KPMG CII Ease of Doing Business in India

Confederation of Indian Industry
Ease of
doing business
in India
May 2014
kpmg.com/in
cii.in
Foreword
Concerned with Indias dismal rankings in World Banks Doing Business report
(where India has been placed lower than its BRIC counterparts and even amongst
other South Asian countries); a survey-based report on the prevailing business
regulatory environment in the country was undertaken by CII with the support of
KPMG in India. The study focussed on a few key parameters of
Doing Business such as starting a business, land acquisition, taxation and contract
enforcement.
The objective was to underscore the areas of business regulation that need
attention; highlight a few effective and efficient processes already prevalent in
some states that could be emulated by others; and advocate for adoption of more
efficient and effective practices.
The report has highlighted that even after two decades of economic reforms,India
continues to falter on various sub-indices such as starting a business,dealing with
construction permits, getting electricity, registering property, paying taxes, trading
across the border, enforcing contracts or resolving insolvency. The report identifies
key areas for reform and also highlights areas of business regulation where some
states have converged towards efficient systems.
We take pleasure in presenting the joint KPMG in India-CII survey report on
Doing Business in India to you.
We do hope that the findings of this report would help bring the issues to the fore
and also serve as a reference point for the imminent need to pursue reforms in
business practices and processes.
Chandrajit Banerjee
Director General
CII
Richard Rekhy
Chief Executive Officer
KPMG in India
Contents
Executive summary
Business climate in India
Methodology
Key Findings
11
Land acquisition
11
Starting a business
17
Taxation
29
Contract enforcement
37
Costs/Losses incurred due to delays
43
Conclusion
47
Annexure
49
Industry clusters in India
53
1 | CII-KPMG Ease of doing business in India
Executive summary
CII-KPMG Ease of doing business in India | 2
India is one of the fastest growing economies in

the world. However, Indias position in the Doing
Business annual reports published by the World Bank
continues to be less than favourable. The latest rankings
place India 134th among 185 countries; lower than
its BRICS (Brazil, Russia, India, China, South Africa)
counterparts. There is an urgency to focus on improving
the business environment and arrest the decline in
relative performance against various determinants of
investment attractiveness.
Doing business
Starting a business
India vs BRIC Rank 2014
Brazil 123
Russia 88
India
Change in
rank
Rank
2013
Rank
2014
Overall rank
131
134
-3
Starting a business
177
179
-2
Dealing with construction permits
183
182
Getting electricity
110
111
-1
Registering a property
91
92
-1
Getting credit
24
28
-4
Protecting investor
32
34
-2
Paying taxes
159
158
Trading across borders
129
132
-3
Enforcing contracts
186
186
Resolving insolvency
119
121
-2
179
China 158
India Vs South Asia
South
Asia
India
Number of
procedures
12
Time taken
(in days)
16.2
27
Source: World Bank. 2013. Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises. Washington, DC: World Bank Group.
Business needs
When arriving at the Doing Business rankings, the World
Bank ranks 11 parameters that impact businesses across
various stages of their lifecycle at start-up, getting a location,
getting financing, daily operations and even when things go
wrong.
To maintain its growth trajectory, India needs to be a relatively
attractive investment destination across each of these
parameters. The Government would need to undertake
reforms to help place the country on an equal footing
amongst countries having favourable, flexible, liberalised and
a transparent business environment.
With this in view, the survey aims to identify the improvement
areas in various aspects of doing business in India viz. starting
a business, land acquisition, labour, and taxes. Specific
recommendations have been identified for each of these
areas. Additionally, successful initiatives that were identified
during the survey have been noted and many of these could
perhaps be leveraged at a national level.
Ease of doing business: Issues
Ease of doing business: Recommendations
Business climate in India
2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Ease of Doing Business
India is one of the fastest growing

economies in the world, yet ranks among
the lowest in the World Banks rankings on
the ease of doing business, 2014.
Ranking of select countries on the overall ease of business, 2014
The India Paradox

India is one of the fastest growing
economies in the world. The high
potential of the Indian market driven
by an emerging middle class, cost
competitiveness and a huge pool
of talent makes it one of the most
attractive investment destinations. Yet,

according to the World Banks Doing
Business 2014 report, India is ranked
134 out of 189 countries in the overall
ease of doing business. This places
India lower than the other BRICS (Brazil,
Russia, India, China and South Africa)

members and highlights its relatively
dismal performance among other South
Asian countries.
Rankings on sub-indices on the ease of doing business
In the World Bank survey, India ranks

lowly on most of the determinants of
investment attractiveness especially
starting a business, enforcing contracts,
dealing with construction permits and
paying taxes. Problems in securing
land, inadequate infrastructure, power

shortages, stringent labour laws, tax
regulation, lack of governance and
transparency and approval processes
are critical issues in the country that
need to be addressed.
Methodology
Methodology and scope of the study

This report:
assesses investor feedback on four
critical areas driving investment,
attractiveness and decisions
describes specific initiatives taken up
by states and industry bodies
provides specific recommendations
across the following four areas:
land acquisition, starting a business,
taxation and contract enforcement.
Further, the respondents were also

requested to identify noteworthy
practices both within and outside
their country. KPMG in India has
summarised these but has not
conducted an independent evaluation
to validate their effectiveness. The list
of these practices is only indicative and
not exhaustive.
A extensive questionnaire pertaining

to the selected aspects of Doing
business in India was administered on
professionals from a variety of sectors
across geographies. The sample was
selected such that responses would
be unbiased to enable comparative
analysis.
Survey to assess investor perception on ease of doing business in India
Source: CII-KPMG in India survey, 2014
Respondent profile
Respondents included a mix of personnel across industries and states who have
first-hand experience in different aspects of doing business in India.
Segmentation by industry
Others* 17%
Power1%
Healthcare & Pharma 2%
Financial Services 2%
Energy & Natural Resources 2%
Chemicals 3%
Industrial Markets 42%
Real Estate & Construction 4%

Technology 7%
Auto & auto components 7%
Consumer Markets 13%
Segmentation by state
Segmentation by company size**

Note: * Others include consultancy services, diversified services, tourism, plastics etc.
** large, medium, small and micro units have be defined as follows:
Manufacturing sector (based on investment in plant & machinery) Large: more than INR10 crore;
Medium: INR5-10 crore; Small: INR25 lakhs to INR5 crore; Micro: less than INR25 lakhs
Services sector (based on investment in equipment) Large: more than INR 5 crore; Medium: INR2-5 crore;
Small: INR10 lakhs to INR2 crore; Micro: less than INR10 lakhs
Key findings
Land acquisition
Land acquisition
The lack of an effective process has made

land acquisition a complex and timeconsuming procedure
Investors and manufacturers need
timely acquisition of contiguous land
to contain project cost escalation and
project timelines. However, landowners
are often wary of selling given the
potential future price appreciation and
non-transparent price benchmarks.

As a consequence, land for industrial
development is not as easily available
as it used to be earlier.
Absence of a uniform land acquisition policy and inconsistent enforcement

(percentage of respondents)
Lack of government support

and local objections.
- Respondent, infra company
Government cannot find new

industrial development plots/
estates.
- Respondent, chemical company
It has to be totally transparent

with no hidden costs.
- Respondent, electronics company
Ease of land allocation process (percentage of respondents)
The time taken for land acquisition is

one of the major obstacles. As per the
survey, average time taken to acquire
land is 14 months although it is much
more in several cases. In addition, the
number of departments to be visited
as well as the number of visits to each

department make the land acquisition
process complex. High costs and
transaction fees add to the overall costs
of the land acquisition process.
Land acquisition
Some major problems in the land acquisition process

Major reasons why access to land is an obstacle to the operations or growth
of business (percentage of respondents)
Source:CII-KPMG in India survey, 2014
Land mutation process: considered complex and time-consuming

Ease of land conversion process (percentage of respondents)
Number of departments should

be decreased.
- Respondent, pharma company
Majority of the respondents feel that the need of the hour is to reduce uncertainty,
streamline the process, and reduce bureaucracy, decrease acquisition costs and
create a win-win model for land acquisition.
Land acquisition - select initiatives to address issues
Select initiatives in India that have been

identified by respondents
Computer-Aided Registration of Deeds (CARD), AP
CARD is a simple and decentralised digital property
registration system across 200 sub-registrars offices
(SRO) of Andhra Pradesh
This system simplifies and expedites the registration
process, provides certificates for non-encumbrance and
assists in market valuation of properties.
e-Dhara Bhulekh, Gujarat
Computerised land records, registration and title
mutation process
Biometrics-enabled process to expedite registration and
reduce fraud
E-stamping facilities for stamp duty payment
Use of technology and GIS to computerise and update
land records.
SIR ordinance (Special Investment Region), Gujarat
Gujarat promulgated SIR ordinance in order to expedite
the process of land acquisition and planned development,
mainly in the Delhi-Mumbai Industrial Corridor
The Ordinance facilitates the establishment,
development, operation and regulation of SIR in Gujarat.
It will comprise an apex and regional development
authority
Gujarat Industrial Development Corporation (GIDC),
Gujarat
GIDC acquires land for industrial estates and allots to
industry from within the existing industrial areas
A market-based pricing system, where price is
determined by an independent body Center for
Environmental Planning and Technology (CEPT)
A database of land and an investor support system
have been established to identify suitable land from the
available options.
Key Benefit
Critical Enablers
Time taken to register property

was reduced from 17 days
to one day with the CARD
system.
Technology
Key Benefit
Time to register property
reduced from three days to
three hours
Time to issue various land
certificates reduced from two
days to one hour.
Key Benefit
The ordinance provides for
a single-window clearance
system
The ordinance is expected to
facilitate the establishment
of superior hubs of economic
activity.
Key Benefit
Critical Enablers
Technology
Critical Enablers
Regulatory/Policy
Critical Enablers
GIDC has acquired and

developed 80,000 hectare of
land.
Enabling Body
Industrial Cluster, Ahmedabad Pharma cluster, Gujarat
Key Benefit
The cluster located in the Ahmedabad-Vadodara

region comprises ~450 pharma and medical device
companies
Creation of a healthcare ecosystem through significant
promotion of allied industries
Financing support through links with financial
institutions such as SIDBI, ICICI
Fiscal incentives to sustain the fiscal advantages.
Ecosystem of similar
companies fosters
environment for the region to
become a pharma hub with
greater market share
Easier land acq. with
availability of required
support facilities directly
Employment in the area of
> 50,000
Critical Enablers
Regulatory/Policy
Source: CII-KPMG in India survey, 2014; Department of Industrial Policy & Promotion (DIPP); Department of Administrative Reforms & Public Grievances
Land acquisition - select initiatives to address issues
Select initiatives in India that have been

identified by respondents
Rehabilitation & Resettlement of Land Owners, Haryana
The State government assist all joint venture projects in the
acquisition of land for the development of SEZs to the extent of
10 per cent NCR and 25 per cent non-NCR areas of Haryana. The
State government also assists in acquiring left out pockets to
help ensure contiguity of SEZs
Developers are liable to pay INR42,000/- per acre per annum
with an annual increase of INR1,500/- per acre for a period of 33
years for the land acquired for setting up of an SEZ, technology
city and park.
Key Benefit
Several players have
expressed interest in
developing industrial
model townships,
industrial parks and
technology cities
through private
initiatives as well as
PPPs.
Online and 'Anywhere registration' (KAVERI), Karnataka

Computerised land transactions and online registration expedite
the generation of encumbrance certificates
Biometrics to complete verification and expedite registration;
reduce fraud
Key Benefit
Critical Enablers
Technology
Karnataka Industrial Areas Development Board

(KIADB), Karnataka
Key Benefit
Critical Enablers
KIADB has so far

developed 141
industrial areas in 28
districts of the state.
Price determination through a committee involving all

stakeholders, including landowners.
Enabling Body
Formation of an industrial cluster

Chennai automotive cluster, Tamil Nadu
The Chennai automotive cluster leads India in terms of
production capacity, with an installed capacity of INR12.8 lakh
passenger cars and 3.5 lakh commercials vehicles.
Regulatory/Policy
About one day

to complete all
registration processes.
E-stamping across the state to facilitate quick and paperless

payment of duties.
KIADB promotes rapid development of industries in the state

by acquiring land and forming industrial areas. It provides basic
infrastructure like establishing roads, power and technical
training centres.
Critical Enablers
Key Benefit
Critical Enablers
Emergence as
one of the top 10
global automobile
manufacturing hubs
Employment of
~500,000 people by
2015.
Source: CII-KPMG in India survey, 2014; DIPP; Department of Administrative Reforms & Public Grievances
Regulatory/Policy
Land acquisition - Recommendations
There is a need for simplification and

transparency in the land acquisition process;
the government should encourage the
establishment of industrial clusters
Simplified and effective land acquisition process
Need for simplification and transparency
Simplicity, transparency and speed
should be introduced in the land
acquisition process. The delays
caused by bureaucracy need to be
reduced
Simplify administrative procedures by
facilitating single-window clearances,
standardised documentation and
timely approvals. Failure to do so

would be automatically escalated to
the industry minister within a week
of the lapse of the due date
E-procedures can help improve
land acquisition as it aims to curb
unethical practices and complete
work within agreed timelines
Lengthy land mutation and

conversion processes need to be
simplified
Government machinery needs to be
proactive in handling land acquisition
disputes.
Promote industrial clusters

Encourage the establishment
of industrial clusters of related
industries, including large and small
units
Location viability in terms of
infrastructure of the industrial
land should be studied before its
acquisition
Promote industry clusters through
a well-defined and targeted cluster
development policy, owned
and driven by state and local
governments:
Identify suitable sectors for
promoting clusters based on the
study of existing industries in the
state
Industry centric infrastructure

master plan should be put in place.
Ring roads with dry ports and rail
heads must be created to link to
the industrial corridors
Simplify regulatory requirements,
including elimination of several
compliances and introduction of
self-certifications
State government can assume
leadership role in creating clusters
and building capacity for sustained
development
Draft sector-specific policies with
input from experts and industry
leaders, to help create a sound
ecosystem
Land value
With respect to the Right to Fair
Compensation and Transparency
in Land Acquisition, Rehabilitation
and Resettlement Act, 2013, a major
concern with the landowners is the
possible undervaluation of their land
that might be below market rate.
There is a need to bring assurance in
this regard.
Introduce a market price-based

pricing mechanism:
Make landowners partners and
share with them the resources
generated by projects from the
allocations
Encourage partial or complete leasing
of land (from landowners) as opposed
to an outright sale to supplement
acquisition efforts.
Develop short-term fiscal incentives

and ease tax requirements to
encourage rapid cluster development
Benchmark clusters and survey
industry members to understand
critical infrastructure and facilities
required
Facilitate access to funds by
promoting linkages between industry
and lending institutions
Aim to ensure access to quality
and skilled manpower through
improved curriculum and university
collaborations
Create a government task force/
department for overseeing cluster
development.
Key findings
Starting a business
Starting a business - Business approvals
Obtaining approvals like environment clearance, land

procurement, construction-related permits and NOCs
is a major obstacle in starting a business
Starting a business
The World Banks Doing Business 2014 report
states that India ranks 179 among 189 countries
on the ease of starting a business; with a less than
desirable performance in the batch of BRICS and
other developing Asian countries.
Ease of starting a business describes the

ease/difficulty with which an entrepreneur is
able to establish a new business, given a list of
various procedures. A less cumbersome and
less expensive process could result in prompt
responses to starting a business.
On the contrary, cumbersome regulations on
start up of businesses can act as a curb on
entrepreneurship that may lead to increased
informality and a smaller tax base.
However, it is known that starting a business in
India involves getting a host of clearances and
permits.
Approvals required in starting a business in India (percentage of respondents)
38%
37%
43%
11%
16%
5%
Tax Approvals
Registration
0%
Environmental
Clearances
39%
No Obstacles
23%
11%
33%
19%
7%
Minor Obstacles
7%
Water Connection
20%
32%
Land Procurement
40%
40%
Construction
Permits & NOCs
30%
21%
23%
17%
24%
12%
16%
32%
48%
26%
5%
37%
Moderate Obstacles
36%
47%
33%
31%
7%
10%
37%
15%
26%
Quality
Certificates
21%
33%
Labor Related
approvals
48%
37%
60%
36%
Industrial
Safety Permits
9%
Power
Connection
7%
17%
80%
Permission of
Chief Electrical
Inspection
100%
Major Obstacles
Approvals related to environment clearances, land

procurement, construction permits, industrial safety permits
and power connection are top five obstacles in starting a
business in India.
As per the survey results, about 50 per cent of the
respondents have highlighted major challenges in obtaining
environmental clearances. More than one-third of the
respondents rated land approvals as the major obstacle in
starting a business.
Starting a business - Business approvals
Obtaining approvals and clearances is a

time-consuming process involving multiple
procedures; costs incurred in the whole
process is significantly high
Obtaining clearances the first leg in the process
There is a need to effectively

implement a single-window
system.
- Respondent, chemical company
~80 per cent of the respondents feel

that the time taken and number of
departments to be visited to obtain
clearances is not reasonable.
A comparison with select countries highlights the need for an ease in procedures
when starting a business
Rank
Procedures
(number)
Time
(days)
Cost
(percentage of
income per capita)
New Zealand
0.3
Canada
0.4
Singapore
0.6
Australia
0.7
Russia
88
15
1.3
Brazil
123
13
108
4.6
China
158
13
33
India
179
12
27
47.3
Source: World Bank. 2013. Doing Business 2014: Understanding Regulations for Small and Medium-Size
Enterprises. Washington, DC: World Bank Group.
A closer look at the ease of starting a business in India in comparison to other

countries suggests that the number of procedures, time taken plus cost incurred is
significantly higher than other countries.
Starting a business - Business approvals: select initiatives to

address issues
Effective implementation of single-window

clearance systems and the registration
process can facilitate obtaining approvals
and clearances
Select initiatives in India that have been identified by respondents
The Single-Window Clearance Act, AP
The Single-Window Clearance Act was enacted in 2002,
whereby all the clearances required to start and operate an
industry are processed through a single point within a set time
period
There is a provision of deemed approvals in certain cases, if the
competent authority fails to communicate the decision within
the set time period.
Online building-plan approval system, Karnataka
Bengaluru
Simplified approval procedure through online submission and
approval of building plans
'Pre-DCR' a tool to submit building plans online
Key Benefit
Time-bound faster
clearances
Common application
form
Deemed clearances.
Key Benefit
Delhi government introduced E-stamping in 2008

E-stamping is the computer-based stamping of registration
documents where a record-keeping agency maintains the
database electronically instead of physical stamping of
documents, which can be forged or duplicated. It is a computerbased application and a secured electronic way of stamping
documents.
One-Stop Centre, Punjab

Punjab Bureau of Investment Promotion, a One-Stop Centre,
has been established in 2013 for investors, with the intent of
providing clearances, incentives and information on investment
opportunities in a time-bound manner
Receive, process and approve all investment proposals
Policy
Critical Enablers
Time taken to obtain

building plan approval
reduced to 10 days
from 30 days.
Automatic plan scrutiny system called Auto-DCR checks the

plans and simultaneously produces scrutiny reports.
Registering a business, New Delhi
Critical Enablers
Technology
Key Benefit
Critical Enablers
Curb revenue and time

loss by preventing
the circulation of fake
stamp papers
Saving on the cost of
printing and handling of
stamp papers.
Key Benefit
Technology
Critical Enablers
Time-bound faster
clearances
Dedicated relationship
managers.
Examine applications for all necessary approvals

Encourage new investment and its actualisation.
Source: CII-KPMG In India survey, 2014; DIPP; Department of Administrative Reforms & Public Grievances
Enabling Body
Single-window clearance mechanism, Orissa
Key Benefit
Orissa Industries Facilitation Act (OIFA) 2004 was introduced to

facilitate single-window industrial clearance
Time-bound faster
clearances
OIFA envisages a three-tier approval mechanism to expedite

clearances to industrial projects based on the level of investment
18 out of 20 major
approvals are provided
through a single
nodal point by using a
combined application
form.
The provision exists for deemed approval by department in case

the approval is not granted within the specified timeframe.
Single-Window Clearance Act, Rajasthan

Single Window Act, 2011, was passed to establish a singlewindow clearance mechanism in order to fast track all
permissions, concessions, exemptions and relaxations for
establishing operations of an enterprise in the state
Rajasthan established a single nodal agency, the Bureau
of Investment promotion (BIP) to handle all applications /
permissions of an entrepreneur and forward them to the
concerned departments.
Key Benefit
Critical Enablers
Policy
Critical Enablers
Time-bound faster
clearances
Common application
form
Online monitoring of
the applications status.
Policy
Select initiatives abroad that have been identified by respondents

Single-window clearance system Bizfile, Singapore
Bizfile, an internet-based online registration, filing, and
information retrieval system was introduced that enables
individuals to register businesses on their own
For cases requiring approval from other government agencies,
Bizfile sends an email notifying the agencies of a pending
application. The agency then logs on to Bizfile to retrieve the
online application and provide its comments, thus saving time
and effort
To simplify the process, Bizfile pre-populates forms with
information already available in the database. The customer
doesnt need to re-enter the information but can make changes
if needed
To help ensure accuracy and integrity, Bizfile validates and
verifies the data entered.
Key Benefit
Critical Enablers
Information is updated
within 30 minutes
of a successful filing
instead of 14-21 days
Time to register was
reduced from 24 hours
to just 15 minutes
Time to incorporate a
company decreased
from five days to 15
minutes and cost
fell to a flat rate of
just SGD300 from
SGD1200- 35000.
Technology
Starting a business - Enabling infrastructure
Besides obtaining approvals, inadequate

infrastructure and the time taken in
obtaining a new connection for water
sewerage and power also act as hurdles in
starting a business
Ease of starting a business in terms of infrastructure enablement (percentage of respondents)

*For Water, Sewerage and Power connection
Infrastructure is a key driver enabling

investments, growth and improving
quality of life. Inadequate infrastructure
creates obstacles in starting a business.
Multiple visits to various departments

and time taken for getting approvals for
new connections (water, sewerage and
power) also pose major obstacles.

Water & sewerage connection, Greater Noida
Layout for Greater Noida sectors, along with detailing of water
and sewerage connection to individual plots, are pre-planned
Since 1998-99, provision of water & sewerage connection with
all the civil works is conducted before giving possession
Pre-possession of connections avoids repetitive road cutting at
later stages.
Key Benefit
Obtaining water and
sewerage connections
in Greater Noida is
faster as compared to
other areas
Greater Noida:seven
days; India (average):16
days.
Policy
Key Benefit
Critical Enablers
Critical infrastructure project (CIP) scheme, Gujarat

The government has launched the CIP Scheme to facilitate the
upgrading of infrastructure in existing estates
Assistance is given for upgrading infrastructure facilities of the
industrial estate including construction of approach road, by-pass
road, over bridge on road and rail and facilities specific to the
industrial area.
Critical Enablers
The state government

has sanctioned
INR1,433.54 crore
under the CIP schemes
for 187 projects in 184
estates.
Enabling Body
Starting a business - Operation and growth
Unethical practices, macroeconomic instability,

high financing cost, taxes and the availability
of skilled labour pose major obstacles in the
operation and growth of business in India
Key problems in the operation and growth of business in India (percentage of respondents)
As part of the survey, corruption

emerged as the major obstacle in doing
business in India followed by cost
of financing, tax administration and
high taxes. Economic and regulatory
policy uncertainty and macroeconomic
instability can create challenges in the
operations and growth of business in

India. Skill and education of workers,
labour regulations, customs and trade
regulations and access to land are
some other major areas of concern in
doing business in India.
Starting a business - labour
Forty-seven per cent respondents face

moderate to major difficulty in complying with
overall labour laws
Labour laws
Productive labour and harmonious
labour relations are considered central
to realising the demographic dividend
that India is offered. There is a need
to contain the inconsistencies that
seemingly exist between different
labour laws and other laws that concern
labour indirectly.
The National Manufacturing Policy aims

to increase the manufacturing sector's
share of the economy from 15 per cent
of the gross domestic product to 25 per
cent by 2022. Of the ways in which it
is expected to bring this about include
the creation of national investment
and manufacturing zones or NIMZs
greenfield industrial townships

with flexible labour laws and simpler
business regulations.
Difficulties in complying with the labour laws (percentage of respondents)
Skill gap in the Indian workforce,

recruiting the right work force and
labour laws pose major constraints in
hiring labour.
Source: CII-KPMG in India survey, 2014; National Manufacturing Policy, 2011
Labour situation and compliance tackling labour disputes

We negotiate, surrender, ignore

the misbehaviour
- Respondent,
auto component company
Labour policies and regulations take a long time to

change, as compared to other factors, given their
sensitive nature.
The environment here [in

Gujarat] is very worker friendly.
More importantly, there is
business.
- Respondent, auto company
Starting a business - labour: select initiatives to address issues
Initiatives focussed on tackling issues in

skill gap and labour compliance would help
ease labour situations in India
Labour compliance, SEZ Act, Gujarat
The Gujarat SEZ Act, 2004, has made key provisions with
respect to the appointment and termination of labour for units
established in SEZs
The concept of fixed term employment introduced by the SEZ
Act has helped in accounting for the least manpower days lost
due to labour strife, among comparable industrial states.
Key Benefit
Gujarats manpower
days lost accounts
for 0.6 per cent of the
total loss across India,
less than comparable
industrial states
Skill development, Gujarat

With a goal of providing employment to the youth, the
Directorate of Employment & Training started imparting skill
development training to youth through village cluster training
centres in villages, under the Swarnim Gujarat Gramya Kaushalya
Vardhan Kendra (KVK) Yojana
The Gujarat Skill Development Mission (GSDM) was developed
for monitoring, coordinating and providing policy direction for
skill development activities. Online portal was also launched.
Key Benefit
E-portal to provide users with efficient and time-bound services

(online registrations, returns filings, license, exemptions, tracking
of applications)
Direct reconciliation of returns with bank statements to reduce
physical inspections.
Policy
Critical Enablers
Vocational skill
development
940 training
institutes and one
lakh candidates have
been registered in the
GSDM.
Labour Management System (Mahashramm), Maharashtra

The project was launched in 2010 by the Government of
Maharashtra
Critical Enablers
Key Benefit
Policy
Critical Enablers
Information related to
labour compliances can
be viewed on a single
portal
Time-bound services to
businesses.
Technology
Starting a business - select initiatives to address manpower issues
Effective implementation of skill

development plan can ease manpower
challenges faced by industry
Select initiatives in India that have potential to prepare a large scale skills pipeline for industry
Formation of Sector Skill Councils (SSCs), NSDC

The National Skills Development Council has setup SSCs to work
with industry to create skill development frameworks
SSCs promote Occupational standards and industry standard
assessments
Building on other schemes helps to promote industry standard
certifications amongst youth E.g. STAR scheme, MES
Schemes.
Key Benefit
Transparency and
increased currency of
certifications
Increased participation
in skill development
process by employers
and individuals
Promote private participation in skill development (various)

Adoption of government ITIs by private sector (PPP model)
Leveraging CSR agenda of corporates through Companies Act
2013, alignment with skill development and livelihood in the
region and creation of shared value
Incentivize setup of skill development centres in industrial
clusters in sectors such as Auto, Pharma, Capital Goods, Textiles,
Leather.
Key Benefit
Apart from skills training, NAC also executes consultancy work

by conducting third party quality control checks of constructed
buildings. This improves the industry linkages for the training/
trainer development activities.
More efficient training

resources allocation
Key Benefit
Availability of high
quality skilled
resources across a
broad range of generic
to specialized skills/
trades
Multi Skill Development Centres, REEMAP, AP

REEMAP is set up in AP to provide employment to 1.5
million unemployed youth in the private sector through skill
development
REEMAP proposes to establish 100 Multi Skill Development
Centers (MSDCs) to provide quality training to youth in various
trades with potential for employment. These MSDCs will be
closely aligned to the needs of local industry.
Policy
Critical Enablers and

Success Models
Increased ownership
of private sector
in overcoming skill
development challenge
National Academy of Construction (NAC), AP

NAC has gained deep specialization in a single sector, i.e.
construction with 138 centers, 21 trades and a target of training
1,00,000 technicians per annum

Success Models
Key Benefit
Policy

Success Models
Centre of Excellence

Success Models
Alignment of training
and skill development
efforts to local industry
needs
Multi skilling for
enhanced candidate
employability
Policy
Starting a business - recommendations
To encourage business startups, process of

obtaining approvals and clearances should
be expedited by effectively implementing
the single-window clearance mechanism
Faster and simplified clearances and approvals
Improve the effectiveness of single
window clearance
Effective implementation of the
single-window clearance system
for approvals related to starting a
business
Single window agency should aim
to co-ordinate all legal approvals
necessary for the setting up of a
business
Decrease the time taken to grant
approval. Escalation could be done by
a single-window clearance agency to
the concerned authorities in case of
delays
Enforce time-bound approvals by
introducing 'deemed approvals' in
case of delays beyond prescribed
limit; investor may proceed with the
implementation of the project
Eliminate multiple processes and
remove the need to maintain several
documents
Make processes and approvals online.
Introduce the provision of online
monitoring of application forms to
help applicants monitor their status at
various departments.
Source: CII-KPMG in India survey, 2014; DIPP
Emulate noteworthy initiatives from

across states
Relax environment-related
clearances
Simplify applications by introducing

a combined application form (CAF)
instead of several different forms for
various departments. Orissa has one
common form which is accepted by
all the departments
A single-window clearance from the

Ministry of Environment and Forests
(MoEF) covering environment,
CRZ, forest and wildlife to replace
the current system of separate
clearances
Common register; Orissa has

replaced the need for maintaining
multiple registers (29 registers under
various acts) by three combined
registers
Strengthen coordination between

Central Pollution Control Board
(CPCB)and the State Pollution Control
Board (SPCB)
Synchronised inspections to
avoid multiple inspections by the
Department of Labour, Inspectorate
of Factories and Boilers and State
Pollution Board.
Environment norms should be clearly

defined and implemented in a timebound manner
Introduce e-governance and
technology-based initiatives to
simplify processes for industries
Establish an Environment
Compliance Assistance Center
(ECAC) in states to facilitate
information exchange between
regulators and industry and provide
technical assistance to industries for
fulfilling compliance requirements
Periodic revision of environmental
norms to keep pace with technology
and changing environmental
conditions.
Starting a business - recommendations
Labour reforms are required to make the

labour policy flexible; the issue of limited
availability of skilled manpower could be
tackled by establishing skill development
centres
Ease labour laws and related compliances
Need for a flexible labour policy
Consider proposals for amendments
in labour legislations such as the
Industrial Disputes Act, Contract
Labour (Regulation & Abolition) Act,
Trade Unions Act and Factories Act
Provide greater flexibility in the hiringterminating policy
Firms should decide on the hiring of
casual labourers. As per the existing
law, a casual labourer can become
permanent after one year, which
forces many firms to manage with
less labour and provide less than one
year of employment
Implement a compliance mechanism

with appropriate checks to help
minimise personal inspections
Establish labour arbitration court to
settle labour dispute quickly
Prepare a design and implementation

plan for e-enablement of labour
systems facilitating online
registrations, returns filings, license
applications, exemptions and tracking
of applications.
Code of conduct should be set for

labour unions
Systematic capacity building of first
line managers should be in place to
deal with the unions
Eliminate the requirement of thirdparty approval for terminating a

workers employment
Address the issue of limited availability of skilled manpower

Collaboration and Partnership
Skill Development
Revise curriculum and course content
for industrial training. Integrate the
education system with industry
requirements so that fresh graduates
can meet industrys expectations in
terms of the required skills
Establish skill development centres
(SDC) across states for short-term
bridge courses under the PPP model
Establish centres to upgrade skills at
industrial estates/industrial clusters/
industrial parks/SEZs
Introduce a flexible model of MoU

with private companies to develop
need-based skill development
courses in ITIs
Adopt ITIs under the PPP scheme of
the Government of India
Provide incentives to industries under
the industrial policy to commence
skill development courses as per their
requirements
Channelise NAREGA funds for skill
building and enhancing employability.
Source: CII-KPMG in India Survey, 2014; DIPP; State Government portals
Collaboration of ITI with industry. For

example: auto industry players etc.
ACTUniv is one of the partner
organisations of Gujarat Knowledge
Society in terms of training
locations, skill sets required, training
infrastructure, trainers and third-party
assessment of their courses.
Key findings
Taxation
Taxation
Companies believe that the Indian direct tax

regime is not conducive to fostering growth;
reduction in corporate taxes could provide an
impetus to the growth of business
Ease of paying taxes in select countries
India fares poorly on the Doing Business 2014 paying taxes indicators; total
tax rate, the time to comply and the number of payments. Of the 189 countries
studied, India ranks 158 in terms of overall ease in tax payment.
Rank
Payments
(number per year)
Time
(hours per
year)
Profit
tax (%)
Labour tax and

contributions (%)
Other
taxes
(%)
Total tax
rate
(% profit)
UAE
12
14.1
0.8
14.9
Qatar
41
11.3
11.3
Saudi Arabia
72
2.1
12.4
14.5
Hong Kong
78
17.5
5.3
0.1
22.9
Singapore
82
4.9
17.6
4.7
27.1
Russia
56
177
36.7
6.1
50.7
China
120
318
6.2
49.6
7.9
63.7
India
158
33
243
24.4
20.7
17.8
62.8
Brazil
159
2,600
24.9
39.6
3.8
68.3
High tax rates emerged as one of the major obstacles to operating and growing a business in India.
Issues/challenges in the Indian direct tax regime (percentage of respondents)
Ninety per cent respondents believe

that the tax authorities are not proactive
in promoting investments. Sixty
per cent respondents feel that the
neutralisation of the tax decision by the
Supreme Court through a retrospective
amendment is likely to have damaging
effect on investment sentiments.
Ninety-two per cent respondents feel

that there are challenges in transfer
pricing audit/assessment relating to
distribution/agency and 85 per cent
respondents find challenges relating

to rendering of services including
management and other cross charges.
Sixty-five per cent respondents agreed
that companies are now willing to enter

an advance pricing agreement.
Taxation
Companies face issues while dealing

with tax authorities, settling tax disputes,
availing tax incentives and obtaining timely
service tax refund
Issues/challenges in the Indian indirect tax regime (percentage of respondents)
Around two-third of respondents

find time taken for clearence and tax
disputes resolution to be significant.
Time taken in obtaining service tax incentives (percentage of respondents)
More than half the respondents face

delays in obtaining service tax refund.
Complexities in tax incentives (percentage of respondents)
There is a need to simplify complex tax

processes and reduce the time taken
for availing incentives.
Taxation
Implementation of Direct Taxes Code

(DTC) and Goods and Services Tax (GST),
simplification of procedures and an
independent redressal grievance cell, among
others, have found favour with respondents
Indicated improvements to the direct tax regime (percentage of respondents)
Indicated improvements to the indirect tax regime (percentage of respondents)
Economies around the world have made paying taxes faster

and easier for businesses by consolidating filings, reducing
the frequency of payments or offering electronic filing and
payment options.
Several countries have also reduced tax rates and these
changes have brought about concrete results. Some
economies that have simplified tax payments and reduced
rates have witnessed a rise in tax revenues.
Source: World Bank. 2013. Doing Business 2014:

Understanding Regulations for Small and MediumSize Enterprises. Washington, DC: World Bank Group.
Taxation
Companies across sectors face issues and

challenges with respect to the direct tax
regime and transfer pricing regulations
Sector-specific taxation issues/challenges (percentage of respondents)
IT/ITeS
Forty-seven per cent respondents feel
that the IT sector requires a profit-linked
tax holiday to continue with its growth
trajectory.
Telecommunication
More than 80 per cent respondents
face challenges with respect to
the taxability of payments made to
multinationals for supply of network
equipment and access data servers
situated outside India. Companies
also face challenges with respect
to withholding tax obligations on
inter-service transactions like the use
of passive infrastructure, network
management services, etc.
Media and Entertainment
face challenges with respect to
the taxability of advertisement and
subscription revenues earned by
foreign telecasting companies. Eighty
per cent respondents face challenges
with respect to expenditure on
film production and acquisition of
distribution rights.
Consumer Markets/Industrial
Markets
Seventy-five per cent respondents
face challenges with respect to claim
of any deduction/weighted deduction
for scientific research conducted inhouse/outsourced. About 80 per cent
respondents perceive challenges with
respect to withholding tax on payments
made for contract manufacturing and
toll manufacturing activities.
Financial Services
face challenges in taxation of mark-tomarket profits/losses with respect to
securities held.
Infrastructure, Government and
Healthcare
Eighty-five per cent respondents feel
that an investment-linked tax incentive
is a better regime as compared to
a profit-linked tax incentive for the
infrastructure sector.
Taxation - select initiatives to address issues
Various states have taken initiatives to ease

paying of taxes and reduce the cost of tax
collection
Registration, filling and payment of state VAT, AP
Key Benefit
Registration certificates are issued through VATIS, an online

software application
Registration certificate
is issued within 24
hours in case of nonrisk dealers
Dealers can file the return through internet and e-seva centres.
Dealers can view the details of returns and the payments filed by
them using the dealer ledger application.
No fee and security

deposit at the time of
registration.
An e-registration application software has been developed to

help dealers to apply for Value-added Tax (VAT) registration online
AASTHI, GIS-based property tax system, Karnataka

A geographical information system (GIS) is being employed
to bring all properties under the tax net. This facilitates the
assessment of property and the creation of property records
Real time data on the collection of property tax by the ULB
Easy search and analysis of property details and tax data and
tracking of defaulters on the property tax payment
Online property tax calculator application helps citizens to
calculate property tax.
VAT simplification and improvement, Rajasthan
Simplified categorisation of rates
All payments and returns have been made online compulsorily
Fast-track mode of return filing whereby 50 per cent of the
claimed return is paid at the time of filing returns and the
remaining 50 per cent paid after assessment of claims.
Key Benefit
Critical Enablers
Technology
Critical Enablers
Defaulters can be
easily tracked and
notices served for nonpayment of tax
Ease of payment has
improved due to the
online payment facility.
Key Benefit
Technology
Critical Enablers
Increased compliance
due to simplified
processes
Computerisation
for accountability,
efficiency and
transparency.
Technology
Tax approval: No. of days

Some of the key approvals and their timelines under direct and indirect taxes are as follows:
Obtaining Permanent Account Number (PAN) - 15 days
Obtaining Tax Deduction Account Number (TAN) 15 days
Obtaining recognition from Department of Scientific and Industrial Research (DSIR) with respect to in-house R&D unit - 3 to 6 months
Obtaining approval from DSIR for claiming weighted deduction [under section 35(2AB)] for in-house R&D unit 6 to 9 months
Value Added Tax registration 10 to 16 days (applicable on sale goods)
Service Tax registration 7 days (applicable for service provider)
Excise registration 7 days (applicable for manufacturer)
Entry Tax registration 10 to 30 days (applicable if goods are procured/purchased into the local area for use, consumption or sale therein)
Central Sales Tax registration 10 to 30 days (applicable if goods are sold from one State to another).
Source: ttp://www.incometaxsaving.co.in/pan-permanent-account-number; www.incometaxindia.gov.in; VAT registration - State VAT law; Service Tax registration- Service Tax
Rules, 1994; Excise registration- The Central Excise Act, 1944; Entry tax registration- State entry tax laws; Central Sales Tax registration- CST Act, 1956 read with State VAT
laws
Taxation - recommendations
Taxation in India needs structural, operational

and administrative reforms; the burden of
tax compliance should be reduced besides
enabling e-filing of all taxes
Reduce tax-related compliance
Ease of paying taxes
Enable e-filing of all taxes with
uninterrupted access to online services
especially in rural areas
Time-bound subsidies and tax
exemptions should be given to the units
located in industrial areas, food parks
and agro-export zones.
the existing indirect tax system like

tax cascading complexity and poor
technological infrastructure along with
high cost of compliance
Refund of Value Added Tax (VAT) should

occur automatically and in a time-bound
manner
Introduce a feedback mechanism to
obtain input from taxpayers on the tax
regime.
The GST proposes to subsume all

indirect taxes levied in the country
but is yet to be implemented. It could
help address the shortcomings in
S A
Taxation in India needs structural, operational and administrative reforms

Structural reforms Reduce the number of levies and simplify their nature
Structural reform calls for:
Indirect Tax
Clarity and precision in policy

by aligning it to macroeconomic
objectives
Move away from the revenue

generation aspects of customs,
focus on anti-dumping and border
security
Stability and predictability to avoid

frequent amendments
Facilitate consolidation of multiple

taxes at the state and local levels,
eliminate nuisance levies
Emphasis on restricting practice of

retrospective amendments.
Examples of areas that should be looked
into:
Elimination of dual levies e.g.

software and Intellectual Property
Rights (IPRs)
Direct Tax
C
Note:
Elimination of capital gains tax

to boost domestic and foreign
investment
Clarify the non-availability of
Minimum Alternate Tax (MAT)
for foreign companies need for
certainty post-Authority of Advance
Rulings (AARs) rulings.
GST needs to be implemented

urgently to meet the goals of
consolidation and simplification while
generating more revenues
Clarity in policy and precision in

drafting to help decrease the number
of disputes
Moderation in individual and

corporate tax rates to spur domestic
demand and investment
Legislative changes
Central government
Administrative action
State government
Operational Reforms - Focus on getting the tax base right and ushering in certainty and stability
Direct Tax
Indirect Transfers
Implement the
Shome Committee
recommendations;
clarifications and legislative
amendments are necessary
Cross-border Tax
Reiterate the applicability
of Central Board of Direct
Taxes (CBDT) Circulars on
the Mauritius treaty, need to
eliminate uncertainty at the
departmental level
Clarification on items
such as threshold, group
reorganisations, stock market
taxation
Need to eliminate
retrospectivity
Need for grandfathering of

investments made prior to 1
April 2015
Need for clarity on interplay

between Specific Anti-
Indirect Tax
Others
C
Clarity on the non-applicability

of Section 14A to strategic
investment
Revisit the Fiat India issue,

restore the primacy of actual
transaction prices
Guidelines on refund processes

and timelines
Greater consistency
and accountability in tax
administration.
Clarity on the deductibility of

CSR expenditure.
Administrative Reforms
There is a need for consistency

in approach, uniform
interpretation and application
of the law and judicial
pronouncements
There is a need to adopt a trustbased approach, avoid not welldefined and onerous information
requests during assessments
Issue guidelines regarding

compensation to be recovered
in case of creation of marketing
intangibles as a result of
excess Advertising, marketing
and promotion (AMP)
expenditure
Review the need for Controlled

Finance Company (CFC)
Provisions in the Indian context
Rethink place of effective
management standard for
establishing tax residency
Address the need for robust
dispute resolution mechanisms
C
The Wealth Tax Act, 1957, can be

repealed
DTC
Clarification of the nonapplicability of Transfer Pricing

regulations on transactions not
resulting in taxable incomes
or tax deductible expenses
in India e.g. equity infusions,
transactions with regard to
foreign companies
Detailed guidelines on GAAR

applicability
Non-availability of domestic
Transfer pricing (TP) to payment
of director remunerations
and other non- tax arbitrage
situations to avoid double
taxation.
Transfer Pricing
Entry into force from 1 April

2015 need reassesment
before introduction
Equal incentives for the services

sector, to bring them at par with
manufacturing incentives
Avoid the use of

corporatelevel taxation
(Dividend Distribution Tax
(DDT)), Buyback tax) to
bypass treaty limitations on
source country taxation
Need for a comprehensive

GAAR
Ease restriction on the

availability of Cenvat credits
Downward revision in
domestic withholding rates
for royalty/Fees for Technical
Services (FTS), significant
impact on technology inflows
Non-applicability of penalty
and interest if applied
retrospectively.
General Anti-Avoidance Rules
(GAAR)
Clarifications regarding
impermissibility of secondary
adjustments
avoidance Rules (SAAR) and

General Anti-avoidance Rules
(GAAR), specific reference to
Limitation of Benefits (LOB)
Articles.
Delinking policy-making and

legislative drafting, consider redrafting by an expert committee
based on the final policy
decisions.
Increase stability in reporting,

avoid frequent changes in the
return format/other forms
Development of a strong IT
backbone
Provide certainty and clarity on
clauses. For example, the tax
holiday for the IT sector faces
issues while implementation
due to ambiguity
The function of tax
administration should be
distinct from that of an Strategic
business unit (SBU), any
ambiguity could lead to undue
arbitrary taxation claims
The administration, for taxes,
should adopt a concentrated,
rather than fragmented,
approach.
Key findings
The process of filing and servicing court

proceedings is often complicated and time consuming; there is also a need to review
antiquated laws and regulations
Fair, speedy trials are essential for small
enterprises embroiled in disputes. If
courts take a long time in resolving
such disputes, small firms may not be
left with enough finances to continue
doing business for a long time. In such
cases justice delayed may translate into
justice denied.
At present, it could take several years

for a commercial litigation to get
resolved. If a lawsuit aims at seeking
damages, it may stretch for at least a
decade-and-a-half to reach resolution.
There is a need to address such a
pressing issue.
Though arbitration was proposed as

a good and effective alternative to
litigation, it has ended up being more
expensive and almost equally timeconsuming.
Obstacles faced in contract enforcement and compliance

The time taken from filing a case to the

final judgement seems unreasonable
to most respondents and poses
major obstacles. Also, a majority
of respondents indicated that the
enforcement of judgements are not
enforced as smoothly as the existing
procedures assure.
Moreover, costs for engaging and

retaining lawyers, miscellaneous
costs, during the interim stage and
enforcement costs also pose significant
challenges.
Other issues in contract enforcement

Legal processes around foreign
judgements
A judgement/decree passed by
a court of a country which is not
a reciprocating territory1, cannot
be enforced in India per se. A fresh
suit has to be filed in a high court
that has jurisdiction over the Indian
judgement-debtor.
Even for reciprocating territories, a
foreign judgment/decree will not be
enforceable in India if the court in
India determines that:
it has not been pronounced by a
court of competent jurisdiction;
it has not been given on the merits
of the case;
it appears on the face of the
proceedings to be founded on an
incorrect view of international law
or a refusal to recognise the law of
India in cases in which such law is
applicable;
the proceedings in which the
judgment was obtained are
opposed to natural justice;
it has been obtained by fraud;
it sustains a claim founded on a
breach of any law in force in India.
Reconstruction, mergers and

amalgamations
The process of reconstruction,
mergers and amalgamations of
companies has been cumbersome
and time-consuming. Though the
Companies Act, 2013, has sought to
rationalise it, the process requires
further streamlining to be more
effective.
In some cases where it was felt that
justice could have been served in
a better way, courts in India have
intervened and provided relief to the
Indian contracting party, even where
the parties to the contract had agreed
to have a provision for exclusive nonIndia jurisdiction. As far as possible,
this should be avoided in order to
retain the faith of foreign contracting
parties in the Indian judicial system.
Intellectual property laws
Intellectual property laws are yet
to evolve to be able to keep up
pace with international trends and
standards. Rights and liabilities
of licensors and licensees of IP in
propriety technology, in particular,
need to be defined and appropriately
set to enable international commerce
to thrive.
Source: KPMG in India Analysis
Review of laws and regulations

Eighty-four per cent respondents indicated that a review of laws and regulations
needs to be conducted urgently. Respondents have identified the following areas
that require urgent review.
1. A reciprocating territory is a country/territory with which India has reciprocal arrangement for the enforcement of judgements
Contract enforcement - select initiatives to address issues
Effective implementation of e-courts for

improving court efficiency to ease the
contract enforcement process
Select initiatives abroad that have been identified by respondents
Improving court efficiency, Korea
Korea was a pioneer in using electronic features to streamline
court processes and launching electronic case management in
the mid-1980s
The electronic case filing system, which enables electronic
submission, registration, service notification and access to court
documents, began operating in 2010, and by June 2013 almost
half of civil cases were e-filed
Korea had to modernise its information technology infrastructure
and amend laws and regulations adopt a paperless regime
E-court solutions in Korea mainly encompass features to help
judges, facilitate the filing of cases for litigants and inform the
public about case outcomes.
Key Benefit
Implementation of
e-court systems results
in substantial savings
from a reduction in
the use of paper, time
spent in court, cheaper
service of process,
low transportation
costs, easy archiving
of documents and
payment of fees.
Critical Enablers
Technology
2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Contract enforcement - Recommendations
Reforms at all levels may be required for the

enforcement of contracts to be effective
and efficacious
Implement e-courts
Effectively implement an electronic
case filing system
IT-intensive productivity improvement
programmes can be implemented,
in courts at all the levels, including
district courts. Though the process
of e-filing of proceedings has been
initiated in some high courts, this
could be the norm, instead of an
exception. The process of e-court
service of proceedings has been
initiated by the Supreme Court,
however it has yet to permeate to
courts at all levels
Savings from the implementation of

e-court systems can be substantial
and result from a reduction in the
use of paper, time spent in court,
need for storage space, as well as
easy archiving of documents and a
general streamlining of processes
and services
Results of the World Bank survey
indicate that globally, the pace of
contract enforcement is high in
economies that have e-filing facility.
Source: World Bank. 2013. Doing Business 2014: Understanding Regulations for Small and Medium-Size
Enterprises. Washington, DC: World Bank Group.
Increase in the number of

courts and tribunals
Increasing the number of courts
alone may not expedite proceedings.
There is also a need to establish
special tribunals for resolving
commercial cases under various acts
for various levels of monetary limits
Moreover, the number of judges
/ presiding officers should be
increased and they should be
provided with adequate infrastructure
and manpower to facilitate effective
functioning.
Alternative Dispute Resolution

Instead of filing proceedings in court,
alternative dispute resolution (ADR)
processes should be considered.
ADR processes may require further
streamlining and they should adhere
to the specified timelines as far as
possible.
Enter international treaties

Subject to certain restrictions in
law, a foreign judgment can be
enforced by courts in India only if
the said judgment is of a court in a
reciprocative territory. The number of
reciprocative territories with which
India presently has such treaties is
minimal. India should sign treaties
with many more countries with which
it does business regularly
The process of enforcement of
foreign judgments should be
streamlined and definite time
limits should be provided for
achieving finality with regard to their
enforcement of the same.
Antiquated laws should be updated

Updating certain antiquated laws
viz. the Indian Contract Act, 1872,
Transfer of Property Act, 1882, Indian
Evidence Act, 1872, Indian Trusts
Act, 1882, Indian Penal Code, 1860,
etc. may help them be relevant to the
changing times we live in
Laws pertaining to intellectual

property should continuously evolve
to be in line with international trends
and standards. Rights and liabilities
of licensors and licensees of IP in
propriety technology, in technology,
in particular, need to be defined
and appropriately set to enable
international commerce to thrive
Laws should be drafted in simple

language so that they can be
understood without difficulty and
there is no need to issue clarifications
regarding their interpretation. Laws
should be consistent with economic
reforms and there should be no
conflict of the laws on the same
issue.
Costs incurred due to delays

and inefficiencies
Hypothetical Case Study - Loss due to unfavourable

business conditions
Delays and high taxes may cause a 5-10

per cent loss in business in India
Contribution of factors to total loss of business due to unfavourable
business conditions in India
Source: KPMG in India analysis

*Refer to methodology annexure for details
Let us assume a company investing

INR 5bn in an infrastructure project that
gets delayed by 3 months.
Loss due to delay in land acquisition:
Delays will increase the capital cost
due to cost inflation and associated
additional interest costs. This could
contribute a loss of 3 per cent 4 per cent on investment cost.
Loss due to high taxes: Indian face a
higher tax burden as compared to Asian
countries (estimated by the World Bank
at 62.8 per cent as compared to 40.6
per cent in South Asia) which may lead
to an additional cost of 1-3 per cent on
investment cost.
Loss due to delay in contract

enforcement: In a scenario where
this business has claims enforceable
by law amounting to 5 per cent of
project cost due to the delay. The total
cost of the process could lead to an
additional expenditure of 1-3 per cent
of the investment cost (based on an
assumption of 40 per cent of the claim
amount going towards legal costs).
Hypothetical Case Study - Loss due to unfavorable business

conditions
For a 2X660MW thermal power plant, a

delay of six months in the project can
reduce IRR by 1 per cent, and a delay of 12
months by 2 per cent can add burden of
penalty and increase the payback period
Performance difference between power project of 2X660MW
Key Metrics
Project
without
delay
Project with
six month
delay
Project with
12 month
delay
Project IRR
14.90%
14.08%
13.11%
Equity IRR
18.83%
17.45%
15.54%
Project payback period
5.14 yrs
5.66 yrs
6.31yrs
Equity payback period
4.38 yrs
5.04yrs
6.09 yrs
No penalty
INR1,782
million
INR3,564
million
Penalty due to loss in PPA
Losses due to delays in projects

A 2X600 MW power project with an initial investment of INR 60 mn per MW
can get delayed by six to12 months due to several factors including delay in
land acquisition, clearances and issues associated with construction. As per
regulations, if a power producer has a PPA signed with the state electricity
board, the power producer has to pay a penalty of INR112.5 mn per month
of delay for every 250MW of power.
Thus, a six month delay for a project whose 50 per cent production is under
PPA and the other 50 per cent under merchant tariff, escalated at 2 per cent
per annum and has to pay a penalty of INR1,782mn. A further six month
delay can increase the penalty to INR3,564 mn
Considering a debt equity ratio of 70:30, the project IRR decreases from
15 per cent to 14 per cent with a six month delay and further to 13 per cent
with another six month delay
Payback period for the same project increases by more than six months for
a six month delay and by more than 14 months for a one year delay.
As on June 2013, of the 569 central sector projects, delays

in implementation were reported for about half (227) of the
projects, resulting in cost overruns of about 18.8 per cent.
Time overruns have been high in road transport
(90 projects), power (51 projects) and railways (35 projects)
Source: RBI Annual Report 2012-13
Conclusion
Conclusion
The survey conducted across respondents in various

business segments has highlighted a number of areas
to improve the business climate in India particularly
around land acquisition, starting a business, taxation
and contract enforcement. Many respondents have
noted new initiatives started in some states that have
led to positive change - many of these could perhaps be
leveraged at the national level.
The recommendations presented in this
report highlight the need for:
Reform in Policy & Regulation
Enhanced transparency in rules and
processes around land acquisition,
business approvals and taxation
Simplification and clarification of
rules and processes pertaining to
taxation and business approvals
Structural reform in the taxation
system to reduce the number of
levies, while simplifying them
More flexible labour policy
Creation of independent grievance
redressal mechanisms
Establishment of skill development
centres in partnership with industry
to develop relevant curriculum and
courses to enhance employability
Promotion of industrial clusters
for ease in land acquisition and
business start-up.
Reform in Administration and

Execution of policy
Increased online processes for
registrations and clearances
Introduction of single window
clearance systems with time bound
decision making for business
approvals
Introduction of coordinated
clearance systems e.g. for
environmental clearances, to
facilitate information exchange
between various ministry
departments, regulators and
industry
Increasing number of courts &
tribunals as well as alternative
dispute resolution to enhance the
ease of contract enforcement.
Annexure
Methodology - 1
Loss due to delay in land acquisition and other clearances
Assumptions:
1. Project cost of INR 5bn has been
considered
2. Cost of fund taken as 12.5 per cent
to annual rate paid to financer
3. Inflation rate of 8 per cent

4. Typical EBITDA for generated for
road and power projects of INR 5bn
project cost.
Loss due to high tax rate
Assumptions:
1. Typical PBT for infra and power projects have been taken assuming a 25 yr project
period
2. Tax rate as a per cent of profit taken as 62.8 per cent for India and 40.6 per cent
as South Asia Average (World Bank. 2013. Doing Business 2014: Understanding
Regulations for Small and Medium-Size Enterprises. Washington, DC: World Bank
Group). Tax holiday assumed for the first ten years
Methodology - 2
Loss due to high cost of contract enforcement
Assumptions:
1. Claim amount taken as 5 per cent of the project cost
2. Cost of enforcement is 39.6 per cent of the claim amount (World Bank. 2013.
Doing Business 2014: Understanding Regulations for Small and Medium-Size
Enterprises. Washington, DC: World Bank Group.)
Industry cluster in India
Pharmaceuticals sector
While the sector is fairly established in the south and west, the
north is witnessing increasing activity recently
Himachal Pradesh and Uttarakhand are considered among the fastest growing regions in the pharma industry in India
-- Haridwar, Roorkee, Dehradun and Rudrapur are reportedly the main hubs of pharmaceutical firms in Uttarakhand with
~200 pharma manufacturing units
-- Baddi and some other pockets in Himachal have over 300 units
The investment in the region is reported to be worth an estimated INR30 billion in recent years
The growth in these areas can be attributed to the incentives announced by their respective governments in its
Industrial Policy, 2004
The HP government has come up with some new initiatives to focus on developing new technologies in the areas of
biotechnology for agriculture, animal husbandry and healthcare
The development has also resulted in employment for thousands across the region.
Key pharmaceutical ventures across India
Clusters have been highlighted in the map above based on the number and size of pharma units located across the country
Sources: KPMG in India analysis; Backbone of the industry, Pharmabiz, 31 March 2011; IBEF August 2013; http://www.msmedihimachal.nic.in/AnnualReport2011-12_
A1b.pdf
Textiles & Clothing Sector
Each region in India caters to a specific sector of the Textiles and

clothing sector
Textiles and clothing output of each state (in INR million)
Tamil Nadu accounts for the largest Textiles and clothing production of INR7 618,200 million, which also employs the
largest number of workers (2.63 million) in textile factories. This state is followed by Gujarat, which has an annual textile
production valued at INR 491,650 million.
There are more than 70 textiles and clothing clusters in India accounting for about 80 per cent of the total production.
There are 39 power loom clusters and 13 readymade garment clusters in India.
Bhiwandi and Malegaon are the two largest power loom clusters. Major readymade garments clusters are located in
Delhi, Mumbai, Gurgaon, Nagpur, Madurai and Salem, with annual turnover of more than INR 10,000 million since 2003.
The state of Maharashtra has 10 textile clusters. Other major states in terms of the number of clusters are Tamil Nadu,
Andhra Pradesh, Karnataka, Kerala and Uttar Pradesh (seven clusters each).
Source: Annual Survey of Industries 2010-11, Ministry of Statistics and Planning, Government of India accessed on 6 February 2014,
KPMG in India Analysis as of 10 March 2014
Leather & leather goods sector : Major Production Clusters
Major leather hubs in India in terms of export earnings and

employment
Source: KPMG in India Survey
Capital Goods
Major clusters for Engineering and Capital Goods

Sub-sector
Location Cluster
Machine Tools
Rajkot, Pune, Mumbai, Chennai, Bangalore, Hyderabad, Ludhiana
Power and Electrical Equipment
Ahmedabad, Bangalore, Gurgaon, Delhi, Jaipur, Noida
Textile Machinery
Rajkot, Surat, Vapi, Ahmedabad, Mumbai, Tarapur, Nagpur,

Coimbatore, Panipat, Amritsar, Ludhiana
Process Plant Machinery
Pune, Mumbai, Bangalore, Chennai, Coimbatore
Plastic, Paper and Rubber Machinery
Ahmedabad, Mumbai, Pune, Bangalore
Light Engineering Goods
Mumbai, Pune, Nagpur, Chennai, Delhi
Auto and auto components sector
Tamil Nadu, Karnataka and Maharashtra are among the largest auto
and auto component clusters
There are four major clusters in the automotive industry in India. They are in and around:
New Delhi, Gurgaon and Manesar in North India,
Pune, Nasik, Halol and Aurangabad in West India,
Chennai, Bengaluru and Hosur in South India
Jamshedpur and Kolkata in East India
Source: Society for Indian Automobile Manufacturers (SIAM) - Automotive Mission Plan 2006-2016
About KPMG
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firm, is the Indian member firm of KPMG
International and was established in
September 1993. Our professionals
leverage the global network of firms,
providing detailed knowledge of
local laws, regulations, markets and
competition. KPMG in India provide
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offices across India in Delhi, Chandigarh,
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About CII
The Confederation of Indian Industry

(CII) works to create and sustain
an environment conducive to the
development of India, partnering
industry, Government, and civil society,
through advisory and consultative
processes.
CII is a non-government, not-for-profit,
industry-led and industry-managed
organization, playing a proactive role in
Indias development process. Founded
in 1895, Indias premier business
association has over 7200 members,
from the private as well as public
sectors, including SMEs and MNCs,
and an indirect membership of over
100,000 enterprises from around 242
national and regional sectoral industry
bodies.
CII charts change by working closely
with Government on policy issues,
interfacing with thought leaders, and
enhancing efficiency, competitiveness
and business opportunities for industry
through a range of specialized services
and strategic global linkages. It also
provides a platform for consensusbuilding and networking on key issues.
Extending its agenda beyond business,

CII assists industry to identify
and execute corporate citizenship
programmes. Partnerships with civil
society organizations carry forward
corporate initiatives for integrated
and inclusive development across
diverse domains including affirmative
action, healthcare, education,
livelihood, diversity management,
skill development, empowerment of
women, and water, to name a few.
The CII theme of Accelerating Growth,
Creating Employment for 2014-15
aims to strengthen a growth process
that meets the aspirations of todays
India. During the year, CII will specially
focus on economic growth, education,
skill development, manufacturing,
investments, ease of doing business,
export competitiveness, legal and
regulatory architecture, labour law
reforms and entrepreneurship as
growth enablers.
With 64 offices, including 9 Centres
of Excellence, in India, and 7 overseas
offices in Australia, China, Egypt,
France, Singapore, U.K., and USA, as
well as institutional partnerships with
312 counterpart organizations in 106
countries, CII serves as a reference
point for Indian industry and the
international business community.
KPMG in India contacts:
CII contacts:
Richard Rekhy
Abha Seth
Chief Executive Officer

KPMG in India
T: +91 124 307 4303
E: rrekhy@kpmg.com
Director - Regulatory Affairs

T: +91 11 4150 6492
E: abha.seth@cii.in
Amit Mookim
Rohan Sirkar
Partner
Management Consulting
T: +91 22 3090 2141
E: amookim@kpmg.com
Executive Officer - Financial Services

T: +91 22 2494 8569
E: rohan.sirkar@cii.in
Jaijit Bhattacharya
Partner
Infrastructure and Government Services
T: +91 124 307 4032
E: jaijitb@kpmg.com
Preeti Sitaram
Associate Director
Advisory
T: +91 80 3065 4415
E: psitaram@kpmg.com
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Confederation of Indian Industry

Business climate in India

Costs/Losses incurred due to delays

Industry clusters in India

1 | CII-KPMG Ease of doing business in India

CII-KPMG Ease of doing business in India | 2

India is one of the fastest growing economies in

Dealing with construction permits

Trading across borders

3 | CII-KPMG Ease of doing business in India

Ease of doing business: Issues

CII-KPMG Ease of doing business in India | 4

Ease of doing business: Recommendations

5 | CII-KPMG Ease of doing business in India

Business climate in India

CII-KPMG Ease of doing business in India | 6

Ease of Doing Business

India is one of the fastest growing

The India Paradox

attractive investment destinations. Yet,

Russia, India, China and South Africa)

Rankings on sub-indices on the ease of doing business

In the World Bank survey, India ranks

land, inadequate infrastructure, power

7 | CII-KPMG Ease of doing business in India

CII-KPMG Ease of doing business in India | 8

Methodology and scope of the study

Further, the respondents were also

A extensive questionnaire pertaining

Survey to assess investor perception on ease of doing business in India

Source: CII-KPMG in India survey, 2014

9 | CII-KPMG Ease of doing business in India

Industrial Markets 42%

Real Estate & Construction 4%

Consumer Markets 13%

Segmentation by company size**

Source: CII-KPMG in India survey, 2014

CII-KPMG Ease of doing business in India | 10

11 | CII-KPMG Ease of doing business in India

CII-KPMG Ease of doing business in India | 12

The lack of an effective process has made

non-transparent price benchmarks.

Absence of a uniform land acquisition policy and inconsistent enforcement

Lack of government support

Government cannot find new

It has to be totally transparent

Ease of land allocation process (percentage of respondents)

Source: CII-KPMG in India survey, 2014

The time taken for land acquisition is

as well as the number of visits to each

13 | CII-KPMG Ease of doing business in India

Some major problems in the land acquisition process

Source:CII-KPMG in India survey, 2014

Land mutation process: considered complex and time-consuming

Source:CII-KPMG in India survey, 2014

Ease of land conversion process (percentage of respondents)

Number of departments should

Source:CII-KPMG in India survey, 2014

CII-KPMG Ease of doing business in India | 14