States of business

A new report underlines why, to understand and address ‘Make in India’ challenges, it is necessary to look at the states

By: Express News Service | Published:September 16, 2015 12:00 am
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On Monday, the World Bank came out with the first ever ranking of Indian states based on levels of compliance to the 98-point action plan unveiled by the Narendra Modi government under the “Make in India” initiative last December. The report, titled “Assessment of State Implementation of Business Reforms”, isn’t part of the World Bank’s popular Ease of Doing Business rankings, but it could be a useful beginning for a similar analysis within India, with states increasingly competing with each other to attract business activity. India has been a laggard ever since the World Bank started compiling the Ease of Doing Business index in 2004. In the recent past, India has managed to slump further in the ranking — it is now 142nd out of 189 countries. As this latest report details, India’s overall ranking is a reflection of how ill-equipped various states are to engage entrepreneurs. If taken seriously, such a state-level assessment could help push not just cooperative federalism, wherein states learn from each other, but also competitive federalism, with states competing aggressively to woo investors.

The report identifies specific weaknesses of individual states while laying out some broad insights. To begin with, regardless of individual ranks, the overall level of compliance is middling, at best. For instance, not a single state achieved 75 per cent implementation in the six-month period under consideration (January to June 2015). In fact, 25 out of the 32 states and UTs in the list failed to even accomplish 50 per cent of the regulatory set-up required. These 25 names included some of the biggest and most populous states, such as Uttar Pradesh, Bihar and Maharashtra. Even as, in general, states with lower per capita income showed greater initiative to push for reforms, it might come as a surprise that Jharkhand, which has suffered from chronic political instability, ranks third in the overall score, thanks to its 100 per cent compliance with all labour laws. Punjab is the easiest state to set up a business, while Gujarat, contrary to popular perception, languishes close to the national average in this regard.

Indeed, each state is a mixed bag. Punjab has a near zero score in enforcing contracts and it is almost impossible to set up a business in Jharkhand. The report, which needs to be followed up on, points precisely to the areas in which each state lags and can encourage learning from the leaders. By 2020, India is expected to have over 900 million people in the working age group. Most of the jobs for the young will need to come from the private sector. Needless to say, it is imperative to regularly map the regulatory landscape if India has to improve its rank in the doing business index.

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