Posted on: Monday, April 15, 2002
Bureaucrats rule over business in India
By Anindya Mukherjee
Bloomberg News Service
NEW DELHI — Lalit Modi teamed up with United Artists Theatre Co. in 1998, hoping to bring American-style multiplex theaters to movie-crazy India.
Four years later, United Artists has abandoned the market and the businessman is no closer to his goal. The problem: getting Indian bureaucrats to change a law that movie theater exits must open directly onto streets.
"The laws are absurd, and the bureaucrats force you to chase after them," said Modi, who distributes the Hallmark movie channel on Indian television.
Modi's experience is typical of investors who come up against India's antiquated laws and its 20 million bureaucrats, or "babus" as they are known, who use rules to wield power over businesses, stifling growth, fueling corruption and scaring away investors.
The list of regulations is long. From requiring sand-filled red buckets handy to douse fires — a holdover from days when there were no fire extinguishers — to rules on the height of urinals, the babus' stranglehold is inescapable.
"Horror stories of foreign investors caught in the tentacles of India's bureaucracy are legion," said Jonathan Everett, a venture capitalist at VIEW Group, which has invested $10 million in Indian startups.
Electricite de France, Cogentrix Energy Inc., Daewoo Power (India) Ltd. and Bayernwerk Vew pulled out of $3 billion of Indian power projects, citing delays. The Tata Group and Singapore's Changi Airport Enterprise Pte. scrapped plans to build an airport in Bangalore in 1998, after waiting four years for approvals.
The government claims it's striving to be more business-friendly. Investors are not convinced.
India attracted $15 billion in foreign direct investment in the 1990s, and its economy expanded at an annual pace of 6 percent in the second half of the decade. In contrast, neighboring China got $283 billion and grew at a 9 percent clip.
Simplifying the rules will be a colossal task. Companies currently must comply with 47 labor laws, keep six attendance logs, 10 accounts under various statutes for overtime wages, file five types of annual returns and maintain a "register of lime washing" so inspectors can track whether companies are painting their walls.
Bureaucrats use about 30,000 statutes — no one knows the precise number because it's been almost four decades since a list was compiled — to regulate business. Companies are often on the borderline of legality as a result of regulations that are out of sync with modern business.
Raman Roy, who set up a call center for U.S. clients near New Delhi, said "I have inspectors coming to ask why we don't have spittoons, or why urinals are three inches too high." The chief executive officer of Spectramind tells them "I have tall workers."
"In a sense, we're all breaking laws," said Sudip Banerjee, chief executive of operations at Wipro Ltd., a large software maker.
Many companies bribe officials rather than comply with the rules or risk legal action, creating a culture of corruption.
"The regulations are so silly that the only way you can handle inspectors is by bribing them," said Bibek Debroy of the New-Delhi-based think tank Rajiv Gandhi Institute for Contemporary Studies.
A United Nations Development Program report said that if corruption were eliminated, overseas investment in India would increase 12 percent and economic growth would accelerate 1.5 percentage points.
Modi, meanwhile, is still trying to build a chain of multiplex theaters across India.
"It takes months to get a clarification," he said. "A change may take years."
