I tried starting a manufacturing unit in India | Hacker News Reader

I tried starting a manufacturing unit in India

superr.in

256 pointsrohan_shah184 comments

I think what the OP went through is pretty much re-zoning of an agricultural land to commercial/industrial land which probably will run into similar roadblocks in Western world too? Of course, not saying it will take this long but have heard about similar bureaucracy.

Small town governments in USA at least are very strict with their zoning codes and based on things what I have heard, changing the zone sometimes require even putting the change in a ballot! Mostly requires council approval I guess but the process is similarly full of red tape. I remember a very similar article by someone who tried to start a business at their home in some US state and the red tape he had to go through.

>Small town governments in USA at least are very strict with their zoning codes

Even cities in the US. I live in a "historic District" in cambridge ma in a big ugly brick building with 35 units. 3 of us wanted to change windows, as they're original 1940s and terrible. So we go to get a permit. The permit department sees "exterior change" looks at the address, and sends it to the historical commission. They won't sign off, we have to attend a hearing. They don't like replacement windows,[1] so we fill out the permit and go to the meeting.

We please our case to the four commissioners and no problem. We get the permit, everything was handled professionally, but its a 2 month delay and kind of a pain. I know its encouraging people to do changes without permits. Some of my neighbors (bless their hearts) seem to love to complain about any change, to anything so they're not helping. I can't imagine trying to build something new. (Some renovations were shot down in the meeting and they're invited to work with the commissioners to come up with a compromise.)

https://www.cambridgema.gov/historic/permitsApplications

I know restaurants that have had to wait a few months for inspections which delay openings. Its a balance, but sometimes it tips too far.

cambridge on windows. [1]https://www.cambridgema.gov/historic/aboutchc/~/media/FF5F4A...

Cambridge is not representative of reality outside of Cambridge.

Double-paned windows are not allowed in several historic neighborhoods I’ve lived or worked in. Pretty sure they’re banned in much of SF.

That's a fit of irony considering that many of the places with the most stringent regulations in this aspect are also places which have taken other actions ostensibly to help the environment. Reducing the energy demands of basic living seems to be more beneficial than nearly any other action that could be taken, such as banning plastic bags and straws.

It is ironic.

But, in the end we got our double paned windows.

Interestingly, Harvard's HouseZero was at the same historical committee meeting we went to, with a request for "Triple panes". They were approved for everything they asked for..

I wonder how well its working..

https://snohetta.com/projects/413-harvard-housezero

https://news.harvard.edu/gazette/story/2018/12/harvards-hous...

Its similar in many US cities with historical districts.

It is not just about red tape, it is about corruption. Govt. Employees in India join the Govt job only for "alternative" revenue ( bribes ). This process is usually handled by "agents" who knows how much these govt employees expect and provide "easy" services to whoever wants to get shit done.

To take an example a simple thing like driving license takes couple of months to get if one is planning not to involve an agent, but you can get driving license ( without knowing any driving ) in 1 month if you have an agent.

>> This process is usually handled by "agents" who knows how much these govt employees expect and provide "easy" services to whoever wants to get shit done

That's probably why some people would block the application and even refuse bribes; they probably already have exclusive deals with agents who pay them regular bribes and will not even bother to risk accepting bribes through unproven channels. They literally monopolized the regulatory pipelines and have setup an entire supply chain around it.

Yes, worst part is unless you are inside their trust circle, you will be met with roadblocks even when money is paid. It will be even worse if you are competing with existing local player

It's the same in the Philippines and other developing countries run by corrupt trapo ("filthy rags") politicians. If you go down to the LTO (Land Transportation Office) to get your driver's license, the entrance is crowded with "fixers" who, for a fee of course, will take care of your license for you and even take the driving test for you. There is no enforcement in terms of making the applicant take the driving test themselves, so guess what? For a fee you don't have to prove you can drive or even know the rules of the road. You'll probably get your license in a hour or so. If you insist on doing it yourself and making an end run around this "system", it might take days to a week to get your license. The resulting conditions on traffic and accident rates are exactly what you might expect. Nobody cares.

2 - 7 days? In Finland it takes 10 - 14 weeks :D There are mandatory theory and driving lessons to take. Well actually the law changed recently so now it takes "only" 6 - 10 weeks.

I promise you, Finland is a lot more serious about road and traffic safety than the Philippines.

Apparently in PK these days government competes with agents on service and will take same money and deliver DL to your house

What about the employees themselves? Does govt pay bonus to employees based on performance? If not, they will fall back to original practices

It must become simple for a bribery captured in evidence to be prosecuted. This is anarchy otherwise.

It's very hard to capture.

All they do is - keep silence. If you understand the cues and pay up yourself, your work will be done otherwise you can keep waiting forever.

It's trivial to capture if there is a will. Send an agent who offers a bribe, fire the worker if the bribe is accepted.

Most of the time, they don’t ask for money explicitly at all but they will put procedural roadblocks so one pick up the cue and bribe them. Like Priority Shipping for a bad analogy. Pay to fasten and smoothen your experience kind of thing.

Of course it’s illegal.

Same for me registering a car. The dealer sent me 12 documents and the inspector wanted a few more. The dealer wasn't clear what they were. So I had to waste a few hours for two days. The agent was able to cut the queue and I spent as much time as to expose the engine number under the bonnet. The agent is the funnel for bribe from me to the department.

It appears that way. If you talk to them directly they are going to ignore you and delay things. Then there are agents that specialize in fast tracking. The agents know the officials and hand over the arranged bribe and the agent just charges more to cover the bribe.

There is now plausible deniability because the agents look like they are actually providing a valuable service.

One trick it to leave a desk drawer half empty and then they go for a tea break. If they come back and they don't see money in their desk drawer, then it's hard for you to complain when they mark something in your forms as incomplete and ask you to redo it or whatever. And the next time you come to the office, you might be accidentally left to wait for a couple of hours and how you do make a decent complaint about that?

> evidence to be prosecuted

Just be sure to bribe the police, the judge etc.

Well, These employees had to pay bribes to get that position in the first place. Its turtles all the way down.

I think in the US it GREATLY depends on what is going in that location.

"Light industrial", at least in my area is a pretty easy thing to rezone by the local authorities. At least it is in my area in suburbia in the twin cities MN.

Granted that doesn't mean a town couldn't just say 'no'. On the other hand there's plenty of land already potentially rezoned land you can buy and it's no big deal.

Now bigger scale industrial is a whole other story. Nobody wants a smelting plant company to just show up at the city council meeting and announce they bought a bunch of farm land on the edge of the town...

There are hardly any lands zoned as "industrial use" in India and all land is agricultural land by default because of the high fertility of land everywhere.

Yes that's right. It's similar.

But the problem is that the whole of India is made up of hundreds and thousands of small towns. And there are hardly any land banks zoned as industrial land because almost all of India is fertile land.

Agree to an extent. Only the industrial parks and other similar areas are zoned as industrial and I guess it’s hard to setup your warehouse for example there? Of course, you had the land which was the primary motivation, if not, SME industrial parks would be the way to go.

Exactly, this is a re-zoning process not “opening a manufacturing plant”.

I can almost guarantee this land was purchased for significantly less because it is agricultural land as well.

States have plenty of reasonable concerns about re-zoning agricultural land into commercial land. The most obvious being that if there are spills or other environmental issues it could destroy much of the agricultural land around it. Needing to know past owners is to make sure a previous bad actor did not create a new shell company to sell to hide the real owner. The previous owner could have already been banned from commercial development due to the above or other issues.

The fact that the author is intentionally misleading this article shows that they are a dishonest actor and is part of why we ended up needing all this procedure.

The problem is not the number of documents he had to do, he didn’t have major concerns on that .

The bribery expected in many of the depts, broken website, all the delays , lack of responses, after 9 months he is not more than half way into the process is the problem .

If they denied him with valid reasoning early on and communicated in reasonable time this won’t be a problem .

If you bothered to read the blog. You would know he was okay with getting certificates from forestry department but he got stuck because of BRIBES.

> States have plenty of reasonable concerns about re-zoning agricultural land into commercial land. The most obvious being that if there are spills or other environmental issues it could destroy much of the agricultural land around it.

Ironically both the Forestry Dept. and the Pollution Control Board were the fastest to certify so maybe this isn't the problem, eh?

The author is dishonest because he refuses to pay bribes? If anything dishonest people have an easier time because they would just pay the bribe.

The author doesn't complain about the necessity. He is complaining that compliance doesn't result in receiving a permit.

Thats right. Majority of the problems here are from re-zoning agricultural land into an industrial one. If you build your manufacturing unit in an existing industrial area you can skip a lot of this type of paperwork.

You won't face these overt bribes - there's a difference between red tape and the requirement for bribes

I think the problem here is the sheer amount of agencies that need to be dealt with. In other parts of the world, it's not easy but at least you typically just need approval from a single entity (the town council)... The hard part is just waiting; it can take a decade to get approval in some cases.

It's interesting because you can see how theoretically any of these requirements would be a reasonable step before starting a manufacturing operations. I know in silicon valley for example many environmental problems were caused by insufficient oversight of manufacturing. However, the road to hell is paved with good intentions, as described in the article. I'm sorry to hear this is happening and I wish you good luck in challenging this process.

Maybe a default-yes approach would be more efficient. You should be required to post notice of your plans to these offices, then they have two months to raise any objections. If they do not, then you can go ahead. If they do, they're required to keep the process moving or you can sue to remove the road block.

There's an economist who calls this "premature imitation". Basically India has adopted a lot of ideas that (arguably) make sense in more developed economies but that prevent India from developing to the point where those policies are actually beneficial.

"Premature Imitation and India’s Flailing State" - Shruti Rajagopalan and Alexander Tabarrok

https://www.independent.org/pdf/tir/tir_24_2_01_rajagopalan....

It's hardly new; the colonial system was set up to prevent India industralising, but was so beneficial to those taking bribes that it was carried on even after independence. Known as the "license Raj".

> the colonial system was set up to prevent India industralising

Hardly. The colonial system started to evolve from approx 1600 [0] but industrialisation [1] didn't start in the UK until at least 150 later

[0] https://en.wikipedia.org/wiki/East_India_Company

[1] https://en.wikipedia.org/wiki/Industrial_Revolution

Colonialism didn't seriously arrive in India until 1750, and it took until 1800-15 for the British East India Company to consolidate it's control over the subcontinent. Before 1750, the Company was a straightforward trading company, sharing trading rights with the Portuguese, French, and the traders of the Indian Ocean rim. After 1750, they were able to seize tax-collecting rights in Bengal, one of the most prosperous areas of the Mughal Empire. They used tax revenue on agriculture in the fertile Bengal delta to fund further trading and military activities around the subcontinent. Their policy was often mercantile. They forced wages down, drove exacting standards for manufacturing textiles, and engaged in monopsonistic policy.

So, I agree - an accurate statement would be to say "English involvement in India came out of the prevailing ideology of mercantilism, and it then grew into a colonial state". The colonial state did lead to India's deindustrialization - ex: the flourishing textile industries of the subcontinent were not allowed to modernize. But counterfactuals are hard. (I still think an area of the world at the forefront of textile production for thousands of years would not have gone gently into the good night without a fight.)

One of the most important things post independence was to ensure Indians had the capability to make things on their own. This meant achieving a high degree of domestic capability(Only Indians making things). There had to be a system to enable this happen. At times you have to slow growth to ensure you meet other capabilities.

It's not exactly a conspiracy.

Besides globalization itself is a relatively a new phenomenon and we did get started on that.

Also merely blaming these policies for slow growth is wrong. India has a range of socio-religious problems, which just can't go hand in hand with requirements for high growth economies, that is things like high quality public education, equality of access to opportunity, a degree of fairness in society and focus towards larger goals etc. India is just not there yet. Even domestic political goals are just something else.

Basically India is trying to make Biryani out of Idly batter.

> "premature imitation"

When I worked at a young startup in Seattle we went through a stretch of hiring ex-Microsoft PMs who were great at solving all sorts of ten-years-old Microsoft-flavored problems.

I wish I knew this term then.

The problem here has nothing to do with unintended consequences.

These consequences are very much intended. The government adds these road blocks precisely so they can maximize the number of government workers who can milk money out of you.

Western developed countries have an order of magnitude more permissions that need to be approved. The difference is that the more sensible ones will consolidate all the requirements from all the different agencies and require you to make a single (or maybe a couple) submissions.

You will likely be required to submit more stuff, but those will be in subsequent problems in response to specific issues that come up.

They will also digitalize and centralize information so that things can be checked directly in the databases of the relevant government agency

Default-yes might not be necessary. If you really wanted to make the current process efficient, you would be able to. Image if the whole process was online, and not you were responsible for collecting the NOCs, but the government internally. Ideally, the government should contact you only for the info that they don't already have. The problem is the incentive to create such a system is low (because of how it trickles down from electoral process).

I wonder about the larger context here.

Generally speaking in developed counties you can't just buy any given farmland and rezone it ... at will, just because you want to. That's not an automatic thing.

Nobody wants a smelting plant to just show up next to their town and pop up because someone wanted to build a smelting plant .... or something with massive truck traffic ... that now goes through small neighborhoods / school zones day and night ...

Having said that, the bureaucracy described is pretty thick. And at least in the US there's plenty of land that is locally zoned in a way that could change from farmland to something like 'light industrial' without that level of bureaucracy.

But you need to seek it out and not just buy rando farm land and announce you want to build a factory too..

I feel like this story both could happen in the US, but also would be fairly avoidable too.

I recall a hilarious story about a cosmetic company who operated exclusively in China but wanted to diversity their manufacturing around a bit and bought a building in a historic district in the US. But they did zero homework and were astonished to find out that nobody wanted trucks coming and going day and night through this small town's city streets and 'staging' in the local school parking lot. The clueless CEO said 'this was never a problem in China'...

The land in the write-up is located beside a highway and trucks don't need to go through any town to get to the unit.

Nor a I trying to build a heavy industry like a smelting plant. I am currently planning to build a warehouse shed which could be later converted into very light manufacturing plant for animal feed pellets or something similar.

Also, there are very few areas zoned as Industrial land. Also, this isn't a random piece of farmland. It's almost a barren land where most people grow grape vines or just some dry land crops like cactus.

I wonder if India has a system where land is farmland or unused ... but is staged to be used as light industrial in the future?

At least in the US that's a thing where local communities zone areas for future / potential use ... but it isn't that zone at the moment because it is being used for something else. At least in the US those are fairly plentiful.

Much of the world operates like this, to soak you for as much money as possible before you give up and pay, even if they provide nothing actually useful or meaningful. It only looks reasonable from their perspective which is to maximize their income. Tax collectors in Rome 2 millennia ago were expected to gain their income by extorting more tax than people owned; as long as the state got what they expected, anything else was yours, which provided a great incentive for tax collectors to soak everyone for as much as possible, and ensured the state got what it wanted.

It's an interesting study in economics, unless you are the takee.

As a famous Brazilian writer said: "Underdevelopment is not improvised; it takes centuries to perfect."

It's almost as if the process is designed to prevent new competitors from being able to compete ^.^

Now, I wonder who exactly were the people involved who lobbied for and paid money for these things to happen.

>>process is designed to prevent new competitors from being able to compete ^.^

No, the process is designed to limit fraud and prevent fly-by-night companies from squatting resources for the real businesses.

One can argue that the government must place trust in citizens, but then in India time and again we see even reasonably sized businesses defaulting on loans, and squatting land resources. You also need a lot of regulation and inspection, to ensure people are not drinking fertilizers with Cola. Such situations are actually common than one thinks.

The problem here really isn't law or law maker. The public in India in general is corrupt, and even honest sounding people become corrupt when offered an opportunity. There's only that much you can do when there's that much lies and corruption, you can have laws to limit them, but then these kinds of side effects show up.

Bureaucracy is a lazy way to do this.

Right, the free market is a much more efficient way to do this after a couple of thousand people die from drinking adulterated fruit juice.

So are you saying the poverty is there by design? People want things to stay the same even if it means stagnation?

Yes. As piva00 said, the elite benefits from the status quo. I think it is something even deeper: people are deeply afraid of change.

Another factor is the laziness of the bureaucracy. Public servants prefer to move paper around than being "permissive by default" and going to the field to verify that things are ok.

Yet another factor is the weak justice/control system. It is difficult to punish bad actors rapidly and effectively after the fact, so the government tries to do as many checks as possible before the fact, which of course doesn't work and makes the life of honest actors hell, but "at least we tried!".

All that said, Brazil is probably much less bureaucratic than India. We Brazilians tend to compare with USA (big country as well, same continent, so natural comparison) but some friends that went to live in EU say bureaucracy is a big thing there too.

Not all the people, the people in the elite of Brazil very much want to keep things as they are. They don't think that the violence and other social issues they encounter is a result of their own actions, as any conservative elite they want to keep the status quo because the current inequality benefits them handsomely.

Can't find the quote. Who was the writer?

Nelson Rodrigues. The original in pt_BR is “Subdesenvolvimento não se improvisa; é obra de séculos.”

More literal English translation then: Underdevelopment isn't improvised; it's an effort of centuries.

I think "work" as a noun works perfectly fine there, as in "works of art".

So little of his work translated in English, it's a pity.

https://en.wikipedia.org/wiki/Nelson_Rodrigues#Works_in_Engl...

Author of the article here. Do ask me if you have any questions.

The World Bank (which calculates the annual EoDB rankings has acknowledged that in India, "on the ground" experiences of entrepreneurs differ from what their index shows. As a result they are incorporating survey data/inputs from entrepreneurs who try to do business in India. I think it might be worth trying to contact them.

The Indian gov't is typically reactive. However, EoBB is a huge priority for the current administration. The Department for Industrial Policy and Promotion (DIPP) [renamed to Department of Promotion for Industry and Internal Trade] is overseeing the EODB project.

Your mileage may be limited now because the party in power in Maharashtra is no longer the same as the party in power at the Centre... There is limited pressure they can apply.

You are right. I see that the central government is fully committed to EoDB.

Also they have done wonderful work in Gujarat by making this process completely online.

And land is a stage subject.

Therefore, this write-up is not targeted at the current central government but at the wrong doings of past 70 years and why India still lags.

This is something that’s hard for someone like me to know (living outside India and no experience in setting up a business in India)

Does it make a difference if same party is in power in center and state?

The general consensus I see is that it doesn’t make such a big difference (everyone compares to Gujarat which is reaping the benefits of good admin over last 20 years). Current states have a lot of rot to remove and any EoDB efforts won’t be apparent. Is this a correct understanding of the situation?

I'm not too familiar with India either, but I figured that if the same party were in power in Maharasthra, then they would be able to apply pressure to the civil servants who were witholding their signatures (perhaps in exchange for non traceable Electoral Bond purchases)

Also, India has a unique federal structure where states can override central laws.

Override union laws ? Do you have examples of that ? You mean ignore them ? Ignoring laws , orders has happened and either the union government has not sued the state for various reasons or cases are still sitting in court.

There are some powers in the shared list , where the state can specify its own rules etc.

Over time it’s trending towards union control for example removing VAT and replacing with GST etc

No no no. Electoral bond purchase won't get you you anywhere.

Before the electoral bonds, all political funding happened through cash. Which was more non traceable than the current electoral bonds.

But yes the ideology of the party matters.

Central government is pro business and they have proved it in Gujarat by making it a lot easier to NA land in Gujarat.

State Government (esp. INC) is communist and anti-free-market anti-business party which seeks to create as many hurdles as possible.

Not too much difference on a transaction level, policy level perhaps , there may be contradictory rules etc.

Delhi has notably had lot of challenges because of different governments , but Delhi administration is not typical state government, it is like Washington DC , there are special provisions as it is the capital region

Thats heartening to hear. I'm fascinated by the business climate in India and I was wondering about the efficacy of the reforms implemented by the central and state governments. I have an uncle who runs a small manufacturing plant in a Mumbai industrial estate. I bombard him with questions about the manufacturing landscape in India all the time lol.

Some questions:

- How much would you expect to spend if you were to pay all the bribes? Are you unable to afford them, or is this more of a moral issue?

- Is there any reason why you are effectively purchasing agricultural land and rezoning it to industrial land, rather than buying existing industrial land? What is your plan if you cannot obtain all the necessary NOCs?

- Is there any utility/road/rail access to your land? If not, have you looked into how much it will cost to build the necessary infrastructure?

- Is the area at risk for natural disasters (especially flooding)?

Not paying bribe because of moral issues as well as the fact that I could buy 10 MacBook Pro's with that much money.

There are agents who provide the "NA service". They quoted me 10,00,000 (10 Lakh or 1 Million Rupees) excluding all the legal payments to government.

All land is Agricultural Land by default. Industrial land banks (created by MIDC are few and far and our land is near a MIDC industrial land bank which is out of stock, meaning completely bought out)

Yes there is road access.

No. the land is almost barren land. Far away from flooding. So no problem with natural disasters.

The article mentions that he wants India to become more business friendly. Giving in to the corruption will only make the problem worse I guess.

Your article seems to imply that the process is inordinately difficult in India, but I'd challenge you to locate a country/jurisdiction that wouldn't put you through a rigorous process to convert a plot of agriculturally zoned land into a factory.

Maybe Shenzhen? But that's hardly agricultural anymore from what I've heard. I imagine you'll find few, and I suspect the infrastructure will be very poor in those places.

If you want no red tape, you need to go somewhere desperate for your investment enough to waive environmental, social and health protections, like parts of Sub Saharan Africa.

And in fact this is what many Indian and Chinese companies do. Just be ready to line the pocket of the local strongman.

I got the impression that the complaint was more about the bribes and all than the regulations meant to protect the land

I agree that the bribes are horrendous. But they're also what you get from a system that incentivizes corruption. You can't expect Indian bureaucracy to be like German bureaucracy, because the incentives are so different for the players at ground level.

The alternative is to pay public servants well and charge a very large fee for the permits to finance that. Then, deal corruption on top of that without impunity.

However, the culture itself has to support that. The culture of demanding bribes for documents shows that there's a parallel market in play to which the bureaucratic system has been subverted.

Public servants are paid well(if they get paid in time, some incompetent departments are failing their employees) along with amenities. So Bribery in india is mostly a cultural problem.

> Public servants are paid well > So Bribery in india is mostly a cultural problem.

Apparently not well enough. When it's a few here and there you can argue that it's a character issue. When it's pervasive, there's a problem with the incentive structure.

I also wouldn't be so quick to condemn the culture, and I'm not so sure you can disentangle the cultural from the economic anyway.

Hello Rohan, I'm investigating product development opportunities targeted to companies/individuals investing in the Indian market. Targeted specifically to people like you. I would love to have a virtual coffee chat with you over Google meet or zoom and discuss some of the problems in this space.

I've found your twitter and I can share my contact with you that way (I don't think HN has private messages). Otherwise, my email is my HN username@gmail.com

How do you think the process would have gone if you agreed to pay bribes?

One thing to note to, is that any American citizen would be unable to set up manufacturing this way because it is explicitly illegal for U.S. citizens to pay bribes to foreign governments. [Foreign Corrupt Practices Act - FCPA]

https://www.investopedia.com/terms/f/foreign-corrupt-practic...

(Although given this account from presumably an Indian citizen, I can't imagine in any way recommending a non-local attempting this)

Paying bribes is illegal; but facilitation payments are legal.

If you have an official who is refusing to perform their job, or taking inordinately long about doing it, then it's legal to pay them to do it. As long as you're not influencing their actual decision making process, i.e. causing them to overlook actual legal deficiencies in your paperwork, then it is legal.

It's called the facilitation payment exception to FCPA. Obviously one intending to make such a payment would be well advised to discuss with their lawyer to make sure it is indeed within the scope of the exception.

>Obviously one intending to make such a payment would be well advised to discuss with their lawyer to make sure it is indeed within the scope of the exception.

Come on. It's obvious that the "lawyer" (or agent as mentioned in the article) is paying the fees and you aren't even aware of the process unless go to the department directly and notice the lack of willingness to process your permit.

eh... you make it sound as if it's not explicitly illegal for Indian citizens to bribe other Indians.

If I paid the amounts they wanted ~ 10,00,000 (10 lakh or 1 million) Rupees each, it would be done in 7-8 months.

And I assume the agent's cut is on top of that?

Thanks for laying all of this out. Hopefully some politicians will take notice.

It sounds like it's basically impossible to run a business without paying bribes. I imagine even if you got through the NA certificate process, they would come around later for "inspections."

I'm confused by why you wouldn't just pay. If I'm not misunderstanding google, we're talking $60 USD. Which is a pittance.

1,000,000 rupees comes out to $13k according to google. Since you need to bribe multiple entities (I'm guessing all the ones listed in the article) that probably comes out to $150+k total.

Sorry I misquoted.

It would require a total of ~15,000$ USD

1. Its not a small amount in India. Lot of families live on $ 100 per month 2. SOme people worry about how their goal is achieved than achieving in anyway possible

Just wanted to say kudos for all the patience you've exhibited DIY'ing this.

I agree that this process should in be a lot simpler but I wonder what the outcome would've been if you were willing to hire a broker and pay some bribes to get it done. Of course for you the actual manufacturing might be a secondary goal with the primary one being changing the process itself, but if someone just wants to start doing business, do you know how much it'd cost in terms of broker fees, bribes etc. to get everything setup?

Glad you're going through this as an exercise, but my understanding has always been that even for something as simple as getting your name changed, you should just get an "agent" to do all the work for you. As you noted, almost every paper you needed is essentially unnecessary, and all you need to do is make sure that someone in the chain can ignore many of the useless requirements. This also means you probably have to pay the bribes as part of some "package" I suppose.

Is your goal to open a factory, or is it reform? I'm glad if someone's trying to reform all these useless ideas and everything, but it doesn't exactly make sense that you couple basically two fundamentally different problems though. If you honestly want to get into manufacturing in India with any real practical timelines, you better get used to paying bribes as cost of doing business. If your idea cannot work with the extra cost of 10 MBP level bribes, better don't bother at all right?

An anecdote I have of relevance: I used to draft letters for my father in the 90s for his company. Once I mistyped 1997 as 1979 in a letter. The licensing authority fined his company Rs. 3,00,000 for that mistake. That was 10% of his annual revenue back then. That's because he had negotiated with the person a month back to not increase his bribe. And hence the agency used this as leverage to get a higher bribe.

Point is, you are trying to fight such a fundamental force and way of life in India, I will not bet money that you will succeed in this route, though I sincerely wish you would. Even if you do everything right, they will invent a problem because now you've hurt their ego on top of their pocket. Hell, if you actually start succeeding you should probably start worrying about personal safety as well (I would if I were you), because I doubt India is actually developed enough to ignore the worst case scenarios you can imagine in a corrupt society like this.

Thanks for the write up. It’s an interesting look into the difference between official federal government rhetoric and the reality on the ground.

I’m curious if India has special zones created the way China did for Shenzhen, for example, and if so the process of applying there would be any easier/more efficient?

Land is a state subject.

And as far I can see the central government is really committed to making a difference on the ground as they have done in states administered by them.

There are special zones in India but lot lot less than China or the USA. And all the land in that land bank is sold out where I want to start the unit. (Sangli Niraj Kupwad MIDC)

What can I do to help? Whatever I possibly can do, I will try, I am in Jaipur btw.

I am not trying to offend you but..

this is the problem in india. Should one know someone influential to get things done honestly and ethically?

I'm sure u/eklavya is aware that this is the problem in India. This is why entrepreneurs with low political influence participate in low capital businesses (ie import export). They move into more capital intensive businesses (ie oil refineries) only when they have bought political influence.

It makes sense right? Why invest capital when you risk losing the value of your investment due to arbitrary bureaucratic hurdles like the ones faced by OP? This is the strategy Relience used in the past.

Ummm, how did you arrive at the conclusion that I am offering influence political or monetary or whatever? I am embarrassed now since I can't offer any of that :P

Haha. Probably I misunderstood

My point was that an individual should be able to conduct his business without someone handholding ( who is not stakeholder or partner or employee )

Thanks for offering your help. Currently nothing much can be done by even myself.

Will let you know.

hi Rohan, I am Jitendra Shah from Surat. yes there are same practice in all the part of india in government's NA approving authority. But I still think you are fortunate enough to own an agriculture land. let me tell my situation, My parents were born in Rajasthan and they do hold the agriculture land in Rajasthan hence they are de-facto farmers of India. Any farmer in India can buy agriculture land in all the states of India that is a rule. But due to corruption in Gujarat the higher authority refuse to allow out-side states' farmers from owning agriculture land. I had even filed multiple petitions which of most were just redirected to local state office to be never answered. I was born and spent all my life in Gujarat and its the karmabhoomi for me and am proud to call my self gujarati marvadi. I am waiting for the day when I can legally own the agriculture land in Gujarat as a proud Gujarati.

I wish you best of luck for your endeavor, and following you on twitter.

Have you considered contacting a local newspaper and going onto social media about this? It seems like the only ways to move this forward would be ("easiest" to most difficult):

- forcing their hand with public shaming

- forcing their hand with legal measures (looks like you're doing that)

- changing things by getting officials into office that _want_ to change things

P.S respect for hanging there this long already!

I have thought about it many times.

But the problem is everyone knows about this and majority of people think of this is good because they have been brainwashed by communistic ideology and they think that business people are bad and evil and hence they should be controlled and suppressed by all possible means.

That mindset seems to be pretty common across the developing world, unfortunately.

It may not be a good idea considering that those seeking bribes could be connected to goons. There have bee attacks on whistleblowers in rural Maharashtra in the past.

Have you seen John Stossel's attempts to start a business in India as compared to USA and HK? My condolences to you, friend

No I hadn't heard of it. Will check it out now.

Hi Rohan, I'm a podcast producer for BillionTwenty Media an upstart podcasting company working on a story about the ease of doing business in India. I would love to interview you about your experience. I'm following you on Twitter as well, but your DMs are closed. Can you please email me at adi@billiontwenty.com?

Thanks for the write up. I enjoyed it a lot. I'm following you on Twitter now and I hope to hear about the developments. Wishing you all the best!

Can you bring media with you when they ask for bribes? Perhaps local news would be interested in publishing it.

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I don't think Sudhir Chaudhary or his news channel will count as local news sources in this context.

Thats about as newsworthy as a story reporting that humans breathe air - it's very common knowledge in India

That’s a great write up. Thanks

Did you think of setting up the same in Gujarat since you had to runaround so much in Sangli?

If you were to to open a plant in China instead, which tariff would customers have to pay on your product?

It would depend on the product that is being manufactured/imported.

But the whole point of me starting this unit is because I "want" to make it happen in India and not import from China. There is a lot of unemployment in India and hopefully, I want to help a bit.

Try building a factory on farmland in, say UK.

This doesn't seem to have anything to do with 'starting a manufacturing unit', but everything to do with completely legitimate government land-use planning / zoning rules, etc, albeit a seemingly inefficient process.

The author should have performed due diligence on that process before embarking.

Except the fact that all land in India is a farmland.

To expand, many projects are intentionally or unintentionally running afoul of farmland and water body conservation laws.

You're missing the point. He's not saying he's against any of the documentation. It shouldn't be this hard, re-zoning or not.

re-zoning should be somewhat complex in most cases, as there are many factors to consider.

You can't just construct a steel mill next to a conservation beauty spot, simply because you 'bought' the land. Ideally.

unfortunately, its not complex in this case, as it's pretty clear that it would be simple to get this done if the author was willing to pay bribes. Systems like these are only complex for the people that don't want to behave unethically.

In the UK, it will certainly take time to obtain planning permission (AFAIK, we don't have "zoning" as such).

But you will deal with one or two departments, and the requirements will be clear. You will not be sent on a wild goose chase across the region, sprinkling money and bribes as you go. Each department you visit will also not result in a further 3 you must visit, like some kind of bureaucratic ponzi scheme. And you will not be asked to submit forms at a website that doesn't work for weeks at a time.

Indeed, western nations are far more sophisticated and generally avoid direct corruption in the processes themselves.

The outcome, however, may still very well depend on 'special' factors.

your local government officials in the UK will refuse to sign off on documents without receiving bribes?

This is such an amazing writeup. You are an extremely patient person. I hope this gets some press coverage in India. It is shameful that the whole process is so stuck in bureaucracy

John Stossel did a similar experiment over a decade ago I think. Tried to start a simple business selling hats in a mall in 3 countries-- India, USA, and Hong Kong. In HK he was up and running the same day, USA took about a week, and India never completed his business registration.

Not surprised one bit! Would you happen to have a link to this experiment?

https://youtu.be/fmuTTeESEs4 timestamp 3:45

Let it be known that today OP delivered

Unfortunately, media in India is as corrupt as any other organization. I have seen instances, so called journalists come and ask for bribes, if not, they will put false allegations on the project and gets people and govt against you.

I remember recently reading a lot of articles on India trying to attract manufacturing plants in the country. Do they have to face the same issues as outlined by OP or are they handled differently?

Also, are they looking at streamlining some of these processes?

I don't have a problem with few of the questions that OP complained about. For example, the health certificate looks like something, they might ask to check for health safety in the workplace and also probably to see natural resources outside are not being polluted.

Most people are willing to pay bribes, so this is not an issue for them

But is this scalable? A lot of big manufacturing moving now like Foxconn etc is just assembly. What they should want in the long run is to have the whole ecosystem in place.

India has lagged a lot in terms of its peer economies in other parts of Asia which almost started at the same place in the last century. I know they did liberalisation later than most, but they haven't catched up well even after that.

There is zero benefit of setting manufacturing unit in India.

Afaik, most of the manufacturing that happens here is assembly.

Unless your product is one of those mass market, multi million dollar revenue makers you'll be eaten alive by adminstrative costs.

I'm a complete outsider, but from my perspective Indian manufacturing seems poised to doubly benefit from increased export at China's expense, and 'patriotic' local sales (even required by legislation in some cases).

> 'patriotic' local sales

Biggest winners from recent Amazon and Flipkart sales were OnePlus, Oppo, Xiaomi etc.

I hate to say this, but what he went through is reality. :(

HOWEVER my friend, if there is a will there is a way. ;)

Is “bribe” the only way? It is one, but not the only one. Maybe you can rent space, maybe you can buy a land already classified as “NA”. Maybe apply under several “Special Economic Zones”.

I still would have preferred if I could start on my own land.

Yikes. It sucks that you had to go through this. I find it appalling that so many bureaucratic jobs exist only to sustain their own existence: providing little value to those who pay their salary via taxes.

Do you think this process would've been (significantly?) simpler if it wasn't agricultural land involved?

All land is Agricultural Land by default unless it comes under Municipal borders of a city or owned by MIDC (Maharashtra Industrial Development Corporation).

So yes, the whole point of this NA document is to convert the agricultural land into non-agricultural land on paper.

I can understand why it's a complicated problem then. As far as I know over here (and I don't know shit), the local government (on a county level) sets zones according to a "destination plan"; residential, commercial or agricultural.

You'd apply for a plot of land in a commercial district for a project like this. Else, you'd need to get in touch with the county so that they vote on changing the destination plan.

I'm fairly sure the county itself will handle a lot of the infrastructure hurdles mentioned in this post, e.g. power lines, irrigation, etc.

This is much harder than it needs to be. But I also don't think agricultural land should be rezoned willy-nilly. Much of India's population (~60%) rely on agriculture. It should be with great thought that private parties should be able to convert the land (not just because it reduces land able to grow food and agriproducts), but also because it can be a way to dispossess the poor. For an example, see the plight of those whose land was taken to found a new capital city in the state of Andhra Pradesh. The landowners were more or less given a good price for their land. However, those who rely on the land - farm laborers and their dependents - haven't seen an improvement in their situation. They've essentially been turned into migrant workers; they were able to work on local land before. This is essentially what the English gentry did during the enclosures. The resulting "reserve army of labor" helped seed the English Industrial Revolution.

https://en.wikipedia.org/wiki/Enclosure

This sounds worse than Eastern Europe. My wife once had interactions with Polish authorities and the first official told her immediately what amount of bribe money will be necessary to get it done quickly, contrary to everybody involved sitting it out as long as possible. When she asked why the bribe is so high, the government employee explained to her whom of his colleagues he has to pay himself to get it done quickly.

I respect your refusal to pay bribes, but I believe you would have already received your approval if you were willing to pay a bribe. Not sure much those delays cost you in regards of your time invested and lost opportunities.

I'd go to the first person you talked to, ask how much needs to be gifted to him personally so he/she can take care of this. Then pay half of it at the beginning and the second half once you have received your approvals.

> you would have already received your approval if you were willing to pay a bribe

There is a law that prohibits American citizens from bribing foreign officials:

https://en.wikipedia.org/wiki/Foreign_Corrupt_Practices_Act

Dude, for things like this you can't just apply Wikipedia knowledge. It's really not enough. Section 78dd–1 is what it looks like in law. Read Section 78dd–1 (b).

> (b)Exception for routine governmental action Subsections (a) and (g) shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.

I did not know that, thank you.

The author is an Indian i.e. Myself. Thanks.

Bribery is illegal in India too.

It's great to find out about how it works in Eastern Europe.

My father would have and has always done what you mentioned. Just pay it up and continue. And I agree totally with it.

But anyway due to Covid-19, the construction activity isn't going to start anytime soon. So I ave decided to play it out completely and see how far and deep this mess is.

I was told a saying that in China, at least you know who to bribe to get shit done. In India, you have no idea.

When both the Talathi and Circle Officer denied, all I thought was "why didn't you pay them". That's why I think relying on agents who handle the bureaucracy and know which palms to grease are worth their weight in gold in developing countries.

I think during our life time we'll see India massively improve in this area. They've already made so much progress over the past 20 years, it's a really exciting country to watch.

They need more coverage in Western media like this though. Similar with China. An effective form of change is shaming the department or process, and if it's covered in Western media - at least this is true of India, it often makes local news. (See Hassan Minaj's coverage on Modi.)

Sounds just like Ukraine.

It's surprising (or didnt mentioned) that every official doesnt point you to a "professional consultant with lots of experience that will help you navigate through process for a fee".

Although changing land purpose definitely should be involved process: I may have missed it, but it isn't mentioned what kind of manufacturing is going to be there. It might require lot of water, it might be very environmentally unfriendly

They don't point to any agent because that person will take a cut into what I could directly pay the beautocrat themselves.

But there are a few visiting cards stuck with glue on the table. Visiting cards of such agents.

You should tweet this to the Prime Minister. He keeps on harping about make in India, self sufficiency and ease of business. Show him the reality.

I think there needs to be regulation. You can't just build whatever you want on an agricultural land even if you own it. Lets say someone builds a Chemical factory, what would the neighboring land owners or residents do if it starts polluting the land?

Who is arguing against regulation here?

Okay, I'll assume either negligence or innocence for the OP; but one important point is: Is there a lack of industrial zoned land in that region? Why didn't you buy or lease an industrial area to build whatever you are going to build.

Where I live, industrial lands run at 5-10 times the price of an agricultural land. So someone might justify going through the lengthy process (and bribe officials along the way) because he is going to profit at the end of it. At the detriment of people living or running their farms nearby.

My guess is that many people here are sympathetic because they didn't have their lives ruined by someone opening up a manufacturing unit next to their homes.

Almost all land in India is agricultural land.

There's very little industrial land. And all of that is used.

Hernando de Soto did exactly this work almost 2 decades ago. He documented how many steps and weeks it takes to register a property or start a business. His thesis is that this cumbersome process limits capital formation in a business which then limits being able to leverage it via a loan and hence limits the size of small enterprises. The same goes for property since most small entrepreneurs use their home as collateral. This has locked up trillions in value which can be unlocked. His work is fascinating and was frequently mentioned for a Nobel.

[1] Why Capitalism Triumphs in the West and fails everywhere else https://www.amazon.com/dp/B06XCFW5ZN/ref=dp-kindle-redirect?...

[2] Mystery of Capital Video: https://www.youtube.com/watch?v=Nco18FWM85E

Wow! Thanks for mentioning the work of Hernando de Soto. I had never heard of the work before but will surely read the book now.

Have been through this process. So I know how this person feels. My simple question is with so much tech why cannot the NOCs be obtained digitally and also why can't this NOC process be time bound? Why should we spend months? If it's not rejected with valid reasons in digital format then why cannot the NOC be deemed valid? What is the use of so many tech brains in India if we can't create a simple system digitally? What political leadership is this that we have to suffer even after 73 years of independence?

TBH, apart from the bribes it mostly sounds pretty similar to the UK. Perhaps this person would have had an easier time if they had hired a professional to deal with it for them.

I often visit sites with potential clients and I have to tell them sorry, I can try, but you will pay a lot of fees to me and the local government and you will likely never get permission to build here.

Off the top of my head, here are some permissions / consultations you could need to build a private house in a UK, most sites wont require all of these at the same time but many sites will have a least one need for a specialist site survey of some kind:

Planning permission (Regulation of the impact of your build on the community): - Roads department consultation - Water supplier consultation - Wastewater consultation with water authority and EPA - Archaeological service consultation - Natural heritage / ecology. - Historic environment consultation. - Coal authority (abandoned mines) - Contaminated land check - Landscape capacity study - Full set of plans, sections and elevations and report to show: - Materials - Relation to existing buildings - Effect on landscape - Land use - Room use - Placement of windows / doors in relation to existing buildings - etc...

Building control / Building warrant (Safety of the finished building): - Radon assessment - Structural engineers certificate. - SAP (energy use) calculation - Full set of plans, sections and elevations showing compliance with all building regulations - Consultation with Fire Authority - etc...

CDM regulations require the client to appoint a competent builder / architect / engineer etc Party wall agreement ....and some more I can't be bothered to type out here....

This whole process typically takes a minimum of 6 months before you get permission to break ground. Some of the consultations are a one line response saying 'no objection' or they can require you to get specialist surveys done, this can drag things out longer.

For a factory the process will have several more levels of detail for each of the points above. E.g each point under planning permission might require a specialist consultant to visit the site, make tests or surveys and perform desk studies and then the submission of, I don't know, say, a 20 page written report with their findings.

Wow! That's a lot of stuff.

And I agree that these things need to be done. And I am not against it if the people there follow the procedure and do the things that are needed to be done.

But what if one of the people from the government doing the survey/inspection just refuses to sign the paper! It's just crap. You can't complain to anyone nor can you do anything else. You're just stuck.

That's where my problem lies.

There’s various rights of appeal, they are very slow. Also any government decision can be challenged by a judicial review in the U.K although it would be very expensive and would take years. In India, if no-one signs the paper, can you take it to court? I suppose that would take a long time too?

https://www.youtube.com/watch?v=WeFT7lPAHU0

I am an indian. I dont have any problems with filling out forms, or providing documents. As long as the process is well documented. But in india it doesnt work that way.

Even in the age of computers, some departments are printing forms using ink from the middle ages on paper from the egyptians. You require a prime lens attached to your eyes to decipher the 7point font on the form.

I believe one can get land for manufacturing in MIDC area much more easily -> https://services.midcindia.org/Services/VacantPlotsDetails.a... by getting allotment directly from government or buying resell.

My land is beside a MIDC (Sangli Miraj Kupwad MIDC) which has been completely sold out. And I want to build it in Sangli because of the cheap raw material available in Sangli itself.

Thanks for confirming (was aware of) the fact that the most of Govt Dept job needs to be get done by citizens themselves for themselves! And one need to pay Extra for getting it done through them. Same situation in Karnataka. Would like to share this on other social media to support you

Nicely written, I am a farmer in Maharashtra and this is the case with all our subsidies, loans etc which the govt so proudly declared every year. It is as if we are set to fail in acquiring one of these. Hang in there tho hopefully you will get it .

I totally understand setting up manufacturing unit on agricultural land in India is a pain , also you should see it coming as you are using "agricultural" land for manufacturing. Also there is a dedicated industrial zone setup in each states and it would have been easier to do industrial setup there. But I totally get the point, its a cobweb of permissions and N.O.C , not even including under the table settlements , not sure if that was the case here.

Rohan - Maybe you've not done a good enough job of greasing hands :-)

Misleading title ! The author basically tried to rezone agricultural land into industrial land.

Seems like a classic 'tragedy of the anticommons', just like early post-communist Russia: https://en.wikipedia.org/wiki/Tragedy_of_the_anticommons

Great. Hadn't heard of this concept before. But seems perfect to describe the situation.

Thanks.

How does this compare to the zoning process in America? It sounds like OP is trying to build a factory from scratch on land that isn't zoned for factories? It's actually surprising one person can just run back and forth and get all the paperwork versus hiring a lawyer to do it.

Actually there are almost no pre defined industrial zones.

There are very few and most of them are bought out.

I can hire an lawyer or agent to this work, but the cost is very very high. I decided to do it myself to understand the depth of this mess.

It is wise of you to document this mess, it will surely bring about good.

Having now done all of this yourself, do you think the amount they charge is reasonable, given how incredibly painful it is to do this on your own?

No, I don't find the amount reasonable because of two reasons:

1) They charge so high because there are few players with so many internal contacts. So this is a monopoly or oligopoly market just taking advantage of the system. I mean it is hard because of these people. These people lobby to keep such systems in place.

2) It is unreasonable for any government, especially in a developing country to make so many demands of the illiterate and poor population. If such a situation continues, poor people will never be able to manufacture anything.

This creates a social division almost alike slaves and masters. Alike the Soviet System of the Elite Aristocrats, Their friends in rich, non-competition businesses and the government and the serfs and peasants.

It does sound like feudalism but this time it's not about farmland. It's about industrial land.

However, there is one difference. A small factory can employ many people. If you succeed, you won't be the only one who benefits.

seems like its reasonable only if you take corruption and cronyism as a given

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