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BCAS President CA Mihir Sheth’s Message for the Month of June 2023

We have been hearing about the government’s protracted efforts to bring about “Ease of Doing Business” in India for the last few years. However, do we know that this is a country where apart from agriculture, business was regarded as a holy cow? India was one of the leading exporters in the world, with various Indian kingdoms giving due respect to its businessmen vying to make things easy for them to facilitate trade and commerce. It will be interesting to examine how the wheel has turned a full circle from the ugly past of colonial rule in terms of ease of doing business in India.

I recently stumbled upon an authoritative report from an eminent British economist Angus Maddison who established India as the wealthiest country in 1 AD, with 34% of the world’s GDP. In 1700, plundering and exploitation sent India’s share down to 24.5% — interestingly UK’s GDP then was a minuscule 2.1%. By 1800, India’s GDP declined to 20%; in 1900, it had plummeted to 1.7%. The systematic wealth stripping and exploitative initiatives by colonial powers and invaders, interspersed with a string of severe famines, took a deadly toll on India’s economic exuberance. Ease of doing business? Yes, but only for the trade that was against the interest of India and her citizens.

Decades of an exasperating freedom struggle, coupled with the unwavering adoption of socialist policies, kept India’s economic growth lacklustre and stunted. It was only in the early nineties, when India was gasping for foreign exchange, that a modicum of sense sprouted and the economy was gently opened. The shackles of protectionism and red tape were shattered, but it took decades to shift the gears of a lugubrious economy. After much pruning and finetuning, the economy got into a slow trot. With the change in government and a massive revamping of numerous archaic policies and procedures, the economy is back on track and coasting from one milestone to another.

Gauging the necessity of nurturing businesses across all sizes, the government adopted a minimum government and maximum governance policy. Pivotal to streamlining the lumbering economy was the arduous task of rationalising and decriminalising 25,000 compliances and repealing 1486 union laws. The government had no choice but to switch to widespread use of digitisation of manual processes to accelerate services across multiple geographies.

These initiatives have seen results – the World Bank has recognised India’s efforts and has seen India advance spectacularly from 142 in 2015 to 63 (out of 190 economies) in 2020 in ease of doing business. Very enthusiastic on the subject Prime Minister said, “Our target is to push India into $5 Trillion ‘Economy Club’. For this, every sector of the economy has to upscale. AI & IT have become vitals of our manufacturing ecosystem and the Government is working on the new ‘Industrial Policy’ to accommodate the realities into development.”

The focus has been comprehensively thought through, efforts are being made to develop manufacturing facilities as well as to gain and penetrate global markets. In recent years, there have also been serious efforts and reforms in the sphere of trade facilitation. These concrete measures have borne fruit – India’s global ranking has escalated from 146th in 2018 to 68th in 2020. Initiatives such as the paperless compliance system and greater clearances through Risk Management System have enabled lower dwell time and transaction costs for both exporters and importers.

A good start has been made, but it is critical that the pace of reform be continued – particularly in continued digitisation and ensure speedy clearances of cargo. Even the task of introducing uniformity of customs procedures across geographical locations; and enhancing grievance redressal mechanisms should be tackled on a war footing.

What key challenges must India address to make it truly the most sought-after manufacturing and trading hub? Here are a few…

Ease of Doing Business
In some countries, it takes just half a day for a new business to register and commence operations. In contrast, a new company can take anywhere from one to four months to begin operations in India.

Land Acquisition & Registration
Land registration is one of the biggest hurdles for businesses in India. There are several difficulties in establishing legal ownership, litigation due to inheritance, demand for cash payments by sellers, fragmented holdings, etc.

Electricity Connection & Shortages
The time has dropped to 45 days, but it involves lengthy waiting time and complicated fire-safety procedures.

Complicated Tax Laws
The tax laws and their implementation leave much to be desired. They not only need to be simplified but administered fairly.

Uneven Infrastructure Development
India is a vast country. As a result, infrastructure development has not progressed uniformly across the country. The government’s focus on boosting road and rail connectivity is commendable, but much more needs to be done.

Bribery and Corruption
India currently ranks 81 on the Global Corruption Perception Index and this is a significant challenge faced by businesses at all levels, with malpractices like corruption and bribery. The government has taken multiple steps to thwart these malpractices and provide firms with a safe and transparent working environment.

Enforcing contracts and resolving insolvency are two more areas of concern which have not escaped the eye and efforts of the government.

With an economy that’s performing well above the average and a proactive government at the helm, improving the ease of doing business is not a distant dream, but a reality that is gaining rapid ground!

Developments:

There are a few important developments that have impacted our profession. First is the inclusion of CAs under PMLA as reporting entities necessitating due diligence of their clients and reporting of specific categories of transactions. As we know, penalties and prosecution are extremely harsh for any offence under this act. So we need to be very careful about the compliances. Secondly, bringing credit card transactions in foreign currency under the ambit of TCS at 20% if they exceed Rs seven lakh. This steep charge will likely block funds in refund cases for a long time until the income tax assessment is finalised. Also, for corporate executives spending for business travel, there will be an anomaly where TCS credit will be in their personal name showing as recoverable in their employer records at the yearend unless paid by the cardholder. We must remember that corporate cards are not easy for the SME sector.

BCAS is releasing its publication on FAQs for Charitable Trust. This exhaustive book covers issues pertaining to Charitable Trust regarding direct and indirect tax, Maharashtra Public Trust Act, FCRA and CSR. I highly recommend that all CAs who deal with their Charitable Trust clients to have this book in their library.

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Events

Exciting events are coming up in June 2023. There is a Residential Study Course on Indirect Tax, lecture meetings on Will and Succession Planning, TDS and TCS provisions, Decoding ESG through an Internal Auditor’s Lens, Use of Technology in Audit and many more such events. Please keep a tab on the announcement to participate in the meetings of your preference.

Finally, June is a month when rain gods shower their blessings. May I sign off with prayers for good rains in our country!

Thank You!

With Best Regards,

CA Mihir Sheth
President

Please feel free to write to me at president@bcasonline.org |