.C.: World Bank,Te results were obtained aer control-ling or GDP per capita, number o eco-nomic establishments per capita, xed

assets per capita, and investments percapita in the benchmarked municipali-ties.

18. World Bank. 2008. Doing Business inEgypt 2008. Washington, D.C.: WorldBank Group.

19. World Bank. 2007a. Celebrating Reorm2007. Washington, D.C: World BankGroup and U.S. Agency or InternationalDevelopment.


20/148

Starting abusiness

Parth has just returned to Mumbai rom

his studies abroad. His dream is to set up

his own business, but he is araid o dea-

ling with the bureaucratic proceedings

necessary to ormalize the company.

Little does Parth know that i he decided

to ormalize his business today, his rst

customer could be walking through the

door in one month. I he wanted to do

the same when he le or his studies 4

years ago, he would have had to wait

more than 2 months.

Business registration is the rst con-

tact between a new entrepreneur and go-vernment regulators. In some countries,

the process is straightorward and afor-

dable, while in others the process is so

cumbersome that entrepreneurs either

bribe ocials to speed up the process

or simply run their business inormally.

When reorms make it easier to legalize

their operations, the inormal businesses

are the rst to register.1 Furthermore, the

reorms to ease the entry o new rms

are relatively simple and not too costly

to implement.2 Oen they do not requiremajor legislative changes. Enticing en-

terprises into the ormal economy has

two benets. First, ormally registered

businesses grow larger and more pro-

ductive than inormal ones. In a recent

study on inormality in So Paulo, Brazil,

entrepreneurs said they could double

operations aer registering.3 Tey would

get access to courts and credit, be able to

supply more important customers, and

have no ear o harassment rom gover-

nment inspectors or the police. Second,

ormally registered enterprises pay taxes,

adding to government revenues.4

New Zealand is the worlds top per-

ormer in this area, with only 1 proce-

dure, 1 day, and a cost o 0.4% o income

per capita. Entrepreneurs in New Zealand

have to le all necessary inormation

only once because receiving agencies are

linked through a unied database. Other

economies in Eastern Europe and NorthArica are not ar behind: in Georgia, it

takes 3 procedures and 3 days to start a

business, while in Egypt the same can be

done in 7 days.

Across India, administrative bur-

dens are still high in comparison with

other countries in spite o the recent

eforts to improve business registration.

Starting a business takes on average 12

procedures and 34 days, and costs 47%

o income per capita. Indians spend one

month more than Australians and pay

almost 4 times more than entrepreneurs

in Pakistan to start a business. Te pro-

cess takes only 2 procedures ewer than

in China, ranked 167 o 181 economies

on the number o procedures to start a

business.

Despite a similar regulatory ra-mework or business registration across

the country, there are diferences in time,

cost, and number o procedures, mainly

due to practices at the local govern-

ment level, diferent perormance o local

TABLE 2.1

Where is it easier to start a businessand where not?

1 New Delhi, Delhi(easiest) 10 Chennai, Tamil Nadu

2 Patna, Bihar 10 Kolkata, West Bengal

3 Jaipur, Rajasthan 12 Mumbai, Maharashtra

4 Hyderabad,Andhra Pradesh 13 Guwahati,Assam

5 Bhubaneshwar, Orissa 14 Ahmedabad, Gujarat

6 Noida, Uttar Pradesh 15 Ranchi,Jharkhand

7 Ludhiana, Punjab 16 Kochi, Kerala

8 Indore, Madhya Pradesh 17 Bengaluru, Karnataka

9 Gurgaon, Haryana

Note:The ease o starting a business is a simple average o the city rankings on the number o procedures, the associated time andcost and paid-in minimum capital (%o GNI per capita) required at the start o the business. See the data notes or details.


Time(days)

FIGURE 2.1

Starting a business in Noidaastest in India together with Mumbai

Procedures

30

25

20

15

10

5

0

60

50

40

30

20

10

0

Cost 52.5%

39.2%

Time 30 days

State procedure

Source:Doing Business database.

Cumulative cost (% o income per capita)

1 12

National procedure

Private sector procedure

Procedure 5Get the certifcateo incorporation

14


21/148


22/148


equal to 35% o income per capita are

imposed by national regulations and are

the same in all cities. Local government

ees and taxes7

drive the variation inthe cost to start a business across cities.

Tey amount to Indian rupees (INR) 280

(about US$6) in Patna, but are almost 50

times more expensive in Mumbai.

Between April 2006, when data were

collected or the last Doing Business in

South Asia report, and April 2009, the na-

tional government, in collaboration with

state governments, has taken steps to

rationalize and simpliy business start-up.

Among emerging markets, India stands

out in its ocus on technology. In 2006, theMinistry o Corporate Afairs introduced

the MCA-21 e-government initiative, la-

ying the groundwork or electronic regis-

tration o new businesses. As part o this

program, the government started compu-

terizing the registrars o companies across

the country and introduced an electronic

ling system or company name approval

and company registration.

As a result o these reorms, along

with reorms enabling the acceptance o

digital signatures and payment o eesby credit card, the registration time has

been reduced. Company name approval

now takes 2 days, down rom 4 or 6

days in 2006.8 Te time it takes to obtain

the certicate o incorporation was also

lowered. Te certicate is available on-

line, as an e-certicate, 2 or 3 days aer

the application is made, as opposed to 9

or 10 days in 2006. Tis is good progress.

However, the entrepreneur still has to

wait additional days until the physical

copy o the certicate reaches her bymail. Tere is room or improvement in

other areas as well. For example, even

i entrepreneurs can now apply or a

permanent account number and tax de-

duction and collection account number

(AN) cards online and thus speed up

the process, ew applicants use the on-

line acility. Tis is mostly because the

application generated online and copies

o supporting documentation still have

to be physically dropped of at the autho-

rized agents desk.As part o the Ministry o Corporate

Afairs revision o the Companies Act

1956, a Companies Bill was introduced

to parliament in October 2008. Te bill

provides or greater use o e-government

systems or ling and accessing corporate

data, and more options or entrepreneurs

to determine the company structure.

In addition to the national reorms

afecting all states, 6 out o the 10 sta-

tes benchmarked in 2006 introduced

administrative, legal, and technologicalreorms (table 2.2). A number o tax-

related services are now ofered online.

Entrepreneurs in New Delhi and Ah-

medabad can now pay stamp duty on

company documents electronically. Te

same service will soon be available in

Indore. E-stamping is a ast, convenient,

and transparent way to pay stamp duty.

TABLE 2.2

Business start up reorms at the national and local level in 20069 National level

Local level

Electronicapplication orname approvaland company

registration

Use oelectronic sig-natures (online

certifcation)

Electronicpayment o

stamp duty oncompany

documents

Online applica-tion or VATregistration

Reduction ostamp duty onincorporation

documents

Single accesspoint or VAT

and proessiontax registration

Administrativereorm at the

proessiontax oce

Ahmedabad, Gujarat

Bengaluru, Karnataka*

Bhubaneshwar, Orissa*

Chennai, Tamil Nadu*

Gurgaon, Haryana

Guwahati,Assam

Hyderabad,Andhra Pradesh*

Indore, Madhya Pradesh

Jaipur, Rajasthan*

Kochi, Kerala

Kolkata, West Bengal*

Ludhiana, Punjab

Mumbai, Maharashtra*

New Delhi, Delhi

Noida, Uttar Pradesh

Patna, Bihar*

Ranchi,Jharkhand*

* Locations measured by Doing Business in South Asia 2007.

Note:The reorms took place between April 2006 and February 2009.



23/148

STARTING A BUS INESS 17

axpayers in New Delhi, Ahmedabad,

and Mumbai can apply online or a va-

lue-added tax registration certicate and

amendments to the registration certi-

cate. As per amendment to the Gujarat

State ax on Proession, rades, Calling

and Employment Act, in efect sinceApril 2008, registration and the power to

levy and collect proession tax have been

transerred rom the state to the munici-

pal authorities. Registration is now being

done at one o the 35 Civic Centers o

the Ahmedabad Municipal Corporation

and the time has been reduced to 3 days.

Tere are also plans to make registration

and payment o proession tax available

online in Gujarat.

Aer the gradual adoption in 2005

o value-added tax to replace the state

sales tax, the next major decision by State

Finance Ministers was to phase out the

central sales tax on interstate sale tran-

sactions by March 2010.

WHAT TO REFORM?

CREATE SINGLE-ACCESS POINTS FORALL TAX REGISTRATION AND FORSOCIAL-SECURITY REQUIREMENTS

States can ollow the example o AndhraPradesh and Orissa and consolidate the

registration or the value-added tax and

proession tax at the same oce, under

the same authority. Or, even better, they

could create a single-access point or all

tax registrations instead o the existing

ve diferent agencies or Permanent

Account Number (PAN), tax deduction

and collection account number (AN),

Shops and Establishment Act, proession

tax, and value-added tax. Te registrar

o companies could take responsibilityor registering the new company with

the various tax authorities. Te registrar

could circulate the company documents,

preerably electronically, to the various

tax authorities. Jordan and Egypt put

tax registration into the hands o the

registrar, speeding up the process, which

now takes only 1 or 2 days, and allowing

entrepreneurs to ocus on their business.

Creating a single-access point or

social-security registrations would allow

employers to simultaneously register

with the Employees Provident Fund

Organization and the Employees State

Insurance Corporation. Saudi Arabia re-cently made social-security registration

possible online.

ELIMINATE ANTIQUATEDREQUIREMENTS AND COMMUNICATEREFORMS TO THE PUBLIC

Some requirements are leovers rom a

bygone era. Tese should be eliminated.

One example is the stamp duty on com-

pany documents. Te payment o the

duty could become part o the registra-

tion ee. It would be better still i it was

not imposed at all, but rather collected as

part o the income tax. Another example

is the company seal, which, in earlier

centuries, symbolized the legal identity

o a business and authenticated all its

contracts. Now most documents are sent

electronically. Although India now has

regulations allowing electronic signatu-

res, it is still a standard commercial prac-

tice to make a company seal and use it or

subsequent commercial transactions.Eliminating this procedure should

be easy. A government communication

campaign could raise awareness and in-

orm the public that the seal is not legally

required. Most reormers are bad marke-

ters. El Salvador rst established a one-

stop shop in 1999, but local entrepre-

neurs thought it was only or oreigners.

A lesson was learned. Te second time

around, the president himsel inaugura-

ted the improved one-stop shop and wi-

despread media coverage made sure thateveryone knew about the new system.

MAKE ONLINE START-UP FULLYFUNCTIONAL

Although online name submission is

available in India, the process still invol-

ves manual checking o company name

availability and appropriateness by the

registrar personnel. Making name re-

servation instant would urther improve

the process. Many countries, such as

Australia and the United Kingdom, have

clear regulation on what names cannot

be used and these saeguards are incor-

porated in the name reservation appli-cation. Such an approach could also be

introduced in India.

While entrepreneurs in India can

le incorporation orms electronically

and pay registration ees online, docu-

ments are still required to be submitted

with the registrar o companies in paper

orm beore the certicate o incorpora-

tion is issued. Making the incorporation

process ully electronic would reduce the

time involved and make the work o the

registrar much easier. Such reorms can

be inexpensive and are a good start or

larger and deeper reorms.

MAKE BUSINESS START-UPAFFORDABLE

In Denmark, entrepreneurs pay nothing

to start their business, while in Brazil the

cost is as low as 8% o income per capita.

Funds to pay or government services are

raised with taxes. In India, new busines-

ses ace multiple ees both at the nationaland local level. Unlike in Patna and Ran-

chi, where a at ee o INR 105 (about

US$2) is charged, stamp duty on the

articles o association in Ahmedabad is

linked to the start-up capital o the com-

pany: a duty o INR 2,000 (about US$45)

is charged or start-up capital between

INR 100,000 and 500,000. Yet no matter

what size the company, the service provi-

ded is the same. Why charge more? Fur-

thermore, registration or value-added

tax costs INR 5,100 (about US$115)in Mumbai and registration under the

Shops and Establishments Act costs INR

6,250 (about US$142) in Bengaluru. Te

ormer is ree in Jaipur and Ahmedabad,

while the later is ree in Chennai.


24/148


CREATE A ONE-STOP SHOP FOR ALLPRE- AND POST-REGISTRATIONREQUIREMENTS

Te process or starting a legally operatio-

nal business in India could become more

ecient by creating a one-stop shop or

all registration, tax, and social-securityrequirements. Once the entrepreneur

obtains the Director Identication Num-

ber and Digital Signature Certicate, he

would approach the registrar o com-

panies with several name options to be

approved. Te next stepsrom stam-

ping the memorandum and articles o

association to tax and social-security

registrationswould all be done inter-

nally at the registrars oce. Te entre-

preneur would simply ll in all requisite

orms at the beginning o the process,

making only one contact with the regis-

trar, and would later receive the certi-

cate o incorporation and conrmation

o registration with the other agencies.

Te registrar would include representa-

tives, with decision-making power, rom

various agencies (such as the Superinten-

dent o Stamps, the tax, social security

and medical insurance authorities). Te

agencies would have electronic access to

their respective databases or even asterprocessing.

Globally, creating one-stop shops

has been the most common reorm in

business start-up. Tirty-nine countries

have created or improved a one-stop

shop in the past 5 years. And introdu-

cing one-stop shops has had promising

results. For example, in Azerbaijan regis-

trations grew by 40% between January

and May 2008, as compared to the same

period in the previous year.9 Oen these

reorms do not require major legislativechanges.

However, creating a one-stop shop

is no magic bullet. Reormers run the

risk o creating one-more-stop shops

or mailboxes that merely receive appli-

cations and orward them to agencies

or approval. As Doing Business shows,

company registration is oen one piece

o the puzzle and in many countries

entrepreneurs still have to visit several

other agencies beore they can get down

to businesssuch as obtaining docu-

ments and having them notarized, and

registering or social security and taxes.

1. World Bank. 2007. Doing Business2008.Washington, D.C.: World Bank Group.

2. Te introduction o a ast-track systemto start a business in Portugal cut thetime by 46 days in 2006. Te reormwas implemented in 5 months and costUS$350,000. World Bank. 2005. DoingBusinessin 2006: Creating Jobs. Washing-ton, D.C.: World Bank Group.

3. Bertrand, Marianne, Simeon Djankov,Sendhil Mullainathan, and Phillip Sch-nabl. 2006. Who Runs Inormal Busi-nesses in So Paulo? Harvard University,Department o Economics, Cambridge,Massachusetts.

4. Djankov, Simeon, Raael La Porta, Floren-cio Lpez-de-Silanes, and Andrei Shleier.2002. Te Regulation o Entry. Quarterly

Journal o Economics 117 (1): 137.

5. Permanent Account Number (PAN), taxdeduction and collection account number(AN), Shops and Establishment Act, pro-ession tax, and value-added tax (VA).

6. Te paid-in minimum capital require-

ment reects the amount that the entre-preneur needs to deposit in a bank orwith a notary beore registration and upto 3 months ollowing incorporation.

7. Such as the stamp duty payable on theMemorandum and Articles o Associationor company incorporation, registrationees or value-added tax, and the Shopsand Establishment Act.

8. World Bank. 2006. Doing BusinessinSouth Asia 2007. Washington, D.C.: WorldBank Group.

9. World Bank. 2009. Doing Business2009.Washington, D.C.: World Bank Group.


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19

Hema is planning to expand her beauty

product retail company. She considers

where to build her new storage centers.

Friends have warned her that it can be

expensive and take months to obtain build-

ing permits, clearances, and utility connec-

tions and she may have to pay acilitation

ees. A newspaper article about a number

o cities reorming their building-approval

process captures her attention. Tese are

the cities where she decides to invest.

When it comes to construction per-

mits, striking the right balance between

too little or too much regulation is chal-lenging. Good regulation protects public

saety and brings in revenue, while mak-

ing the process ecient and afordable

both or those who use it and the author-

ity that administers it. Te objective o

strict building rules is to ensure that

buildings are sae, but where rules are

too complicated or costly ewer projects

get started and con

Documents

IFC-Doing Business in India 2009