The Unease of Doing Business In India

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Good evening. The ease of doing business in India remains an illusion; Volkswagen sues the Indian government over a massive tax demand; and ONGC’s chairman explains why legacy oil companies must adapt or risk irrelevance.

THE TAKE 

India’s Real Challenge Is the Unease of Doing Business

It is somewhat ironic that, a day before the government spoke about removing obstacles to doing business, the 62-year-old founder of software company Vakrangee suffered a heart attack and died during an Enforcement Directorate (ED) raid on his premises.

Vakrangee, which operates a network of one-stop digital convenience stores, has undergone several iterations over its lifetime.

It is likely that the company or its promoters were involved in activities that attracted the attention of the ED, which is mandated to investigate offences related to money laundering and violations of foreign exchange laws.

Be that as it may, it is telling that one of the key promises in the Union Budget, presented on Saturday, February 1, was the decriminalisation of a raft of outdated laws.

The finance minister announced that the government will introduce the Jan Vishwas Bill 2.0 to decriminalise over 100 more legal provisions in a bid to improve the ease of doing business in the country.

The announcement follows the Jan Vishwas (Amendment of Provisions) Act, 2023, which decriminalised over 180 legal provisions.

Decriminalisation Promised, But Compliance Burdens Remain

Three years ago, think tank Observer Research Foundation published a report titled Jailed for Doing Business: The 26,134 Imprisonment Clauses in India’s Business Laws. 

The report highlighted that 1,536 laws govern business operations in India, with 678 implemented at the Union level. 

Within these laws lies a web of 69,233 compliances, of which 25,537 are at the Union level. In the 12 months leading up to December 31, 2021, there were an average of 10 regulatory changes every single day, the report noted.

More importantly, of the 1,536 laws, more than half carry imprisonment clauses. Of the 69,233 compliances, 37.8% (or almost two out of every five) have provisions for imprisonment. More than half of these clauses mandate a sentence of at least one year.

Not all misdemeanours—intentional or unintentional—lead to jail time, but the fear is real and palpable, particularly for smaller enterprises. The threat of imprisonment also leads to corruption, especially at the local level.

Cumulatively, it results in an atmosphere where doing business is like walking on hot sand and constantly hoping you don’t burn your feet. 

Volkswagen’s Tax Fight Reflects Investor Uncertainty

Meanwhile, news has emerged that carmaker Volkswagen has sued Indian authorities to quash what it calls an "impossibly enormous" tax demand of US $1.4 billion. The company argues that the demand contradicts India’s import taxation rules for car parts and will hamper its business plans, according to court papers seen by Reuters.

Volkswagen’s Indian unit, Skoda Auto Volkswagen India, also told the High Court in Mumbai that the tax dispute puts at risk its US $1.5 billion investments in India and could negatively impact the country’s foreign investment climate. 

A government source earlier told Reuters that with penalties, Volkswagen India may have to pay about US $2.8 billion if it loses the case.

In 2023-24, Volkswagen India reported sales of US $2.19 billion and a net profit of US $11 million. 

No wonder the company has taken the government to court.

Volkswagen argues that it is not liable to pay higher taxes since it did not import car parts together as a single "kit", but instead shipped them separately and combined them with some locally sourced components to manufacture the vehicle.

According to court filings reviewed by Reuters, the term "kit" has been explained using a practical analogy—it is similar to ordering a chair online from Amazon, which is delivered in one shipment with all the parts and fixtures needed to assemble it.

There is clearly an interpretational issue at play, but with massive financial consequences. There is also the problem of regulations most likely being wielded like a jackhammer.

A multinational car company told me a few years ago that India represented more than 90% of all cases the global automaker was fighting across the dozens of countries it was present in.

India’s Regulatory Burden Makes Business A Tough Bet

Indian laws are built on going after exceptions, the polar opposite of an honour system, where the assumption is that most people will follow the law.

Almost every amendment to a direct or indirect tax law is aimed at catching that one potential lawbreaker, increasing the burden on all businesses and individuals. 

A simple example is the tax collected at source (TCS) imposed to track Indians spending liberally on their credit cards overseas.

Go above Rs 10 lakh in spending—raised from Rs 7 lakh earlier—and you will be charged a presumptive tax of 20%, to be collected by the bank. Implementing this cumbersome and regressive guideline took several months for banks to set up a year before.

Perhaps a few individuals used their credit cards to buy multiple Rolex watches in duty free without paying customs duties, or committed some other infractions we can only speculate about. But like hundreds of such laws, the TCS rule makes life harder for everyone.

Despite repeated promises of reducing compliance burdens, there are in general more such acts, laws, and guidelines actually being introduced.

High inflation, steep indirect taxes, and limited wage growth have already strained most middle-class households in the last few years. 

The government tacitly acknowledged this challenge by raising the income tax exemption limit to Rs 12 lakh per annum.

But fixing the jobs and employment problem requires far superior conditions for entrepreneurs to thrive and businesses to expand. 

The current environment does not encourage either beyond a point, especially for larger businesses that have the potential to scale and drive growth.

Instead of focusing on the ease of doing business, we should address the unease of doing business in India.

CORE CONVERSATIONS

"If Legacy Oil Companies Want to Survive Beyond 30-40 Years, They Must Adapt": ONGC’s Arun Kumar Singh on India’s Energy Future

The world of oil and gas is evolving fast, and legacy energy companies are compelled to innovate beyond their standard engineering and tech to grow their businesses. Oil and Natural Gas Corporation’s (ONGC) Chairman and CEO Arun Kumar Singh believes that companies that fail to adapt in the next 30-40 years risk irrelevance. “The future of energy is undeniably diversified. If legacy oil companies want to survive beyond the next 30-40 years, they must evolve,” Singh told The Core.

But the bigger question is: what happens to legacy oil companies when the world pivots away from fossil fuels? For ONGC, survival means diversification. The company is betting big on green hydrogen, offshore wind, and petrochemicals, all while ramping up domestic oil and gas exploration. AI is already playing a role—Singh revealed that ONGC drilled a well purely based on AI predictions, achieving a 98% accuracy rate.

With energy security in focus and 85% of India’s crude oil still being imported, Singh insists the strategy is clear: explore more, produce more, and transition smartly. As the global energy landscape shifts, ONGC is racing to stay ahead. 

This conversation is brought to you by India Energy Week 2025. The conference is scheduled from February 11-14, 2024 in New Delhi. Register here.

CORE NUMBER

Rs 1.83 lakh crore

This is the total market capitalisation increase recorded by seven of India’s top ten most valued firms last week, led by Hindustan Unilever, which gained Rs 32,471 crore, Financial Express reported. ICICI Bank (Rs 32,302 crore) and HDFC Bank (Rs 30,822 crore) also saw strong gains. However, Tata Consultancy Services (TCS), Bharti Airtel, and Infosys witnessed declines, with TCS losing Rs 28,058 crore. The gains came as the BSE Sensex rose 1.72% and Nifty gained 1.68% during the week, buoyed by budget expectations and investor optimism.

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FROM THE PERIPHERY

—⚡ India's power consumption rose by just 2.7% year-on-year to 137.49 billion units (BU) in January 2025, as warmer-than-usual temperatures reduced heating appliance usage, PTI reported. The India Meteorological Department (IMD) recorded a mean temperature of 18.98°C, the third highest for January since 1901. Despite subdued demand, peak power demand met increased to 237.30 GW, up from 222.32 GW in January 2024, though still below the 250 GW all-time high in May 2024. With IMD forecasting above-normal temperatures and below-average rainfall in February, power demand is expected to remain weak in the coming weeks.

—🤖 The Comptroller and Auditor General of India (CAG) is integrating artificial intelligence (AI) into its auditing framework, aiming to enhance efficiency and oversight. Speaking at the World Forum of Accountants, CAG K Sanjay Murthy highlighted the agency’s comprehensive digitisation drive, including the One IAAD One System (OIOS)—an end-to-end Audit Information Management System (AIMS). The CAG has also implemented data analytics, remote sensing, and image analysis to enable data-driven audits. Future efforts will focus on auditing AI applications themselves, ensuring greater transparency and accountability as technology reshapes financial oversight.

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