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Becoming fructuous

6 July 2012 By Jeff Glekin

Manmohan Singh, India’s prime minister and finance minister, is talking a good game. He wants to woo back disaffected investors. Symbolic wins removing tax uncertainty and encouraging foreign investment will help, but his real test will be to hack away India’s rampant red tape.

Singh set out his vision in an interview with the Hindustan Times on Friday. He wants to improve response times, cut down on “infructuous procedures”, and generally make India a more business-friendly place. That’s no easy task in a country the World Bank ranked 132nd out of 183 in last year’s report on the ease of doing business.

And the World Bank has a point. In Mumbai, police have started arresting people under the Bombay Prohibition Act of 1949, which states that even customers must have a permit to drink alcohol. Bar owners in the city need up to 20 licences to run their businesses, and almost twice as many if they also want to play music.

New Delhi, meanwhile, may lack a ministry of silly walks but it boasts a total of 77 ministers with overlapping remits in areas such as drinking water, sanitation and water resources. Singh could set about rationalising the legendary bureaucracy and set in train a programme to archive archaic laws which are no longer relevant.

The Dutch government has been a pioneer in this respect. Officials estimated the administrative cost of regulation to be around 3 percent of GDP. If that’s what Dutch red tape costs business, the weight of New Delhi’s paper-pushing must be multiples of that. The finance ministry in the Hague developed a model to measure and reduce the burden of regulation. The result was a 25 percent net reduction in cost across the country, and the approach has since been emulated elsewhere in the EU.

There are those in the Indian government who are trying something similar. Jyotiraditya Scindia, the Stanford-educated son of a Maharaja who is now a junior commerce minister, has launched website that will allow entrepreneurs to apply for all 57 clearances they need to start a business through a single website. Singh should log on: It’s nuts and bolts simplifications of this kind that will really start making India friendlier to business.

 

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