NEW DELHI/BANGALORE: When Ashok Kheny decided in 1995, after 15 years in the United States, to return to India and take up a $700 million project to build a road and new townships, he dreamed of creating something unique.
Nearly 12 years on, the project has been less a dream and more a bureaucratic nightmare due to mountains of red tape — a hallmark of doing business in India — which often frustrates investors so much they put their money in China.
Kheny, managing director of the Nandi Infrastructure Corridor Enterprise consortium, signed a deal with the government of the southern state of Karnataka in 1997 to build a road to connect the technology hub of Bangalore with the city of Mysore 110km away. The project was due to be completed by 2000.
Seven years behind schedule, the consortium has finished less than 50 per cent of the work and faced as many as 336 legal suits on various charges, including acquiring more land than necessary.
“When I signed the agreement with the state government, all the politicians and bureaucrats were very welcoming. They said they will give me everything on a platter,” Kheny, 57, told Reuters.
But after the initial excitement, the project quickly became bogged down in bureaucracy.
As India competes with China to draw foreign investors, the country has been hobbled by bureaucratic red tape, a remnant of India’s colonial past bloated by decades of state directed economic development.
It is estimated that investors setting up shop in India require up to 70 different approvals, unless they locate their operation in Special Economic Zones being built in undeveloped parts of the country, often far from main cities, to encourage local economies.
TOUGH TO MAKE A START: Kheny said severe delays had resulted in cost overruns and even though India’s notorious licence raj, when companies were limited to strict production quotas, was long gone, starting something new was still very tough.
A World Bank report ranks India 120th out of 178 countries in ease of doing business and says it lags behind best practice in other countries.
India ranks 72nd among 180 countries in global corruption watchdog Transparency International’s 2007 Corruption Perception Index, putting it on par with with Brazil, China and Mexico.
The time to obtain a business licence in India ranges from 35 days in the financial hub, Mumbai, to 522 days in the eastern city of Ranchi. In contrast, a start-up takes two days in Australia and the Organisation for Economic Co-operation and Development average is 17 days.
After more than 15 years of reform, Asia’s third-largest economy has seen sweeping changes and notched up impressive growth rates which have attracted companies from all around the world.
But investors still find it tough to negotiate the minefield of bureaucracy and analysts and business executives say this remains the biggest stumbling block to foreign investment.
“What matters for foreign investors is the time taken to give clearances. India has enough scope to cut down delays,” said T.K. Bhaumik, chief economist of Reliance Industries Ltd, India’s largest business conglomerate.
Last November, Craig Barrett, chairman of Intel Corp, the world’s largest chip maker, said his firm was waiting for India to form its semiconductor policy before deciding on plans to begin manufacturing in the country.
Four months later Intel announced it was building a $2.5 billion microchip plant in northeastern China.
“The Indian government was a bit slow in coming out with its semiconductor manufacturing proposal and missed the window of our period of time that we had to commit our next trenches of manufacturing capacity,” Barrett told reporters last month.
EVEN TOUGHER TO CHANGE THE LAW: Analysts say the number of approvals required from government agencies for setting up industrial plants has increased in some sectors despite economic reforms.
To set up a mid-size factory, at least 15 state and six federal government clearances are required. Some change may be visible soon as the government plans to cut down the time taken for various clearances to 166 days from 305. But some areas such as employment are more problematic.
The World Bank estimates there are 47 national laws and 157 state regulations governing employment — often inconsistent and at times overlapping.
“Reforming labour regulations is a priority for India. The current rigidities impose significant costs in terms of lost jobs,” the World Bank said, but policy makers say touching them is just too controversial.
“There is strong opposition to reforms in India from certain quarters and they embrace or include both the left and the right,” former Finance Minister Yashwant Sinha told Reuters.
—Reuters
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