Prime Minister Narendra Modi’s call to provide “business-friendly” environment in the country has resonated more with Bharatiya Janata Party-ruled states, shows a report released by World Bank.
India’s best five states to do business in is BJP-ruled, except Andhra Pradesh, where the saffron party’s ally Telugu Desam Party is at the helm.
Gujarat, Andhra Pradesh, Jharkhand, Chhattisgarh and Madhya Pradesh (in that order) have been ranked as the top five states in India to do business by a World Bank report released last month.
Gujarat – the state ran by Modi for a decade – has scored the highest with 71.14 percent.
The report, prepared in association with Department of Industrial Policy and Promotion (DIPP) and KPMG, is Centre’s effort to imbibe the spirit of “competitive federalism” among the states, so as to achieve Modi’s ambitious plan of placing India among the top 50 countries in World Bank’s 2017 report on ease of doing business in global economies. India was ranked 142nd among 189 nations in the 2015 report, below Pakistan and Iran.
Surprisingly, some of India’s most industrialised states like Karnataka and Tamil Nadu have been ranked 9th and 12th, below Rajasthan and Odisha – states ruled either by BJP or its ally.
But DIPP Secretary Amitabh Kant says the study is purely based on performance and not politics.
“World Bank does not go by politics of the states. It has only assessed performance before June against 98 points on which states had to perform. The BJP ruled states like Haryana & Goa have not done well. The study is based on performance, not politics,” Kant told Policy Pulse.
SETTING UP BUSINESS IN INDIA
Onno Ruhl, World Bank Group’s Country Director, India, noted how the country remained a “difficult place” to do business in despite the reforms. “A majority of the regulatory burden imposed on business is due to the plethora of laws, rules, regulations and procedures enforced by the States. This gives rise to a wide number of registrations, licenses and NOCs that businesses must obtain and file compliance returns on,” Ruhl said in the report, the first-of-its-kind.
So what is it that makes doing business in the country so cumbersome?
According to the World Bank’s Enterprise Survey, businesses in India rank corruption as the number one constraint to growth, ahead of factors like electricity, access to finance and access to land.
The entrepreneurs are required to get separate registration numbers for a slew of taxes, including Value Added Tax (VAT), CST, Entry tax, Entertainment tax, Luxury tax and Professional tax, making the process tiring and time consuming.
Numerous studies also cite access to land as a constraint faced by business in India.
But the concept of land banks -- parcels of government-owned land available for industrial use, which may or may not be organised as industrial estates -- is gaining popularity among the states.
HOW SOME STATES ARE MORE ‘BUSINESS-FRIENDLY’
Among the several reforms undertaken by the top-ranking states, some of the striking features include the online filing and payment of Value Added Tax (VAT) and Central Sales Tax (CST); allowing online payment and returns filing of various State taxes; providing e-filing support through service centers and helplines; and risk-based tax compliance inspections. These are joined by clear timelines for building plan approval and construction permits, VAT registration and electricity connection.
The states’ move to go online with the entire procedure of setting up a business also underlines the growing popularity of Modi’s ‘Digital India’ programme.
Single window system, which enables entrepreneurs to submit regulatory documents at a single location and/or single entity, is another popular reform among the top States, backed by a legislation or notification to establish and empower them.
In Andhra Pradesh, Single Desk Policy 2015-20 has been formulated to create a facilitative ecosystem to provide all clearances and approvals within 21 working days to set up an industry.
Similarly in Madhya Pradesh, the government has implemented a Voluntary Compliance Scheme whereby i) separate schemes under each labour law are no longer required; ii) only a single return is required to be filed annually instead of 13 returns.
CENTRE PUSHES STATES TO PERFORM
In a major feat for the Modi government, India has outdone U.S. and China to become world’s number one destination for foreign direct investment, according to a report in U.K.-based Financial Times newspaper.
The BJP government’s rush to make India a global manufacturing hub with its ‘Make in India’ programme was evident when Kant recently said at an event that the Centre would “name and shame states that under-perform on ease of doing business parameters."
He said that next year’s World Bank report would rank Indian states basing the assessment on 336 parameters as against 98 this year.
SURPRISING SURVEY RESULTS
In a major embarrassment for Congress party, none of the states ruled by it, except Karnataka, made it to the top 15. Karnataka was ranked ninth with a score of 48.50 percent.
Young states like Jharkhand and Chhattisgarh have outperformed most of its bigger counterparts, making way to be in the top five.
Maharashtra, India’s biggest industrialised state, and home to many engineering and automobile firms, is far behind at eighth rank, with a score of 49.43 percent.
Though Punjab is ranked the best state to set up a business, it scores a very low 36.73 percent and is ranked 16th in the ease of doing business index.
While Uttar Pradesh managed to enter the league of top 10 states, Mamata Banerjee’s West Bengal was at 11th spot, above Tamil Nadu, Delhi and Kerala which occupied 12th, 15th and 18th positions respectively.
Assam, at 22nd rank, is the best performing state in northeast region. Arunachal Pradesh has scored the least among all the states and is at the bottom of the list with a score of 1.23 percent.
Though Chief Minister Nitish Kumar is widely lauded for bringing about noticeable development in Bihar, its ease of doing business ranking remains very low at 21, only above some of the union territories and the northeastern states.
STATES TO TAKE THE CAMPAIGN AHEAD
At the launch of ‘Make in India’ campaign last year, Prime Minister Narendra Modi rightly said, “Industrialists don't come because of incentives, need to create development and growth-oriented environment.”
Centre’s aim to fast-track the procedure of setting up industries and improving the business conditions in the country cannot be achieved without the states’ participation.
The stage is now set for states to learn from one another and replicate success stories, thereby rapidly improving the regulatory environment for business nationwide.