Indian Prime Minister Narendra Modi’s has set his sights on simplifying India’s overly complex system of regulations, the so-called “license raj.” The current system, a holdover from India’s colonial past and the tenures of former socialist PMs like Nehru, stifles business with miles of red tape. The Financial Times has the details:
India certainly has plenty of red tape to cut. Industries currently need to get nearly 70 clearances a year to operate. Complying with labour law requires employers to maintain – and submit to authorities – 16 separate types of worker registries.Starting businesses, registering properties and getting construction permits can be Herculean tasks.Mr Modi is seized with the importance of reducing these woes, and ministries are now working to reduce reporting requirements, allow electronic submission of forms and reports, accelerate clearances, and permit more self-certification, in lieu of state inspections.A committee is reviewing the law books – which still have many colonial-era statutes – to identify obsolete rules for repeal. Plans are even afoot to integrate the computer networks of the Directorate General of Foreign Trade – which regulates imports and exports – with the Central Board of Excise and Customs. Hoorah!
Proponents of this campaign hope that a simplified system will encourage foreign investment and make way for the development of a stronger manufacturing sector. However, the big ticket items on a reform agenda would be politically costly for Modi:
The near impossibility of big companies firing permanent workers is another big disincentive to large-scale labour-intensive manufacturing. But any hint of diluting labour law threatens immediate backlash, although New Delhi does want to allow longer overtime hours, and to let women work factory night-shifts. […]Meanwhile, many big Indian companies with the capacity for large projects are also heavily indebted, after the last decade’s difficulties. But state banks have yet to admit that many loans may never be fully recovered – or prepare for the consequences like possible debt write-offs.
On his visit to Gujarat and New Delhi last week, Chinese President Xi Jinping summed up China and India’s places in the global economy by remarking that they are, respectively, “the world’s factory” and “the world’s back office” (meaning the place where the science and computer geniuses work, not where the clerks sign forms). No doubt India would like to build its own factory next to that “back office.” As the FT warns, however, taking on the biggest challenges to India’s economic revitalization will require “political courage” on Modi’s part. But pruning back the “license raj” is not a bad beginning.