Ease of Doing Biz: Top Rankings may not Translate Into Top Dollars

The rankings are based on initiatives taken earlier this year but it will be a few years before these efforts pay off

Miles To Go?

• Jharkhand, Chhattisgarh and Odisha rank only after Gujarat and Andhra Pradesh in a survey of business-friendly states
• In the near term, big businesses will not line up to invest in these states
• Ranking are based on steps taken earlier this year and may take time to fructify
• Public investment may need to take the lead for now
• Jharkhand, Chhattisgarh, Odisha are together home to 13 percent of India’s poor

For states such as Jharkhand, Chhattisgarh and Odisha, top rankings in a recent country-wide survey on implementation of business reforms is significant and, at the same time, somewhat meaningless. Significant, because the states which topped the survey have taken a lead over many others, between January and June 2015, to ease regulations that businesses have to comply with. Meaningless, because in the near term big, businesses will not line up to invest in these states. The rapid progress made by these three states to speed up reforms is also the result of emerging competitive environment between states – what many in the Union government and outside refer to as ‘competitive federalism’.

The study, entitled Assessment of State Implementation of Business Reforms – a collaborative effort of the Department of Industrial Policy and Promotion (DIPP), the World Bank, consulting firm KPMG and business chambers CII and FICCI, ranked Jharkhand as the third most business-friendly state behind Gujarat and Andhra Pradesh. Chhattisgarh was ranked fourth and Odisha, seventh. The study assessed all states for the progress made on implementing reforms that allow greater ease of doing business. The assessment was based on a 98-point action plan identified by chief secretaries of states at a Make in India seminar and the progress was evaluated on the basis of responses to a 285-question survey sent to states.

Jharkhand performed remarkably well on reforms relating to labour laws and inspections. Chhattisgarh too did well on such reforms and it outpaced many developed states on the ease of setting up businesses and enforcing contracts. Odisha not only made it simpler to set up a business but also eased tax procedures for corporate houses.

Public Investments Crucial

While these rankings are based on initiatives taken in the first half of the current calendar year, it will be a few years before these efforts begin to pay off. So far, it is states such as Maharashtra, Tamil Nadu and Gujarat that have received the bulk of domestic and foreign investments, which is amply illustrated by the concentration of manufacturing industries in these states.

This is somewhat ironical because Jharkhand, Chhattisgarh and Odisha are mineral-rich and should ideally have attracted big-ticket investments. Unfortunately, so far businesses have shied away from investing in these states for reasons ranging from not-so-business friendly policies, environmental issues, need to protect ethnic tribes and the menace of Red terror.

Big-ticket private investments might come into these states very slowly. And, therefore public investment may need to take the lead, especially in sectors such as mining and processing of minerals. Industry representatives reckon that the easing of regulations will help small and medium enterprises the most. They say states need to attract investments from the SME sector which has the potential to create a large number of jobs.

But this is only possible if these states are backed by big-ticket investments, aimed at bringing more people out of poverty. Jharkhand, Chhattisgarh and Odisha are together home to about 13% of India’s poor, including those who suffer extreme deprivation. In each of the three states, 42-47% of the population were poor in 2011-12, according to estimates of the Rangarajan Committee.

Poor Socio-Economic Indicators

According to the Socio-Economic Caste Census of rural areas, the average income of most rural households in these three states was less than Rs 5,000 per month. In rural Chhattisgarh, 91% households said they made less than Rs 5,000 per month. The corresponding number for Odisha was 88 percent and for Jharkhand, 77%. What must be noted is that between 76-83% of the population in these three states live in rural areas. So poverty is widespread.

While Jharkhand, Chhattisgarh and Odisha seem to have done well compared to other states, here’s some sobering numbers. On average, only 32% of the proposed reforms have been implemented across the country, according to the study. The implementation of reforms regarding inspection and enforcement of contracts, stands at less than 20%.

(The writer is a Delhi-based senior journalist.)