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Doing business in India: What does World Bank report show?

The World Bank report confirms that these reforms are a recent development, and not the result of long-term changes initiated much earlier.

September 16, 2015 / 08:24 AM IST


The headlines on the progress of reforms under the Modi government may not read too well – GST stuck, land bill abandoned, etc – but at a more fundamental level, reforms are progressing quite well, thank you.

Before one asks how and where, here are two points to keep in mind: one, legislative changes may be important, but what matters more is whether India is getting to be a better place to do business in, and often this calls for executive action; and two, what happens in Delhi is visible to the national and international media, but in a federal polity, what happens in states is equally important. It is states that must lead reforms in future.That seems to be happening. Narendra Modi’s mantra of competitive and cooperative federalism is beginning to work if one looks at the results of the first ranking of states on the ease of doing business. It has been produced by the World Bank in association with the centre’s department of industrial policy and promotion (DIPP).The surprise is not who topped the list (who else, but Gujarat, with an overall score of 71.14 percent across the 98 parameters considered for the ranking), but the changing composition of the honours list of “aspiring leaders” – the seven states that scored above 50 percent overall. Not one is a Congress-ruled state, and all but one are NDA-ruled states. Odisha is the lone exception in the Top 7 that scored above 50 percent. (Check out 10 graphics here.)It is no accident that reforms at the ground level are being spearheaded by NDA-ruled states. Modi’s home team is doing better than opposition-ruled states that seem keener to trip him and his growth agenda than to take their own states forward.

The main highlight of the World Bank study is that it is not the usual suspects which dominate the upper tier of rankings – not Maharashtra, not Haryana, not Tamil Nadu, not even Karnataka, the most industrially advanced states in India.

Rather, the rankings are ruled by newbies like the truncated Andhra Pradesh, which came a close second to Gujarat under Telugu Desam boss N Chandrababu Naidu, and traditionally backward states such as Jharkhand, Madhya Pradesh, Chhattisgarh and Rajasthan. These former “Bimaru” states are now at the forefront of state-led reform, having realised that helping business succeed is the key to growth and jobs.

Equally unsurprising, Nitish Kumar’s Bihar is way down on the list at No 21. NiKu is taking his state downhill in his blind ego tussle with NaMo. He is no longer a development icon to follow, obsessed as he seems to be with political oneupmamship. Even Uttar Pradesh, the heart of “Bimaru”, is in the top 10 – just about.

Why do these results fly in the face of accepted wisdom? And why are these changes not acknowledged by business leaders who are moaning and groaning about the slow pace of reforms under Modi?

The main reason is that most small ticket reforms in states have gone under the radar. Efforts to make ease of doing business have accelerated after Modi came to power in Delhi, but the efforts made by states have been invisible to business leaders who look only to Delhi for action. As part of the Make in India campaign, the DIPP drew up a list of 98 parameters last December to help states focus on eliminating the pain points for business, and – no surprise – it is the politically confident states under the BJP's rule that are making faster progress.

The World Bank report confirms that these reforms are a recent development, and not the result of long-term changes initiated much earlier. It notes: “Many reforms have been implemented only very recently - between March and June 2015 - so the private sector might not be aware of those. We urge states to undertake a detailed communication campaign to ensure businesses are aware of the improvement in the regulatory environment.”

The second reason why we are seeing new states rising up the ladder is mining. The NDA government has notched up some legislative successes in coal and mineral-based auctions, and the states that are most likely to benefit from them are clearly eager to gain from this by easing rules for business. Finance Minister Arun Jaitley is quoted by Business Standard as saying that "Mineral-producing states like Odisha, West Bengal, Jharkhand and Chhattisgarh have moved up the ranking as they have eased regulations on the ground." West Bengal is No 11 in terms of ease of doing business, suggesting that Mamata-di, when faced with an election in 2016, is keen to show some results before that. She may not help the centre legislate the land bill, but she was more than vocal on other reforms that helped her state.

Another interesting fact to emerge from the study is the contrasting performances of two states that were earlier one: Telangana and Andhra Pradesh. Even though the former emerged with the crown jewel of Hyderabad in its kitty, it is Naidu's rump Andhra Pradesh that is stealing the show. With an overall score of 70.12, Naidu has left his Telangana bete noire K Chandrashekhar Rao in the dust. The latter scored just 42.45. The split clearly is bringing out the best in Andhra Pradesh, which wants to prove a point. Again, competitive federalism is clearly at work here.Arvind Kejriwal’s Delhi seems to be losing its mojo, as the nation’s capital scored a lowly 37.35 percent, for a middling rank of 15. With all its locational and other advantages, Delhi is obviously only an average place to do business in. Kejriwal has to focus less on fighting the Lieutenant Governor, and more on easing rules for business so that he can create jobs in the capital he runs. He has misinterpreted competitive federalism by making it combative federalism. He can’t win with this attitude.The rankings are sure to change next year, for the race among states has just begun. The laggards have been warned. If you try to block progress by playing politics with development and holding the nation (and your own state) to ransom, you will slip badly.The writer is editor-in-chief, digital and publishing, Network18 Group.