Who said that license, quota and permit raj is over?


Rajat K. Baisya

We have been hearing that with liberalisation and globalisation, license, quota and permit raj is all over to the great relief of everybody in industry. As one of the key benefits of globalisation this is often been mentioned in seminars and conferences and other forms of academic discussions. Government also talks about single window clearance to attract foreign direct investment (FDI). Where is that single window we all would like to see, if window at all exists. These are merely slogans and do not exist. License raj is far from over. On the contrary, new forms of licenses are being introduced in the name of governance and controls. Our bureaucracy is smart enough to get tighter control on the system no matter whether it is intended for simplification or for greater efficiency. I don’t see that there is anything different from what it was in the past. Corruption, bureaucracy, delays, harassment are still ruining our system.

Can you imagine how many licenses and permissions are required to set up a food retail unit in India?

You will be surprised that it is around thirty odd. I have been associated as Chief Advisor to a British Group setting up their Cash & Carry Unit in India and their first unit is coming up in Mumbai. And we find licensing, permissions, approvals are one of the stumbling blocks for the quicker execution of the project. We are so much fed up that we had to seek now the intervention of the good offices of the British High Commission in India. From my memory let me now list what are the licenses that you need. These are: Registration under shop & establishment act of local municipal corporation, health license, license for running canteen, cold storage license, license for selling dairy products, fire dept clearance, NOC from building department of municipal corporation, permission for keeping the store open for 365 days a year, registration and license under contract labour act, edible oil storage license, other grains storage license, sugar storage license, household insecticide storage license, food and drug administration license, pollution control clearance, License for using generator set from PWD, commercial power connection license and approval, permission from municipality for sign board, hoarding or other form of signage on site, APMC license, TIN No, CST No, PAN No, VAT registration, professional tax registration, service tax registration, registration under PF and also under ESIC, license under municipal marketing dept for selling fresh fish, meat and poultry. I think I must have listed already about thirty licenses. These are given by numerous agencies. This is addition to compliances under registrar of companies, reserve bank of India and other statutory bodies and numerous licenses for constructing the building for the store, which is a separate painful exercise itself. The licensing is a painful process. It is full of corruption. Nothing moves without money. Many a times they ask for unreasonable sums to be paid. It causes endless delay, harassment and corruption. They will have forms in local language, and will ask for multiple copies, with unlimited numbers of documents that I wonder what do they do with so many documents in so many departments. Then there agencies which will ask for stamp paper declarations, in addition to application fees some agencies also ask for bank guarantee. One only needs to get involved to know how complex it is. This business of licensing is so lucrative that for every license there are numerous agents who will crowd you asking for the middlemen role and you will have to shell out good money. Where from corporations generate this cash money for bribing – may I ask the government. And what purpose it serves to good governance? In the age of technology when government is talking about and investing huge sum on e-governance why is this old rules of the game is still prevailing and chasing the businesses.

Cumbersome licensing procedures 

These cumbersome licensing procedures involving numerous agencies is really a nightmare for the legal and administrative personnel working in industry. The various agencies involved ask enormous amount of documentation, which are similar in nature, and I wonder what these agencies do with thirty different sets of documents lying in different offices. On the top of everything there is complexity. For example, for grains one needs purchase license to enable him to purchase the grains, sugars and edible oil from other states as well and bring the stock to the state where the retail store is located. Normally one can argue that if license is granted to buy stock then it can be stored and sold also. But no, you again need individually storage license. While purchase license is given by Agricultural Marketing Dept under Agriculture Ministry, the storage license is given by the Ministry of Civil Supplies. And complexity does not end there, depending on the quantity involved the licensing offices and authorities are located in different places. To understand that itself one needs couple of weeks and at least ten visits to these offices. These offices and people are unfriendly, uninformed and corrupt. Nothing moves without money. Some of the places they are even rude so much so that our officers refuse to go there. For example, queries are normally not entertained. PRO at FDA office in Mumbai may tell you “don’t argue and just listen to what I am telling you to do”.

The licensing raj 

The licensing raj has in fact created opportunity for a middlemen and touts who will take a fee to file application and then a separate fees for getting individual license cleared. The money involved can be as little as Rs 5000 to Rs 10 lacs to get individual licenses. And everything has to be paid in cash. Where from a foreign company will generate cash to pay for these licenses? The system thus helps generate corrupt practices. Taking advantage of this scenario there are companies and legal firms. They help organisations for legal compliances, which are not easy to understand, and all the more difficult to foreigners working here. The fee of these legal firms is quite high. How do you become cost competitive in India? You will concentrate on business issues or on licensing issues?

India on Competitiveness Index

There was study carried out globally to ascertain the level of corruption in various countries. In that study it was revealed that in India about 16% of the management time goes in dealing with corrupt govt offices and systems and clearances. This was found to be highest in any country. This has also brought down the ranking of India in Competitiveness Index. Many argue that corruption is a global phenomenon. It is true. But that corruption takes place at higher places. But In India it is all pervasive-nothing moves without money and therefore, even to get an entry to offices to obtain a blank form one needs to tip. If you don’t do that possibly you will bring in a wrong form and your exercise will be useless. In the era of e- governance and when good corporate governance also an issue we need to streamline and smoothen these processes. We expect the flow of FDI to increase. But if that has to happen investment climate has to be friendly. And licensing is one such crucial issue.

-- This article was first published in "Processed Food Industry" monthly magazine.

 

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