According to a recent World Bank survey, India is placed 132nd for business ease and a grim 166th for setting up new firms.
It is clear that starting a new business in India is much more challenging than continuing to operate an established one.
The gaps in the rankings essentially mean that the organization is relatively better-equipped to manage the business going forward, as the hurdles are less, with a better ranking for “ease of doing business,” having successfully navigated the regulatory environment to overcome the start-up challenges. However, it is impossible to ignore the significant policy and regulatory obstacles that Indian businesses and organizations face. For new businesses, this is exacerbated much further.
However, since 2014, the Indian government has vigorously pursued reforms in the regulatory framework and worked to foster an atmosphere that is conducive to business. India’s legal system is based on common law, which the British brought. Employers, employees, and their representatives must abide by the fundamental principles and rights at work set down in the labour legislation.
Now let us look at some of the challenges faced by entrepreneurs in India:
Administrative Process and Related Delays
The government’s excessive use of regulatory restrictions on business has led to drawn-out processes and delays in approving new industrial projects. Poor decision-making practices at the government level cause delays in the implementation of significant investment projects.
The private sector of the nation has always been under unneeded government supervision. Increased manufacturing has been discouraged as a result of price limits the government set on some items. Instead, competitor firms’ competition might expand the production base and so automatically lower prices. Black marketing and stockpiling of certain goods have been caused by price controls, dual pricing, and other factors.
There are signs of growth in protectionist policies notwithstanding corporate reforms and other signals from the Indian administration that speak to a free-trade worldview.
The trade laws and tariffs of India were already opaque and frequently unpredictable, giving few American exporters and investors access to the market. The country’s average imposed tariff is among the highest in the World Trade Organization and the highest of any G20 nation (WTO). These trade restrictions have not decreased recently despite the Indian government’s efforts to defend domestic producers.
In truth, India has raised import taxes to promote domestic small- and medium-sized industries and to decrease the market for cheap imports. The nation has also withdrawn from the largest regional trade agreement in the world, declined to join the RCEP, and the government intends to take action to prevent the import of any goods that might harm domestic industries.
Last but not least, India has strict local presence requirements for would-be investors and restrictions on foreign ownership of businesses.
Lack of Funding
Although the large industrial corporate units of the private sector are raising money from banks, development financial institutions, and the market through the sale of their equity or debentures, the small-scale units are having extreme difficulty doing so. These funds are needed for their expansion. Further NPA growth has resulted in less credit available to the private sector.
Law not being implemented properly
The Companies Act of 2013 was supposed to be a modular law for the Indian economy, however, its strict stipulations prevented its adoption. The number of firms formed in India has significantly decreased as a result of the increased compliance load.
India’s infrastructure—including its roads, trains, airports, seaports, power grids, and telecommunications infrastructure—presents obstacles to the country’s expanding economy and capacity to provide public services, despite the fact that progress has been achieved. The government is under pressure to upgrade the nation’s infrastructure as a result of the country’s rapid population expansion, increasing urbanization, and rising affluence. As a result, the government is investing substantial sums of money in infrastructure initiatives.
A sizable and dispersed market
For investors and enterprises, the sheer size and fragmentation of the Indian market can be a problem. Given their vastness and uniqueness in terms of talent, talent, culture, and infrastructure, Indian states are frequently compared to individual nations. The result is a significant variation in corporate environments.
States may also have different laws, rules, and policies, as well as different interpretations of the applicable laws. Cultural differences must also be comprehended and negotiated. For instance, the northern region of India is younger and poorer, but the southern region is wealthier and older. While southern Indians conduct business in English or their own state language, northern Indians prefer to communicate in Hindi.
India is a large country with a total area of 3,287,263 square kilometers, making it susceptible to natural calamities that could cripple some sectors of the economy.
Operating in India presents several difficult hurdles. Regulations are always changing, and the corporate environment is never steady. Businesses run the risk of tax fines and even the possibility of civil or criminal lawsuits without a firm grasp of the relevant problems.