11 Ways Govt Can Fix Ease Of Doing Business: From A Veteran Founder And Investor

On What This Means, Swarajya spoke to Deepak M Nadiger, ex-CEO of multiple pharma companies and angel investor in manufacturing startups, about challenges businesses face in India and solutions to obstacles hindering Bharat's growth. (Listen to the full episode here.)

According to Mr Nadiger, in "old economy startups" — those involved in electronics, medical devices, robotics, and similar sectors — the government’s actions seem half-hearted. India, with its vast population and manufacturing potential, must reduce dependency on imports.

Here are 11 things government can fix to improve the ease of doing business in India:

1. Startups And The Cashflow Challenge: For some companies, initiatives like Innovations for Defence Excellence (iDEX) for defence startups have emerged. We've seen some interesting defence-related startups sprouting because of the thrust around making indigenous defence equipment. But are we giving them the best chance to survive? I don't think we're doing justice to it.

We could nurture these companies much better. India could become a potent source of equipment for what we call "middle powers" because today they have limited choices for military equipment. For defence startups, the government has gone halfway — they've nicely set up the sandbox and given opportunities for companies to showcase their products. The initial orders come, and until that point, I think the government has done well for the defence sector.

But then the real world takes over. You make your first one-crore sale because somebody gave you a test order, and then the entire system wants you to behave like any other established company. A startup doesn't work that way. These are young people or technocrats who came out of larger jobs — they don't have the ability to plug into a global supply chain.

If you need electronic components, you're a tiny drop in the ocean to suppliers who ask you to pay upfront. The government typically treats you like any other vendor and might give you a 10% advance, after which you have to complete various requirements and testing procedures. The armed forces or MHA will conduct pre-shipment and post-shipment testing, and payment happens 60 days later. By then, that startup is dead.

Remember, profitability is one thing, but cash flow mismatches are another. For small MSMEs, what kills you is not lack of profitability — it's liquidity and cash flow issues. I don't think this is well appreciated in government circles because they haven't run businesses, and they're not truly listening to industry.

2. Failure Of Government's SME Samadhan And TReDS: To draw another analogy, the government mandated 45-day payment cycles for MSMEs and set up trade receivables discounting systems (TReDS). But again, it's a half-measure — they didn't take it to its logical conclusion.

First, they created SME Samadhan, where small businesses could complain about late payments from customers. But if I'm a two-crore startup and my customer is a large conglomerate, filing a complaint just burns the relationship. The government doesn't understand this dynamic between businesses.

When that didn't work, they introduced TReDS platforms. But they should have made it mandatory for all companies above a certain size to accept invoices on TReDS. Today, larger companies won't participate in these platforms. They'll offer their own vendor bill discounting programmes with high interest rates — 13-14% — because banks have made it a way to profit from the relationship. So that platform has failed too.

3. The 45-Day Payment Deadline: Now they've introduced rules saying expenses cannot be claimed if MSMEs aren't paid within 45 days, but we're not solving the core problem. If the government is serious, they should demonstrate that all MSME payments from government departments are completed within 45 days.

The situation has improved from 10-15 years ago, but if the government can publish monthly GST collection dashboards, why can't they have payment dashboards showing how quickly they're paying MSMEs? They track GST funds — why not track payments to small businesses?

Large corporations often won't accept bills for discounting, which throttles the cash flow of startups with smaller capital bases. The cost of capital in India is already expensive, and this makes it worse. We have this perverse system where large companies with AA ratings that can raise funding at 8% throttle their vendors who then must raise funding at 16%. How can startups compete globally under these conditions?

I think the government understands some of these problems, but the solutions they develop are baffling.

4. GST Refund Delays: When the GST regime was introduced, there was a demand to track refunds for exporters, which often don't come on time. Earlier, we had C-forms which were painful to obtain and created corruption at the department level. Now the same issues have shifted to GST refunds. There's a real cost when refunds take 45 days.

If they don't measure it, how will they improve it? Even if they're tracking it internally, sunlight is the best disinfectant — put the data out and track it publicly.

5. Delays Due To Bad Public Infrastructure: Can we execute a 100-crore order if it comes? As entrepreneurs and risk-takers, we'll stand on our heads to do it. But our factory is located between Mumbai and Ahmedabad, and the road has been under construction for months. Trucks don't arrive on time, and my confirmed shipments get missed. From our location to Mumbai port can be a four-day journey because containers don't reach us, or if it rained the previous day, the roads become impassable.

When we celebrated improved ease of doing business rankings, we were just scratching the surface. If NITI Aayog wants to make real progress, they should study the top 50-75 industrial estates in India and evaluate road conditions, power availability, public transportation for workers, water availability, effluent treatment facilities — these are the practical problems industries face.

The ease of doing business (EODB) index was gamed because it only focused on Delhi and Mumbai, but 60-70% of manufacturing happens outside these cities. Have they conducted their own internal EODB assessments on these parameters? If you want to compete with Vietnam or Bangladesh on exports, can your workers even reach the factories?

6. The Many Rules And Regulations: We have rules like the Factories Act that mandates a resident doctor for facilities with more than a certain number of employees. When the factory inspector visits, he notes the violation — but factories are often in remote locations. I might be willing to pay, but we can't find doctors willing to commute to a factory for the general shift.

The government itself can't find doctors for rural health centres, yet they expect companies to be more efficient. What am I supposed to do? We have rules running into pages and pages. The joke I tell people is that if anyone claims they're fully compliant with all laws in India, they're lying — because I don't think anyone knows all the laws they need to comply with. It's impossibly complex.

7. The GST And The Compliance Burden: The problem is we start with the assumption that everyone is cheating, so the compliance burden increases for everybody. As one founder I've funded says, you can't do business today without spending 20-25 thousand rupees monthly on a CA and company secretary just for compliance, not accounting.

With GST, because some people were taking incorrect input credits, the solution was to make it more difficult for everyone. Today, despite having video KYC, Aadhaar OTP linking, and all these verification measures, the process isn't automated—officers still want to meet you in person. You end up hiring CAs and company secretaries to manage these interactions, adding to your costs.

What has improved? At least for registration, you don't have to separately apply for PAN and TAN numbers — they come to you. But try opening a bank account, and you'll go through hell. You might get 35 calls from banks, but try opening an account; this still remains difficult.

Like how the retail industry uses mystery shoppers to evaluate store performance, the government, with its army of consultants, should try setting up one manufacturing company, one IT company, and one service company every month in different states anonymously — just to experience the pain points firsthand. They would encounter endless document requests and communication loops.

We have account aggregator networks and digital systems, but real life isn't working that way. Let's wake up and smell the coffee.

8. Poor Implementation Of Schemes Like CGTSME, Startup Grants, And Sidbi Startup Funds — fantastic initiatives with substantial money allocated. Credit to the government, startups are getting grants now, which wasn't happening 15-20 years ago. But the implementation is worse than a treasure hunt.

I doubt anyone in government could list all 30 schemes providing incentives for companies. They're spread across a hundred different places with varying application requirements and eligibility criteria. As a result, you have middlemen in Delhi taking cuts to navigate the system.

If we're supposedly an IT-savvy nation, why not consolidate this information in one place? Tell biotech companies which three schemes they can access, tell IT companies their options, clarify what hardware startups are eligible for. Otherwise, it's impossible. I bet if you surveyed founders about which grants they're eligible for, not one would know.

The government has good intentions but terrible implementation. They've designed the CGTSME scheme and given implementation to banks, but four of my startups — profitable companies with Rs 30-40 crore revenues — still haven't managed to get CGTSME loans. Banks have no incentive to process these, despite government underwriting. And they still want personal guarantees and collateral.

Not all of us have wealthy parents or real estate, gold, or listed company shares to pledge as collateral. The fundamental issue of cash flow mismatch remains, and debt funding to bridge that gap isn't available.

9. Excessive TDS Regulations: Another issue is TDS at 10%, which assumes a 30% profit margin on every sale. Among 5,000 listed companies, how many make 30% profit at the Profit Before Tax (PBT) level? You make a 100-rupee sale, and 10 rupees immediately goes to the government. They tell you to calculate and claim refunds, but that happens 16-18 months later. The government says you can apply for lower TDS certificates, but getting those is nearly impossible — they want you to prove profitability that no startup achieves on day one.

10. For Hardware Startups, The Biggest Challenge Is Prototyping. People want to see working prototypes, but when you approach larger vendors for small quantities like five or ten pieces, they won't disrupt their production runs to accommodate you.

The government has invested significantly in IITs, ITIs and other institutes that have prototyping equipment. There are schemes allowing access to this equipment for nominal fees, but these facilities operate as personal fiefdoms. If you don't know the right people, a normal person cannot walk in and use the equipment.

I'll give you an example: In a small town in England where factories had closed, the city council set up 30 3D printers available to any startup — like a public library. You just walk in, load your design, and create prototypes. Telangana has done something similar with a maker park for various types of prototyping.

We're a multi-trillion economy aspiring to be a world superpower with trillion-dollar merchandise export goals. How are we supporting these entrepreneurs?

This is a real problem for many sectors. Take EV manufacturers who want to produce 500 vehicles — they struggle because they lack small-scale manufacturing capabilities. Large companies won't work with them, so their per-piece costs increase. This prevents them from deploying enough prototypes to get market feedback, which means they can't win orders and are dead on arrival.

These are practical issues that would emerge from honest conversations with industry. They're not difficult problems to solve — we have enough money in the system and I believe there's intention to address them.

Manufacturing is expensive in major cities, but entrepreneurs are forced to locate there because basic resources, roads, and skilled people aren't available elsewhere. It becomes a never-ending cycle.

I suggest the government should survey the top 50 manufacturing locations and upcoming manufacturing hubs, then publish reports on their infrastructure readiness — both hard and soft infrastructure requirements for businesses.

11. Inconsistent Digital Services: The joke is that the only website that always runs properly is the income tax website — because that's where the government collects money. Despite complaints, the income tax website works beautifully — it's a great piece of technology that supports millions of last-minute filers.

But the MCA website for company compliance is a mess. EPFO is a mess, though IEPF is well-designed. Other government sites are frequently down. I don't understand why we can't design websites with good UI/UX.

For example, EPFO has two different websites — one for passbooks and a main site. If you change your password on the main site, it takes 30 minutes to sync with the other site.

Digitisation is valuable, but we haven't thought through what we want to achieve. Is the goal compliance? If so, are we reducing compliance burdens? Is it about data collection and dissemination? The government has data, but if I want to use it for my purposes, the process is convoluted. Is it about business process reengineering? There are multiple objectives possible through digitisation, but we seem to have lost sight of them.

Currently, digitisation only works for the government, not for citizens or users.

Note: You can listen to the complete episode on Swarajya app, Spotify, Amazon Music, Apple Podcasts or Pocket Cast at What This Means podcast by Swarajya.