Launched in 2003, the World Bank’s Ease of Doing Business Index collects data on the quality and efficiency of business regulations across 11 parameters, out of which 10 are used to rank countries according to the relative ease with which business can be conducted. India currently ranks 77 out of the 190 countries studied and has secured itself a place in the top 10 improvers of 2019 owing to a number of reforms.
An important regulatory area measured in the report includes ‘Dealing with Construction Permits’. According to government estimates, the construction industry in India is expected to grow at an annual average of 6.6% between 2019 and 2028. Furthermore, between April 2000 and March 2019, construction development and construction activities accounted for approximately 6% and 3.5% of the total FDI equity inflows respectively. Hence, watertight and business friendly construction regulations are not just a matter of public safety but are also essential for the economy’s overall progress.
In order to quantify the robustness of construction regulations in a country, the World Bank accords equal weightage to four different indicators – number of procedures, time, cost and what it calls the Business Quality Control Index. While the first three indicators measure the efficiency of permitting processes, the Quality Control Index measures the safety mechanisms in the construction regulatory system. This index includes, but is not limited to, the quality control before, during and after construction, liability and insurance regimes, qualification requirements of professionals involved in the construction process, etc.
While India’s rank in granting construction permits remained relatively steady from 2014 to 2018, last year it witnessed a significant jump of 129 ranks from 181 to 52. A number of regulatory reforms, including the introduction of an Online Building Plan Approval System, the Common Application Form for the online submission of applications/notifications and the receipt of Non Objection Certificates from relevant departments, can be given credit for the improvement. Initiatives like the introduction of a widely accessible Uniform Building Code/By-laws for the entire state/UT, risk based classifications, fast track approval of buildings, strict timelines for approvals and refined qualification requirements for professionals also improved India’s score on the Business Quality Control Index. In Delhi and Mumbai, the time taken to obtain a construction permit reduced from 157.5 and 128.5 to 91 and 99 days respectively.
Despite India’s unprecedented jump in construction permit rankings, asymmetry in regulatory enforcement and complexity in the regulatory environment persists across the country. These obstacles prevent India from further improving its score. For example, both Delhi and Mumbai have a total score of 14 out of 15 in the Business Quality Control Index, which equals that of the number one ranking region in ease of dealing with construction permits – Hong Kong. However, India’s performance in three other indicators fares poorly in comparison to countries like Singapore, Australia, United Kingdom and Hong Kong. This is evident when a comparison is drawn between the cost incurred for obtaining a permit in India with that of these countries. The cost of obtaining a construction permit in Mumbai is 6.6% of the value of the warehouse assumed to be constructed according to World Bank methodology, while the cost of the same in Delhi is slightly lower at 4.2%. When looking at the corresponding figures of 0.6% in Hong Kong and 1.1% in the UK, Mumbai and Delhi are certainly expensive.
In order to address deficits in the regulatory environment, the Department for Promotion of Industry and Internal Trade releases an annual Business Reform Action Plan, which essentially includes a list of reforms across 12 parameters to be implemented by the States and Union Territories. According to the 2017-18 BRAP report, Maharashtra has implemented all but one of the reforms related to construction permit enablers while Delhi implemented 13 out of the total 30 reforms applicable to it. While these numbers might indicate some progress, one has to remember that these results are based solely on the evidence provided by the States/UTs themselves with any implementation gap not effectively being reflected in the BRAP report. According to a survey of 600 firms conducted by the National Council of Applied Economic Research (NCAER) in 2017, only 36.7% firms confirmed that inspections were carried out jointly by government authorities. Furthermore, only 32.7% firms confirmed that clear timelines were defined for the approval of applications.
This issue of asymmetric information and ineffective implementation stems from the fact that construction involves complex processes due to which the quality of reform becomes difficult to assess. Primarily, projects involve a multitude of stakeholders – builders, architects, engineers, regulatory bodies, clients, etc and the discrepancy in feedback received can be detrimental to reform efforts. To ensure effective implementation of our reforms, there is a need to identify certain key performance indicators and obtain feedback from as many stakeholders as possible. Analyzing various perspectives to ensure that the effect of reform is felt on the ground is necessary to affect change. Though the BRAP report considers feedback from relevant professionals across states and the industry, greater weightage is accorded to state feedback. Data in the Ease of Doing Business report is also obtained from this information.
Apart from fixing the kinks in implementation, India requires major structural reforms as well. Presently in India, separate inspections carried out by several government departments add to the number of days in completing certain procedures. While Delhi is yet to streamline superfluous inspections, Maharashtra has mandated that departments coordinate a joint site visit for the approval of buildings. To coordinate this, a department head who oversees the Planning/Engineering section will be appointed. Although this is a step forward, benefits cannot be realized to their maximum due to the lack of a coordinating body that handles both the submission of applications by builders and the requests for a final joint inspection. A basic idea of the reforms required can be understood by studying the best regulatory practices in construction permitting already in place across the world.
A ‘One Stop Center’ similar to the ones implemented in Hong Kong, Taiwan & Malaysia can help address this gap. The One Stop Center in Hong Kong combines six local departments (Fire Services Department, Water Supplies Department, Highways Department, Land Department, Buildings Department, and two private utility companies (telephone line and electricity supply) under one roof. This centralized office eliminates the need to apply for inspections separately and leads to improved coordination between departments and builders. For example in Hong Kong, the following certificates can be obtained together through the One Stop Centre after the final inspection: (a) Fire Services Certificate (b) Occupation Permit; (c) Certificate of Compliance; and (d) Water Supply Certificate. If adapted to the Indian context in a similar manner, processes such as applying for water supply in Delhi (which now takes 34 days), will become significantly faster. This initiative would improve India’s score in ‘Dealing with Construction Permits’.
Technology advancements in the construction sector, not only in terms of building equipment but also in terms of cutting-edge software design solutions, has helped to simplify procedures and create time and cost efficiencies. The success of newly-developed information technology solutions, such as Business Information Modeling (BIM) in countries like Singapore and Australia, provides a strong case for technology to streamline the process of designing buildings. These BIM softwares provide a platform to digitally store project data. In its simplest form, this information is a three-dimensional representation of the building design along with its hidden specifications. The DesignCheck program implemented in Australia is capable of automating the verification of building code compliance. Basic code compliance tests can be conducted automatically through the software. This data can then be directly sent to Building Authorities, thereby allowing those in charge of code compliance to focus on high risk aspects.
In a similar vein, Singapore’s online platform CORENET for obtaining building approvals is a leading example of how technology can improve the quality and speed with which inspections are carried out for safety assurance. Like CORENET, India’s Common Application Form and Online Building Plan Approval System eliminates the need to physically approach official authorities to submit forms, thus also preventing the possibility of information duplication. However immense scope for improvement still exists when it comes to the development of computer-aided design (CAD) softwares. Singapore took several measures to not only standardize CAD data, but the Building Control Department also undertook the task of training and providing technical support to both public and private stakeholders.
Another reform to be considered relates to the engagement of private players in construction regulation. Initially undertaken by high-income economies – such as Australia, Japan and the United Kingdom – the concept of competitive public and private third party reviews is slowly gaining traction in lower-middle-income and upper-middle-income economies as well due to the undeniable efficiencies it brings. In the UK, builders are free to choose between the local authorities and Approved Inspectors (AI) from the private sector. Private inspectors often provide expert advice on other aspects of construction along with fire safety. This innovative practice has introduced competition in a market where local bodies earlier held monopolies protected by law. As put forth by social Darwinism – greater competition leads to greater productivity. Local authorities are forced to reduce their costs and adopt a more client-oriented approach to prevent profit erosion.
The above approach is very effective in the Ease of Doing Business context. As per its methodology, if a private inspection firm is hired, only one procedure is recorded for the builder while subsequent inspections are not recorded. As an example, the number of procedures required for obtaining a construction permit in Australia is 11, while it is 9 in the United Kingdom. Local bodies in the UK perform two key functions – filing AI inspection reports and serving as a backstop for when AI is not used or is unavailable. In India, on the other hand, the task of design and construction review is handed exclusively to local municipalities who are responsible for other aspects of quality control as well. As a result, the immense potential of the private sector in the regulatory space remains untapped.
It is worth noting that while there is a need to look towards other countries to incorporate their best practices for our country’s context, India needs to look beyond its immediate borders to make significant changes. For example, in Delhi it is compulsory for those who approve building plans to be registered with a professional association. However, the same rule does not apply to those professionals who inspect the building on-site. Due to this, Delhi loses a point in the Professional Certifications Index which is part of the larger Business Quality Control Index. Mumbai, on the other hand, has made it compulsory for both categories of personnel to be registered with a professional association.
Similarly, reforms to bring down the cost of obtaining construction permits need to be put in place. Over the years, cost reductions in the Indian permitting procedure have been a corollary of initiatives to reduce the number of procedures and time taken. There have hardly been any reforms directed solely towards the reduction of costs. Making cost schedules freely available in the public domain will increase accountability and transparency in addition to preventing permit fees from becoming proxies for tax revenue. Furthermore, mitigating corruption is crucial to bringing down out-of-pocket costs. In several surveys, the construction industry has been known to be one of the most corrupt industries worldwide, both in terms of government contracting and compliance to regulation. Once again, the minimisation of physical touchpoints due to the Online Building Plan Approval System has helped to minimize corruption to a major extent. It is equally important to ensure that overly complicated and unclear construction regulations do not provide opportunities for corruption.
In conclusion, India is certainly on a path that leads to a safer and more business-friendly regulatory environment. It should make use of the opportunity to learn from the experiences of successful reformers and modify global best practices to best suit its own needs. It is important to keep in mind that reforms on ground are not far from what is laid out on paper. In addition to this, larger structural changes will need to be supplemented with those that help smoothen smaller kinks in the process. In a few years, these carefully planned improvements will cement India’s global position as one of the top leaders in dealing with construction permits.
By Shreya Roy
2nd year undergraduate student, Shri Ram College of Commerce, Delhi University