Bureaucratic red tape thrives in India’s boom

Nearly 12 years on, the project has been less a dream and more a bureaucratic nightmare due to mountains of red tape — a hallmark of doing business in India — which often frustrates investors so much they put their money in China.

Kheny, managing director of the Nandi Infrastructure Corridor Enterprise consortium, signed a deal with the government of the southern state of Karnataka in 1997 to build a road to connect the technology hub of Bangalore with the city of Mysore 110 km (70 miles) away. The project was due to be completed by 2000. Seven years behind schedule, the consortium has finished less than 50 percent of the work and faced as many as 336 legal suits on various charges, including acquiring more land than necessary. “When I signed the agreement with the state government, all the politicians and bureaucrats were very welcoming. They said they will give me everything on a platter,” Kheny, 57, told Reuters.

But after the initial excitement, the project quickly became bogged down in bureaucracy.

As India competes with China to draw foreign investors, the country has been hobbled by bureaucratic red tape, a remnant of India’s colonial past bloated by decades of state directed economic development.

It is estimated that investors setting up shop in India require up to 70 different approvals, unless they locate their operation in Special Economic Zones being built in undeveloped parts of the country, often far from main cities, to encourage local economies.

Kheny said severe delays had resulted in cost overruns and even though India’s notorious license raj, when companies were limited to strict production quotas, was long gone, starting something new was still very tough.

“Sometimes I do get frustrated and think of giving up all these,” he said. “But when I think about the end result of this project I really get very excited.”

Kheny isn’t alone. A World Bank report ranks India 120th out of 178 countries in ease of doing business and says it lags behind best practice in other countries.

India ranks 72nd among 180 countries in global corruption watchdog Transparency International’s 2007 Corruption Perception Index, putting it on par with Brazil, China and Mexico.

The time to obtain a business license in India ranges from 35 days in the financial hub, Mumbai, to 522 days in the eastern city of Ranchi. In contrast, a start-up takes two days in Australia and the Organization for Economic Co-operation and Development average is 17 days.

After more than 15 years of reform, Asia’s third largest economy has seen sweeping changes and notched up impressive growth rates which have attracted companies from all around the world.

But investors still find it tough to negotiate the minefield of bureaucracy and analysts and business executives say this remains the biggest stumbling block to foreign investment.

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