EASE OF DOING BUSINESS IN

KARNATAKA

By:

452- Priyal Shah

453- Samarth Shah
454- Shreyanse Sisodia
455- Ruchika Tulsyan
456- Atharva Vaidya

 Introduction
India is emerging as a significant player in the global business
circuit. It is amongst the fastest growing economies today and is
expected to account for about 10% of the global GDP growth
between 2010 and 2020.Investors continue to be drawn towards
India with FDI inflows increasing more than 250 times from USD 140
million in 1990 to USD 36 billion today. However, investors continue
to struggle with the business environment in the country. The World
Bank, in its 'Doing Business 2014report ranked India 134out of 185
countries in the overall ease of doing business. This places India
lower than Mexico, Russia, China, Brazil, Indonesia, and other South
Asian Countries. This, according to the report, is driven by the highly
complex regulatory environment in the country, leading to time
consuming nature of processes like securing land, building
approvals, registering property, obtaining power and water
connection, getting credit, paying taxes and enforcing contracts
among others.
The State of Karnataka hosts nearly 700 MNCs and a multitude of
Fortune 500 Companies, and has been in the forefront of industrial
development. It is a rapidly urbanizing State with 38% of its

population in urban areas. Urbanization offers the ability for better

provision of basic services, and acts as a centre for growth of
industry and services. However, both industrialization and
urbanization are largely concentrated in and around Bangalore which
continues to be the most attractive city for Foreign Direct
Investment next only to New Delhi / National Capital Region (NCR).
The concentration of the industries in and around Bangalore has
stifled the progress of industrialization and the spread of industries
across the state leading to regional imbalances.
The Planning Commission, in a recent survey carried out on the
Business Regulatory Environment in India across the States has
placed Karnataka in the middle 33.33 percentile of States and
ranked it at No. 12 behind states like Odisha and Bihar. The
Raghuram Rajan Panel constituted by the Government of India to
identify criteria to determine a State's relative backwardness has
qualified Karnataka as a Less Developed State with a score of 0.453
on a scale of 0 to 1, with 0 being Not Backward At All and 1 being
Most Backward.
Even though investors look up to the State of Karnataka as a
potential target for investment, the process of starting a business in
the State has been fraught with numerous difficulties. Investors and
entrepreneurs experience hurdles in obtaining timely approvals at
different levels. For the investment to materialize the business
environment must be conducive and the various Government

agencies should serve as facilitators, so that the investors feel at

home in the State. The expectations of the investors are high and
hence the Government of Karnataka has to gear up to meet the
challenges of the competitive environment.

Objectives and Scope of the study

With this background, the Bangalore Chamber of Commerce and
Industries (BCIC) engaged the Centre for Sustainable Development
(CSD) to conduct a study on the Ease of Doing Business in
Karnataka. The objectives of the study are:
(i)

(ii)

To understand the existing laws, procedures and practices as

well as the bottlenecks that impact the business
environment in Karnataka;
To make recommendations for implementing suitable
reforms in Karnataka to create a conducive environment for
business to flourish in the State

The study focused on the following aspects that impact the business
climate in the State:

1. Land Issues-Land Allotment by the Karnataka Industrial Areas

Development Board (KIADB) and Land Conversion process in
Karnataka
2. Building Approval
3. Approvals for Power and Water Connection
4. Environmental Clearance and
5. Role of Karnataka Udyog Mitra (KUM) in facilitating the process
of doing business in Karnataka.

Methodology
A comprehensive questionnaire pertaining to the selected key
parameters was administered to the principal executives of the
investing community in Karnataka spread across the geography of
the State and also representing the various sectors.
The sample was selected in such a way that the responses would be
free from any bias to enable suitable analysis and evaluation. The
Centre for Sustainable Development has summarized these
responses but has not conducted an independent evaluation to
validate their effectiveness. About 60+ executives participated in
the survey. The respondents were identified by the BCIC and CSD
across industries to get an overall picture of the business

environment in Karnataka. CSD also held discussions with the

concerned officers of the State Government to understand their
perceptions.

Governance
There is a multiplicity of laws and institutions governing industrial
development in Karnataka. There are central as well as state laws
relating to land, labour, taxation, registration, pollution control,
industrial facilitation and regulation of water and power supply.
These are administered by various government agencies such as the
KIADB, BWSSB, ESCOMS, PCB, KUM etc.
The following three Committees deal with approval of investment
proposals:
1. State High Level Clearance Committee investments above Rs
100 Crores;
2. State Level Single Window Clearance Committee - Rs 15 Crores
to Rs 100 Crores;
3. District Level Single Window Clearance Committee upto Rs 15
Crores The study is confined to an assessment of the impact of
state laws and institutions relating to the areas stated under
objectives and scope.

 Findings
True to the concentration of Industries in the metropolis of Bangalore
City, 47% of the respondents belong to Bangalore and its suburban
industrial areas, followed by Belgaum District (17%) and Dharwad
District (10%).

SEGMENTATION BY DISTRICT
7%
10%

Bangalore

3%

Ramanagara
47%

Mysore
Gulbarga
Belgaum

18%

Dharwad
Davanagere
5%
5%

5%

Kodagu

Segmentation by industry indicates that majority of the respondents

belong to the manufacturing sector (37%), followed by Engineering
(15%) and the Information Technology & ITES Sector (10%).

SEGMENTATION BY INDUSTRY
Agriculture
Power
3%
3%
Food Processing
7%
Chemicals
7%
Manufacturing
37%

IT
10%

Auto
Components
3%

Engineering
15%
Drugs and
Pharma
5%

Real
Estate, Hospitalit
y and Tourism
Infrastructure
7%
3%

 Land Allotment by KIADB

Land for the purpose of setting up an Industry in Karnataka can be
acquired by the investors either directly from the Karnataka
Industrial Areas Development Board (KIADB) or with the partial
involvement of KIADB, where in the investors identify the land and
negotiate with the land owners to obtain consent for at least seventy
percent of the required land and seek the assistance of KIADB for
acquisition of rest of the land for a service fee that is equivalent to
ten percent of the cost of the land. The study shows that the number
of attempts made by entrepreneurs while approaching KIADB for
allotment of land and obtaining the Letter of Allotment (LOA) is
growing at a disturbing pace. While 25% of the respondents obtained
their LOA from KIADB in their first attempt, 37% in two to three
attempts and the balance 38% in more than four attempts.

ATTEMPTS MADE BY
ENTREPRENEURS TO OBTAIN LOA
FROM KIADB
4 and
Above 38%

1 Attempt
25%

2-3
Attempts
37%

55% of the respondents say that it takes about 6 months to obtain

the Letter of Allotment (LOA) from KIADB, while 20% say it takes
about 4 months and the remaining 25% have indicated that it takes
about 2 months. Considering that the States across India are
competing with one another in attracting investors through focussed
reforms and initiatives, KIADB needs to accelerate the pace of
allotment of land.

TIME TAKEN TO OBTAIN

LOA FROM KIADB
70

6 Mont
hs

60
50
40

55%

4 Mont
hs
20%

2 Mont
hs
25%

30

1 Month
None

20
10
0

R
e
s
p
o
n
s
e
s
%

Eighty percent of the respondents were of the opinion that KIADB

lacks a clearly defined and transparent allotment land policy. A
similar percentage pointed out that KIADB does not have a land bank
that could be accessed by the investors and does not allot land on
First Come First Served (FCFS) basis.

ENTREPRENEURS PERCEPTION OF KIADB POLICIES

0
8%

LACK
OF

20%

NO AV I A ILT OFL ND AN
N A LB I Y
A B K

8
5 %

1
5 %

I
NO N ALLO ME TO L NDO FCF BA S8
T N F A
N S
S 5 %
15
%

TRANSPARENT ALLOTMENT POLICY

20

40

60

80

100

On the question of price fixation of land by KIADB at the time of

allotment, opinion was equally divided. While fifty percent of the
respondents were satisfied with the price fixed for their land, the
dissatisfied half felt that the procedure should be more transparent.
Making the land available in time for industrial use at a reasonable
and competitive price without any hassle is the main concern of
every investor to ensure that the project goes on stream as planned.

PRICE FIXATION AT THE

TIME OF
ALLOTMENT of LAND
BY KIADB
NOT
SATISFIED
SATISFIED
50%
50%

Where there was a revision in the pricing structure from the

allotment price to the ruling price fixed at the time of execution of

sale deed, it was found that it was substantially higher with

escalation in price ranging from fifty percent to as high as one
hundred and twenty percent.

REVISION IN PRICE OF LAND FROM

ALLOTMENT TO EXECUTION OF SALE DEED
BY KIADB
150
%

120
%

100
%
50%

80%
50%
30%

60%
30%

30%
10%

0%
Respondents Price Revision

Despite an unimpressive show on the allotment front, majority of the

investors were of the view that the land allotted by KIADB had the
necessary infrastructures like roads, power, water, drainage and
connectivity. Roads and Connectivity were by and large excellent in
the industrial areas developed by KIADB.

STATUS OF INFRASTRUCTURE AT THE TIME O

ALLOTMENT OF LAND BY KIADB
45%
40%
35%

40%

40%

35%
30% 30%

30%

20%

10%

30%
23%

25%

15%

35%

33%

15%

17%

EXCELLENT

22%
15%

10%

GOOD
15%
10%

5%
0%

Roads

Power

Water

Connectivity

AVERAGE
POOR

 Land Conversion
Conversion of agricultural land for Industrial purposes is not an easy
process in
Karnataka. Even though the Karnataka Land Revenue Act, 1966 has
prescribed the procedure and time limits for converting agricultural
lands to non-agriculture purposes, in practice conversion of land
takes place at its own pace. The average elapsed time for conversion
is about 2 years. The undue delay in conversion has forced the
entrepreneurs across the State to look towards KIADB as the only
Institution for procurement of land.

TIME REQUIRED FOR CONVERSION

OF IDENTIFIED LAND
Above 2 Years

40%

24 Months
12 Months
0%

55%
5%
10%

20%

30%

40%

50%

60%

Many respondents were of the opinion that the land owners should
be involved in the price determination process as this will not only
hasten the pace of conversion but will also avoid any litigation in the
future.

Property registration
The registration charges have been rationalised over the last few
years and now stands at 5%. The investors felt that though the
Department of Registration and Stamps has uploaded a number of
documents on its website, the documents for property registration
needs to be simplified and that the Government should roll out an
Anywhere Registration specifically for industries in Karnataka.

Building Approvals
Within the KIADB industrial areas, KIADB is the approving authority
for building plans. The building plans have to be drawn as per the
regulations in force and duly certified by an approved Architect.
Industrial units not located in the KIADB industrial areas have to
apply to the local development authority to obtain permits for

building plans. 28% of the respondents obtained building approval

from KIADB within 2 months and about 20% within 4 months.
However, vast majority of them had to wait up to 6 months. All the
respondents preferred that KIADB and the other Municipalities should
adopt the BBMP model in granting building approvals which is done
online.

TIME TAKEN TO OBTAIN BUILDING

PLAN APPROVAL FROM KIADB
52%

Near 6 Months
4 Months
2 Months

20%
28%

0% 10% 20% 30% 40% 50% 60%

Power
The survey indicates that 60 percent of the respondents obtained
approval for power connection from the Electricity Companies in a

span of 1-3 months, 20 percent in a span of 3-4 months and the

remaining 20 percent took over and above 4 months.

TIME TAKEN BY ESCOMS TO PROVIDE

APPROVAL FOR POWER CONNECTION
Above 4 Months
3-4 Months

20%
20%
60%

1-3 Months
0%

20%

40%

60%

80%

The load shedding in industrial areas especially during the summer

season is a cause of great worry amongst the entrepreneurs. The
average load shedding is about 3hrs.per day and industries in the
northern parts of Karnataka are the worst affected.

LOAD SHEDDING IN INDUSTRIAL

AREAS IN SUMMER SEASON
4Hr

10%
56%

3 Hr
12%

2Hr

22%

1Hr
0%

10%

20%

30%

40%

50%

60%

The Electricity companies resort to unscheduled power cuts in the

industrial areas. Nearly 90 percent of the respondents felt that the
power cut in industrial areas is unscheduled.

POWER CUTS BY ESCOMS

UNSCHEDULED
SCHEDULED
0%

90%
10%
20%

40%

60%

80% 100
%

60 percent observed that the State Government should focus on

renewable energy to solve the power shortage in the State.

Water
60 percent of the respondents average water requirement is met
from bore wells, 30 percent from KIADB, BWSSB and the Municipal
authorities and the balance 10 percent is sourced through Tankers.

SOURCE OF WATER SUPPLY

10% 10%

10%
10%

KIADB
BWSSB
MUNICIPALITIES

60%

OWN BORE WELLS

TANKER SUPPLY

90 percent of the respondents have indicated that the time taken to

obtain approval from Water Supply Agencies is between 1 to 3
months and 10 percent take about 3 to 6 months.

TIME TAKEN BY WATER SUPPLY

AGENCIES TO PROVIDE APPROVAL
3-6 Months

10%
90%

1-3 Months
0%

20%

40%

60%

80% 100
%

The survey indicates that only 20 percent of the respondents recycle

water. Most of the industrialists are willing to procure recycled water
if it is supplied by the Government Agencies.

Environmental Clearances
All the respondents were of the view that the Department of
Environment and the Pollution Control Board should have a common
and simple application form and that they should grant only one
clearance instead of multiple clearances. They also felt that these
departments do not appreciate the in-principle clearance provided
by the Single Window Agency.
Even though the PCB is making efforts to introduce e-governance,
the respondents desired that the e-governance initiative is not
meeting the expectation of the investors and that the PCB should
enable tracking of their applications online.
40 percent of the investors said that it takes about 2 to 4 months to
obtain Consent from PCB and the remaining 60 percent said that it
takes nearly 4 to 6 months. All of them desired that there should be
transparency in Consent sanction and that the applicant details
along with the date of sanction, reasons for rejection etc. should be
computerized and periodically published in the PCB web-site. They
also desired a Grievances Redressal Cell be constituted in PCB.

TIME TAKEN BY PCB TO PROVIDE

CONSENT FOR THE PROJECT
60%

4 - 6 Months
40%

2- 4 Months
0%

20%

40%

60%

80%

Karnataka Udyog Mitra

The satisfaction level of the guidance offered by the Udyog Mitra is
seem to be very low only 30%. The SWA clearance provided by the
Udyog Mitra is only in-principle in nature and hence not appreciated
by the other departments.

SATISFIED WITH THE GUIDANCE

OF UDYOG MITRA
YES
30%

YES
NO

NO
70%

30 percent of the respondents took about 1-2 months to obtain SWA

Clearance from the Udyog Mitra, 42 percent 2-4 months and the
remaining 28 percent about 4 months.

TIME TAKEN TO OBTAIN CLEARANCE

FROM UDYOG MITRA
50%
40%
30%

42%
30%

28%

20%
10%
0%
1-2 Months

2-4 Months

About 4 Months

As regards clearances for mega projects with investments above Rs

100 Crores, the investors were of the view that it takes about 4
months to obtain the HLC Clearance and that KUM should earmark
dedicated officers for such projects. They felt that the State Level
Single Window Clearance Committee (SWC) and the State High Level
Clearance Committee (HLC) should meet more frequently and
ensure timely clearance of the proposals.
All the investors in the survey said that after obtaining the inprinciple clearance from KUM, they had individually approached the
departments to obtain further clearances and hence they desired
that KUM should serve as a Single Contact Point and that it should
accept the filled in CAF from the investors and hand it over to the
respective departments for further processing and ensure prompt
clearance. Further, KUM in consultation with the other departments
should take the lead in introducing time limits for services provided
by each of the respective departments.
All of them were of the view that e-governance should be introduced
in KUM and the investors should track the status of their application
online as is done in the Gujarat Investor Facilitation Portal.

INVESTORS SUGGESTIONS FOR A PROACTIVE

UDYOG MITRA
KUM TO SERVE AS SINGLE CONTACT POINT FOR CLEARANCES
100
%

KUM TO BE MADE NODAL AGENCY FOR CAF

100
%

KUM TO ENABLE TRACK STATUS OF APPLICATION ONLINE

100
%

KUM TO IMPLEMENT DEEMED CLEARANCES

100
%

KUM TO EARMARK DEDICATED OFFICERS FOR MEGA PROJECTS

100
%

PERIODICITY OF SWC
HLC
and
TO BE INCREASED
100
%

As regards the total time spent by the investors in obtaining

statutory clearances from the various government agencies, 20

percent are able to get them in 6 to 9 months, 30 percent in about 9

to 12 months but for a majority (50 % of the investors), it takes over
a year. Hence they desired that KUM to be empowered under the
Karnataka Industries Facilitation Act to administer timelines across
departments and enforce deemed clearances if the timelines are
exceeded.

Key Recommendations Policy Reforms

1.

Set up an Empowered Committee for clearances

At present, there are two committees to give clearances for

setting up industries at the state level the Single Window
Clearance Committee chaired by the Chief Secretary to clear
cases from Rs 15 Crores to Rs 100 Crores and the High Level
Clearance Committee chaired by the Chief Minister for cases
above Rs 100 Crores. It is observed that the number of
proposals coming before HLC is very small. Hence, it is
recommended that the two committees be merged into a
Single Empowered Committee (EC) to be chaired by the Chief
Secretary and concerned Secretaries / Officers of other
departments as members. This committee must be empowered
to clear all investment proposals and place such proposals as
required under rules for cabinets approval. This will speed up
investment decisions.

2.

Wanted - A Proactive Facilitator

The Karnataka Udyog Mitra must be restructured to make it as

an effective Single Window Agency. Once a project is cleared it
must interact with the other agencies and obtain approvals
from them without making the investor visit each agency for
individual approvals. This process should be completed within
defined time limits.

3.

Create enabling legal and institutional framework:

The existing laws like the Karnataka Industries Facilitation Act,

KIAD Act, Land Revenue Act, and Land Reforms Act need to be
suitably amended to provide a conducive regulatory
environment for business to operate without any hassles.
The institutions involved in promoting industry in the State
the KUM, KIADB, DIC etc. must be restructured and made
professionally strong to truly serve the purpose of rapid
industrial development.

4.

Look Beyond Bangalore

While it is essential to upgrade Bangalores infrastructure and

enable it to grow as a national and international centre of IT
and hi-tech industry, it is also important to build business
beyond Bangalore. To improve and sustain its economic
development, the state needs to create a buzz on the
potentialities of the rising cities of Karnataka and focus on the
Tier II cities in northern Karnataka such as Hubli-Dharwad,
Belgaum, Gulbarga etc.
To address the issue of Regional Imbalance and encourage the
spread of industries across the state, Government should come
out with a separate policy. One important measure could be for
KIADB to adopt dual land pricing
policy wherein the industrial land beyond a radius of 100 Kms
of Bangalore could be allotted at a concessional price. This
would encourage the investors to look north.
It is also suggested that Government of Karnataka should
seriously consider setting up an alternate capital to relieve
congestion in Bangalore and Davanagere can be developed as
the Manufacturing Capital of Karnataka as it is centrally located

in the State, is well connected by road and rail and has good
educational and health infrastructure.

Land Allotment by KIADB

1. In order to ensure orderly establishment, growth and
development of industries in the State, Government needs to
ensure that KIADB acquires land for setting up industrial areas
only after prior consultation with the jurisdictional Planning
Authorities.
2. The Karnataka Industrial Areas Development (KIAD) Act does
not prescribe any timeframe for completing the acquisition
proceedings including payment of compensation. The price
determination should be carried out scientifically and based on
market prices. Any delay in fixation of compensation is fraught
with risk of the land owners demanding higher compensation
based on prevailing market price. Hence KIADB should indicate
a time frame within which the land will be acquired and allotted
to investors.

3. Land Bank Data in KIADB should be computerized and made

more comprehensive and include all data that the investor
would require to take a decision. KIADB to explore the
Decentralized Model where in the investors have access to the
Geographical Information System (GIS) data on the availability
of land parcels (as in Gujarat).
4. KIADB must put in place a clear allotment procedure to meet
the demands of the investors on First Come First Served Basis.
5. KIADB should take into confidence the local industrial
associations and frame appropriate guidelines to ensure that
there is transparency in allotment of civic amenity sites in the
industrial areas developed by it.

Land Conversion
1. To address the delays in land conversion, the Empowered
Committee
(recommended to be set up) should
monitor the progress in disposal of applications.

2. Government should dispense with the necessity to obtain

conversion for nonagricultural use in respect of areas coming
under the Master Plan of any urban planning area.

Property Registration
1. Introduce digitization of all land records across Karnataka to
facilitate the process of property registration swiftly and
efficiently.
2. The Government to integrate document registration and title
mutation throughout the State. This would significantly reduce
the time required for obtaining the Records of Mutation. This is
partly done in the Bhoomi project wherein once the documents
are registered at the Karnataka Valuation and eRegistration
(KAVERI), the Bhoomi records are automatically updated.
3. The documents for property registration need to be simplified
and that the Government should roll out an Anywhere
Registration specifically for industries in Karnataka.

 Building Approvals
1. The online submission of building plans through registered
architects though limited to Bangalore City, is not only effective
but also very popular amongst the citizens of Bangalore.
Bruhat Bangalore Mahanagara Palike (BBMP) has also trained
its engineering staff in the use of IT very effectively. As a result
the system is hassle free and approvals are obtained in the
shortest time possible.
KIADB and the other Municipalities should adopt the BBMP
system.

Power
1. Frequent load shedding and unscheduled power cuts need to
be mitigated by the State managed electricity companies and
they should prepare periodic robust power plans for the deficit
months.

Water
1. Water problems need local solutions like rain water harvesting
and wastewater recycling. Government to initiate ground and

surface water conjunctive management and move from water

supply management to demand management.
2. Water is a major issue for industrial units located in Bangalore
and its periphery. Majority of the industries depend on Tanker
Supply from the neighboring areas. Hence, the Government
can formulate a suitable policy to regulate the supply and
price of tanker water.
3. Tiered water rates, also known as Increasing Block Tariffs
(IBTs), to be deployed as an alternate to uniform volumetric
tariffs, and as a means to encourage conservation. IBT
requires reused water to be recycled internally in order to
access the tariffs embedded incentive.
4. Since the various industrial units in the State have welcomed
the suggestion of using recycled water provided it is supplied
by the government agencies, government can think of setting
up a District Level Water Recycle Boards that could ease the
water woes of several industrial units.

Environmental Clearance

1. Since environmental laws are instituted at the Centre and the

State PCB acts as an enforcing authority, it does not appreciate
the in-principle clearance provided by the SWA. Hence the
government should introduce e-governance for submission of
documents in PCB to enable the investors to track the status of
their applications online and to ensure transparency in
Consent sanction.
2. A Grievance Redressal Cell to be constituted in PCB to redress
the various bottlenecks.

Karnataka Udyog Mitra

1. Udyog Mitra to set up online Investor Facilitation Portal based
on GIS that would go a long away in addressing the needs of
the investors. Further, KUM should be made the Nodal Agency
to accept filled in CAF from the investors and hand it over to
the respective departments for further processing and to
ensure prompt clearance.
2. There is a different perception on the role of Udyog Mitra by
the entrepreneurs hailing from North Karnataka. They feel that
KUM is BangaloreCentric and is involved only in hi-tech and

mega projects. If the govt. has to address the issue of Regional

Imbalance and spread the industries throughout the State, it
would
be
advisable
to
give
additional responsibilities to all the
District Industries Centres (DICs)
and empower the Joint Directors (JDs) in DIC as Nodal Officers
of KUM, so that the entrepreneurs can interact directly with the
Nodal Officers in the District who could ensure prompt
clearance of their projects.
3. KUM to earmark dedicated officers to serve as Nodal Officers
for mega projects.