India: Ease Of Doing Business Has Become Backbone For High Growth States – Analysis
In pursuit of India’s Prime Minister Narendra Modi government’s new mantra that Ease of Doing Business can bolster the Make In India initiative, NITI Aayug, think tank and adviser to Government of India, conducted a survey — “Ease of Doing Business – an enterprise survey of Indian State” — jointly with IDFC Institute,a Mumbai base think tank, in 2016 . The survey result was the testimony of Ease of Doing Business. It unveiled that the states which achieved high growth faced less regulatory policy hurdles and bureaucratic red tape for different approvals required to start a businesses than low growth states.
The high growth rated states were Haryana, Gujarat, Rajasthan, Tamilnadu, Goa, Telangana, Maharashtra and Uttarakhand, according to the survey
The Indian reforms in 1991 made a breakthrough in the economy. There were profound changes, yielding strong parameters of the economy. Successive government payed attentions to gear up the reforms to attract investment. Nonetheless, there remained many impediments. By and large, India remained a tough place to do business even after I991 reforms.
Prime Minister Narendra Modi mandated to take India within top 50 in the World Bank ‘s Ease of Doing Business in three years from the rank of 130 in 2016. Morgan Stanley Vice – Chairman Tom Nides reposed confidence on Modi’s leadership .
Despite dismantling License Raj and opening the economy to private sector largely in 1991 reforms, bureaucracy continued to haunt the ease of doing business with multiple impediments. Locked in crossfire between personal loyalty to mantrizi for quicker promotion and concern over Prevention of Corruption Act, reluctance to take timely decision and passing the buck to others were the common practices of Indian bureaucrats. Indian bureaucracy was rated the worst among 12 Asian countries, according to a survey by Hong Kong –based Political and Economic Risk Consultancy firm.
The Modi government set a three point formulae to dismantle the present bureaucracy, which was embroiled in red rape than delivery of governance, and gear up Ease of Doing Business. He invoked simplified and paperless procedures to prop up the ease of doing business. First, it was to cut down the multiple level of human interfaces between the entrepreneurs and bureaucrats; second, to gear-up on-line procedures for applications and submissions of documents, replacing the manual system and , third to initiate convergence and integration of different ministries for quicker decision making processes.
The three point formulae yielded results. The number of Central government services through e-BIZ Portal increased rapidly, providing more opportunities for single window clearances. Government installed a portal of Government eAuction System. The auctioneers can participate in the auction online through this portal. On-line submission and processing of applications for environment clearances and on-line payment of Provident Funds and Employee’s State Insurance Contribution were introduced. Ministry of Environment and Forest launched On-line application system for environment clearance. Following the Centre, 19 states set up On-line application system for environment clearance. Majority of the projects are cleared at State level . In this perspective, it was a significant step for speedy clearance of the projects.
The NITI Aayug survey covered 3027 entrepreneurs . The survey results revealed the entrepreneurs’ opinion of the impact of ease of doing business measures during the three year tenures of Modi government.
The survey covered both High Growth and Low Growth states and Union Territories. The parameter to gauge the states’ growth status was the annual average of State GDP growth during the ten years period of 2003-04 to 2013-14.. Besides high GDP growth, the components which reboot the growth trajectories of High Growth states were significant presence of computers, electronics and pharmaceuticals, the survey said.
There were five major categories of approvals, required for establishing a manufacturing operation in the country. These approvals are the measuring rods to determine the level of Ease of Doing Business. They are a) Setting up business, Land acquisition, Construction, b) Environment, c) Labour, d) Infrastructure and f) Taxes. Land acquisition and labour approvals are considered the toughest and time consuming procedures.
Several amendments were made to farmers’ consent and social impact assessment clauses in Land Act 2013, with an eye to make land acquisition easier. But, the amendments were stuck in Rajya Sabha due to NDA minority. This led the BJP government to initiate reforms at state level since land is in the concurrent list of Constitution of India. Tamilnadu and Gujarat have moved ahead to prepare the their own State Land bill and Rajasthan is ready with the Bill. Under the new Land Act 2013 during UPA, not a single land was acquired.
Factory rules were eased by reducing the mandatory requirements of filing multiple forms. At present, a factory owner has to fill 16 forms on regular basis. Now, after the reform the factory owners were required to fill only one form.
The survey revealed an wide gap between High Growth and Low Growth states in terms of land allotment approval. While the average time taken for land allotment in High Growth States is 115.8 days , it is much higher with 136.5 days in Low Growth states. Similarly, wide gaps exist in between High Growth and Low Growth states with regard to approvals for construction permits, NOC’s for construction, environment and infrastructural approvals such as electricity connection, sewerage connections and water connection.
For Construction Permits, the average time taken for approvals is 68.7 days in case of High Growth states, against 86.3 days for Low Growth states; for NOC’s for Construction it is 49.2 days against 67.5 days, for Environment clearance it is 69.4 days against 76.2 days , for electricity connection it is 42.8 days against 62.3 days, for Sewerage connection it is 45.4 days against 53.6 days and for Water connections it is 39.8 days against 51.8 days respectively.
The survey also revealed that power shortage which is a crucial bottleneck for manufacturing operations affected less the High Growth states than Low Growth states. The average time taken for power shortages is 31.3 hours per month in case of High Growth states against 41.6 hours per month in case of Low Growth states.
Thus, the survey suggested a virtuous link between Ease of Doing Business and higher growth of states.
Views are the author’s own