Letting go of the License Raj

Dec 14, 2013

- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
The License Raj is a term that refers to the large number of regulations and required licenses that one needs to set up and run a business in India. It was particularly applicable since independence until 1991, after which many economic reforms and liberalizations were implemented. Still, this legacy lives on today, and unfortunately continues to hold back the economy.

The myriad of regulations and hurdles that one needs to jump through can seriously stifle progress and investment. This is particularly the case in manufacturing industries, where acquisition of land can take years, and labor laws are rigid. The lack of progress in improving infrastructure further adds to these woes.

Each year, the World Bank publishes a ranking of countries based on the ease of doing business. In countries that rank higher, doing business is easier, and vice versa for low ranked countries. Some of the criteria include time and cost of starting a business, ease of constructing warehouses, access to credit, investor protection, and enforcement of contracts.

Where do we rank when it comes to the ease of doing business? Currently we rank 134 out of 189 countries. This is a poor number. It is worse than most other emerging economies, worse than all Western countries, and worse than our neighboring South Asian countries. And the trend is poor as well. Our ranking is 2006 was 116, and now it has dropped to 134.

The ease of doing business is critical to long term economic success. When it is easy for companies to start and operate, it leads to higher employment, higher growth, less corruption, more competition, and better quality products. It is a win-win situation for all parties involved.

We have certainly made good progress since 1991. Operating a business today is much easier than it was back then. But the progress has stalled in recent years, and this is one of the principle causes of our current economic slowdown. We must not get complacent and just hope that our economy recovers without any further action on our part. The remnants of the License Raj are still strong in our regulatory framework, and the best thing we can do for our economy is to let it go.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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2 Responses to "Letting go of the License Raj"


Dec 17, 2013

If the govt has concerns for the poor why the brutal taxes on petrol and diesel (state tax is sround 25-30%)? The govt has no business to be in business. Thomas Jefferson succinctly put it 200 years ago that least governance is best governance. India is swamped by an unbelievable number of laws. The fist thing is to have a moratorium of new laws and repealing of the existing laws 10% every year. The root cause of corruption & monopoly is government and the more things out of govt ambit the less the corruption and less the red tape. Start the privatization of BSNL, Air India, SAIl, GAIl, NDMC, ONGC and all other white elephants and restrict itself to health, education and security and soon the govt will have surplus budget.



Dec 15, 2013

without sounding like a communist, it is not the licence raj per se thats the problem but the govt which has given up the responsibility of doing certain economic things i.e the country was supposed to be a welfare state where the govt provided most of the infrastructure from affordable housing for the poor, affordable food ( rationing ) affordable/ dual pricing for energy again to make it affordable for certain sections of society (would the number be about 75 % of the population ?)
This lot of people are going to be marginalized forever given current economic thinking/policies and with it will disappear the "great Indian middle class market ".
In a way the license raj was supposed to make sure scarce resources got put to good use ; I dont see that today, no food security , no energy security whats happening to coal & natural gas ?!) forget affordable housing---- whats next ? Anarchy ?
Thats why Indians industrialists are leaving and re-investing abroad, they see the writing on the wall,licenses are not really the problem.

Forget foreigners helping this country, they have always come here to make a quick buck and will continue coming no matter how many licenses are required.

What we need is to get the govt to go back to taking up certain basic economic/social responsibilities, to set the stage for more economic consumption & therefore merryment for the capitalists.

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