Matters of States

Notwithstanding the Modi government’s ‘Make in India’ drive, reforms in many States are moving at a snail’s pace. That seems to be the take-out from a World Bank-KPMG assessment (backed by the Centre) of how States fared in the implementation of a 98-point action plan over a period of six months ending June 2015. While it is striking that of the eight top-ranking States, six happen to be ruled by the BJP, with Gujarat holding the top rank, some non-BJP ruled States haven’t fared badly either. Andhra Pradesh is at second place while Odisha, Karnataka and Uttar Pradesh too find a slot in the top 10. It would be unfortunate if an effort to take stock of the business climate in the States is viewed as a promotion of BJP-ruled ones as investment destinations. The report, in fact, provides useful inputs for transforming each State into a worthy investment destination. In doing so, it highlights, as the World Bank’s Doing Business reports have in the past, the tardy progress even in politically non-controversial areas, such as moving to a system of single window clearances and processes, and paying central and State taxes online. For instance, it should not be difficult for all States to create a single tax ID to cover all taxes. The report observes that no State allows entrepreneurs access to industrial rules, data or records for them to understand their regulatory burden. There is no focus on integrating data at the sub-registrar, municipality and land record offices to provide a sense of conclusive title on each property. That this holds as true for IT-savvy Karnataka as for an ‘old economy’ State like Bihar goes to show that officialdom is the same everywhere.

Further editions of the report would do well to draw a distinction between purely procedural reforms — these also include securing early construction permits, electricity connections and enforcing contracts, areas where India fares poorly on the global scale — and those that are more politically sensitive, such as changing the regulatory regime for labour and the environment. Stiff targets should be set for the first category, with achievements or lapses on this count being accorded a high weightage. This would also strengthen the impression that such assessments are essentially a non-political exercise. That said, there is of course scope for simplifying the implementation of existing laws on labour and the environment.

The report fails to take an ecosystem view of what constitutes the right climate for industry. It is not just about shredding red tape, but also about creating the right institutional climate. If large industry has stuck to tried and tested States such as Maharashtra, Gujarat and Tamil Nadu, it is because it feels assured of a certain level of governance, basic physical infrastructure, and the presence of a skilled, healthy workforce. This bias has exaggerated regional imbalances. While States stand to gain from the Fourteenth Finance Commission award, this alone cannot address the age-old disparity in the quality of institutions. ‘Competitive federalism’ will boost all States, but efforts to address regional imbalances call for other initiatives as well.

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