The Path to “Ease of Doing Business” Is Not So Easy – The Promise and the Reality of Ease of Doing Business in India
The “Ease of Doing Business” initiative was introduced with the objective of creating a simpler, smoother and more business-friendly regulatory environment in India. The stated intent was to reduce procedural complexity, minimise physical interface with authorities, digitise approvals, bring certainty in compliance, and enable businesses to operate without avoidable administrative friction.
On paper, India has made significant progress. Digitisation has increased, online portals have been introduced, approvals have been streamlined in certain areas, and India’s position on global business reform indicators has improved over the years. However, the experience of businesses on the ground often presents a different picture.
Entrepreneurs, exporters, importers and manufacturers continue to face systemic bottlenecks, inconsistent departmental practices, avoidable litigation, bureaucratic delays and, in many cases, unnecessary harassment. The gap between policy intent and practical implementation remains wide. Ease of doing business cannot be measured merely by the existence of online systems or reform announcements. It must be judged by the actual experience of taxpayers and businesses dealing with government departments on a daily basis.
IGST Refunds: Automation That Still Depends on Manual Intervention
A clear example of this disconnect can be seen in the processing of IGST refunds on exports. The government has repeatedly stated that IGST refunds in cases of export with payment of tax are system-driven and automated, based on matching of shipping bills with GST returns.
However, exporters frequently face situations where the ICEGATE portal shows no error, the shipping bill appears duly validated, the GST return data stands matched, and yet the refund scroll is not generated. The exporter is then compelled to raise grievances and is ultimately asked to approach the port officer.
This raises a fundamental question: if the system has already validated the shipping bill, invoice and return data, why should any human intervention be required at all?
In many such cases, the port officer is not required to undertake any meaningful verification or technical examination. The only remaining step is the generation of the scroll. Yet exporters are forced to physically follow up with officers, submit reminders and waste valuable time in a process which was intended to be fully automated.
This is not an isolated administrative inconvenience. It reflects a deeper structural issue: a supposedly automated refund mechanism continues to remain dependent on manual discretion. Such dependence defeats the very purpose of digitisation and creates uncertainty for exporters whose working capital remains blocked without justification.
Retrospective Cancellation of GST Registration: Punishing the Buyer for the Supplier’s Default
Another serious concern is the practice of retrospective cancellation of GST registrations and its impact on genuine buyers. In several cases, the department cancels the GST registration of a supplier retrospectively on account of alleged non-compliance, procedural lapses or other departmental findings. The consequences of such retrospective cancellation are then unfairly imposed on the purchaser.
Buyers who have purchased goods or services from a supplier holding a valid GST registration at the time of the transaction are later issued show cause notices seeking reversal of input tax credit, along with interest and penalty, merely because the supplier’s registration was subsequently cancelled from a back date.
Such notices are often mechanical and poorly reasoned. In many cases, they merely state that since the supplier’s registration has been retrospectively cancelled, the recipient is not entitled to ITC. This approach completely ignores the commercial reality of transactions. A buyer cannot be expected to predict that a supplier’s registration, valid on the date of purchase, may be cancelled retrospectively months or years later.
More importantly, courts have repeatedly held that input tax credit cannot be denied to a genuine purchaser unless the department establishes collusion, fraud, wilful misstatement or participation in wrongdoing. Despite this settled position, demands continue to be raised mechanically, leaving taxpayers with no option but to contest the matter in appeal or writ proceedings.
This approach destroys commercial certainty. A business may make genuine purchases, make payment to the supplier, receive goods, possess tax invoices and reflect the transaction in its books, yet still face penal consequences because of a subsequent action taken against the supplier. Such a system creates fear, uncertainty and avoidable litigation. It is completely inconsistent with the stated objective of ease of doing business.
E-Way Bill Penalties: Enforcement Must Not Become Coercion
The position becomes equally troubling in the context of e-way bill proceedings. GST enforcement teams frequently intercept vehicles in transit and impose heavy penalties for minor or clerical discrepancies in documents. These may include minor spelling errors, insignificant mismatches in pin codes, small mistakes in vehicle numbers, timing differences or other technical issues which do not indicate any intention to evade tax.
In some cases, officers even proceed to question the HSN classification adopted by the supplier, although such an exercise does not properly fall within the scope of a transit inspection. The purpose of e-way bill verification is to ensure that goods are accompanied by proper documents and are not being transported clandestinely. It is not meant to become a roving adjudication on classification, valuation or eligibility of tax positions.
The practical reality is harsh. Businesses are often told to pay the penalty or face detention and confiscation of goods and conveyance. Since supply chains operate on strict timelines, and delays can cause severe commercial losses, businesses are compelled to pay the demand under pressure and thereafter pursue appellate remedies.
Ironically, many such cases are ultimately decided in favour of the taxpayer. However, by that time, the amount has already been recovered, the business has already suffered disruption, and the taxpayer is forced into unnecessary litigation. This creates a cycle where the department collects first, the taxpayer litigates later, and refunds, if any, are received after prolonged delay.
Such enforcement does not promote compliance. It creates coercion. A genuine mistake or clerical error should not be equated with tax evasion. A fair tax administration must distinguish between technical lapses and deliberate fraud.
Absence of Departmental Accountability
A major obstacle in the business environment is the lack of accountability in tax and regulatory departments. Whether under Customs, GST or DGFT, businesses frequently receive vague, poorly drafted and legally unsustainable show cause notices. These notices often lack proper reasoning, fail to consider the factual record, and proceed on assumptions rather than evidence.
The problem becomes more serious when different government departments adopt conflicting positions. For instance, in matters involving import policy, DGFT may issue a clarification or take a position that a particular item is not restricted and does not require a licence. However, Customs authorities may refuse to accept such clarification and proceed on the basis that the same item is restricted according to their system or interpretation.
This creates an impossible situation for the importer. DGFT is the primary authority responsible for import-export policy. If DGFT clarifies that no licence is required, the importer should ordinarily be entitled to rely on such clarification. Yet, in practice, Customs may still detain the goods, insist on a licence, and refuse clearance, thereby creating avoidable commercial hardship.
Businesses should not suffer because of inter-departmental disagreement. If two departments of the same government hold different views, the burden of resolving that conflict must fall on the administration, not on the taxpayer or importer. Detaining goods, blocking consignments or compelling businesses to litigate because departments do not speak in one voice is contrary to the basic principles of good governance.
Inconsistent Practices Across Ports and Jurisdictions
Uniformity in tax and customs administration is essential for business confidence. Unfortunately, businesses often experience different treatment across different ports, Commissionerates and jurisdictions, even in respect of identical products, identical transactions and identical legal provisions.
An importer may receive smooth clearance at one port but face prolonged scrutiny for the same goods at another port. A classification, valuation or exemption position accepted in one jurisdiction may be rejected elsewhere. Even favourable orders, past assessments or precedent from another port may not be followed, with officers claiming to adopt an “independent” view.
While independent application of mind is important, it cannot become a justification for inconsistency and uncertainty. Businesses require predictability. They must be able to structure transactions on the basis of a reasonably uniform interpretation of law. If the same product is treated differently by different ports, the system itself becomes unreliable.
Such inconsistency increases transaction costs, delays consignments, disrupts supply chains and encourages forum-shopping. It also undermines the credibility of the administration. A truly business-friendly regime must ensure consistency in interpretation and implementation across jurisdictions.
Corruption and Informal Delays at Lower Levels
Digitisation has certainly reduced physical interface in several areas, but it has not eliminated ground-level corruption or informal pressure. In many cases, delays continue without any written reason. Files remain pending, approvals are withheld, queries are raised repeatedly, and businesses are left to understand the “real” reason behind the delay.
Small and medium enterprises suffer the most in such situations. Large businesses may have the resources to absorb delay, engage consultants or pursue litigation, but smaller businesses often cannot afford blocked consignments, delayed refunds or prolonged uncertainty. For them, even a short administrative delay can affect cash flows, customer commitments and business continuity.
The most damaging aspect of such practices is that they are difficult to document. They rarely appear in official records, yet they form a significant part of the lived experience of businesses. Any serious discussion on ease of doing business must acknowledge this reality.
The Larger Problem: Frivolous Litigation and Administrative Overreach
The examples discussed above are only a small part of the broader challenge. Similar difficulties arise in direct taxes, environmental approvals, municipal permissions, labour law compliances, local authority approvals and several other regulatory areas.
A country aspiring to become a USD 5 trillion economy cannot afford a system where businesses are treated with suspicion at every stage. Taxpayers should not be forced into litigation because of vague notices, mechanical demands or inconsistent departmental views. Judicial forums are already overburdened, and unnecessary litigation consumes the resources of both the government and the taxpayer.
When show cause notices are issued without proper application of mind, when genuine businesses are forced to approach courts for routine relief, and when departments continue to take positions contrary to settled law, the result is not better compliance. The result is distrust.
Ease of doing business requires more than digital portals. It requires a change in administrative mindset.
What True Ease of Doing Business Should Mean
True ease of doing business must be reflected in the actual experience of businesses, not merely in policy documents or reform rankings. It requires predictable, transparent and accountable governance. It requires officers to follow judicial precedent, respect departmental hierarchy, adopt uniform procedures and avoid mechanical demands.
Automation must be real, not symbolic. If a process is stated to be system-driven, it should not require repeated human intervention. If a taxpayer has complied with the law, he should not be penalised for the default of another person unless wrongdoing is established. If a clerical error occurs in transit documents, it should not automatically result in harsh penalties meant for tax evasion. If one government department issues a clarification, another department should not casually disregard it and make the taxpayer suffer.
The government must view businesses as partners in economic growth, not as adversaries. Reducing red-tapism and bureaucratic overreach will not reduce revenue. On the contrary, a fair and predictable system encourages voluntary compliance, increases trust and promotes investment.
Ease of doing business is not a slogan. It is a commitment to create an environment where trust replaces fear, efficiency replaces delay, and transparency replaces discretion. Unless these principles are implemented at the ground level, the path to ease of doing business will remain far more difficult than it appears on paper.
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