September 13, 2019
Report on ‘Ease of Doing Business’ (EoDB) points out that integrated value chain approach to EoDB will lead to more quantifiable gains and higher contribution of the business sectors to state GDPs
It examines these three industries as case studies which are integrated to show how inter-linkages have to be taken into account while implementing reforms in industries
There are close to 35 million sugarcane farmers in India. Directly and indirectly, sugar industry employs 3,50,000 people, alco-bev employs 1.5 million, and tourism (overall) 42 million people.
The report proposes overhauling of state Excise practices along with several other policy measures for improving Ease of Doing Business (EoDB) and GDPs of states.
Pahle India Foundation (PIF) – an FCRA certified, not-for-profit policy think-tank – in its latest report titled “An Integrated Value Chain Approach to Ease of Doing Business: A Case Study of Sugar, Alco-Bev, and Tourism” has pointed out that these three industry sectors under study together provided employment to nearly 80 million people in India in 2018.
The report, unveiled by Mr. Amitabh Kant, CEO, NITI Aayog, at an event organised in India Habitat Centre, New Delhi on 13th September, 2019, recommends an integrated sectoral approach to EoDB for more quantifiable gains in state GDP. It examines three industries as case studies, viz. sugar, alcoholic beverages, and tourism, to show how a small reform in one of these sectors can create cumulative economic impact across the value chain and for the state because of their inter-linkages.
Speaking at the event Mr. Kant in his key-note address said, “DPIIT’s ranking of states for EoDB was initiated by me when I was Secretary, when it was still known as DIPP. The framework for the ranking is an evolving process. Pahle India Foundation’s report looks at sugar, alco-bev and tourism industries as an integrated value chain, and, suggests a sectoral approach as the next step in the EoDB evaluation framework. This is certainly worth considering. I find the selection of these three industries also quite apt, because it allows for an evaluation of the division of responsibilities between Centre and states, and as a federal economy, our efforts have to be aligned for scaling up EoDB in India. This would take us a step forward in making India the world’s business destination.”
The report recommends overhauling of state Excise practices, including moving from offline systems to online, along with several other policy measures for improving Ease of Doing Business (EoDB) and GDPs of states.
The report also stresses the need for the current EoDB framework to incentivise states to comprehensively overhaul those state legislations, such as the Excise Act, that hamper ease of doing business, and therefore growth. Tax revenues from Excise form a significant part of the states’ annual revenue receipts. In 2018-19, alcoholic-beverages industry alone generated Excise revenues to the tune of INR 1.4 lakh crores for state governments.
Speaking at the event Mr. Vineet Taing, MC Member, Hotels and Restaurant Association of Northern India (HRANI) & President, Vatika Hotels Pvt. Ltd. said, “With the current confusions of overlapping of policies, communication gaps, confusing taxations and several other scenarios the ‘Pehla Foundation’ effort has come out as a blessing. They have not only gone in detail but also evaluated most of the parameters and summarized them up. I was delighted to learn that this report shall be shared with all the state governments for their better understanding, evaluation and policy making. I am sure it has covered up issues pertaining to the Food and Beverage Industry with a variation of 8% and 18% in stand-alone Restaurants and Hotel Restaurants, GST input relaxation, non-industry status resulting in high water and electricity bills, lack of coordination between the State and Central Government of incentivizing this industry, exorbitant excise license fee, increased wage rates, exorbitant property taxes, excise issues on lifting alcoholic stock and penalizing in cases of lifted stocks not sold and so on. Role of recently cropped up issues pertaining to entry passes at the airport (there are 80,000 passes for Hotels, Travel Agents and Corporates) which are not going to be issued any further. This may result in insecurity for incoming tourists and inconvenience for Hotels, Travel Agents and Corporates. Also, in excise order in Delhi which prescribes time limits for holding liquor at bar after issuing from store. We are hopeful that all such challenges shall be adhered rather addressed to by the state and Central Governments as exercised in their domains. Above all the licensing that was the most extensive and time-consuming part of this industry where the hotels must procure 35-45 licenses and the restaurants must procure 12-15 licenses and renew them year on year. One can understand how cumbersome it is to open and run this business. We are sure the Industry will benefit from this report.”
Commenting on the study, Ms. Nirupama Soundarajan of Pahle India Foundation, said: “The study makes macro and sector-specific recommendations to enable better alignment of policy reforms with the broader economic agenda of the states. A sector-specific approach to ease of doing business will allow states to implement immediate reforms in sectors that are most crucial to their economy. For example, by merely reducing the time taken to grant approvals for restaurants (PBCL segment) from 9 months to 3 months, the state will accrue an additional revenue of INR 38.76 crores, and the sugar millers/distillers will receive an additional revenue of INR 51 lacs, which could potentially find its way towards payment of dues of a sugarcane cultivator. The purpose of these calculations is to show that by merely reducing the amount of time for issuing licence, and the government incurs no expense in doing so, there is a significant economic gain.”
Highlighting the lack of any discernible quantitative impact of change in the Department for Promotion of Industry and Internal Trade (DPIIT) ranking of states on their GDPs the report recommends that in place of following the generic method of ranking, a sectoral approach is adopted. “This will allow the states to pick the sectors that are most important to them, and take measures to reform those on a priority basis,” the report states.
Some other recommendations made in the report are as follows:
The government should adopt a sectoral approach for EoDB in states
Sectoral approach to EoDB will help in easing business across the entire value chain, i.e., both forward and backward linked sectors.
The present government has been proactive in weeding out outdated laws and practices. While this is happening at the Central level, the states also need to adopt this. There is a need to review the Excise Acts in order to remove the redundancies and update business practices.
Sugar requires a comprehensive trade policy that stimulates sugar exports.
Alcoholic beverage is a regulated sector and should continue to be so. However, there is an urgent need to introduce stricter timelines for all processes that are administered by Excise.
There is a need to increase the use of technology tools and automation in the day-to-day functioning of the Excise, and to shift from person-based regulation to process-based regulation.
The Excise departments can introduce a system of rating compliance on the lines of GST compliance rating, in order to encourage good business practices.
Tourism should be included under the state list since the states have greater responsibility.
About Pahle India Foundation
Pahle India Foundation (PIF) is an FCRA certified, not for profit policy think tank, established in June 2013 as a Section 8 company. PIF’s motto is “Facilitating Policy Change”. PIF is committed to enriching the public discourse and also to influence policy formulation that will help India successfully complete its triple transition in economic, political and social fields.
You may please visit our website (www.pahlendia.org) for more information on what we do.