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Delhi, TN, Gujarat are best States for doing business: NCAER study

Delhi has emerged the most-attractive State for investors improving its position on the think-tank National Council for Applied and Economic Research (NCAER)’s 2018 State Investment Potential Index. Gujarat previously No 1 slipped two places to the third position.

The surprise elements in the index named N-SIPI was Tamil Nadu which moved up four places to No 2.
West Bengal jumped 11 places from last year to emerge the 10th most attractive State for investors.
Andhra Pradesh saw a decline in its attractiveness falling from the third position in 2017 to the seventh in the 2018 index while Punjab moved up four places to No 12. N-SIPI now in the third edition ranked 21 major States including Delhi on various parameters.
In the overall rankings Delhi Tamil Nadu Gujarat Haryana Maharashtra and Kerala emerged the most attractive States to do business while Odisha Uttar Pradesh Assam Jharkhand and Bihar were at the bottom.
Key constraints
N-SIPI was constructed with six pillars that were classified under four broad categories: Factor-driven (land and labour) efficiency driven (infrastructure) growth-driven (economic climate political stability and governance) and perceptions-driven (responses to the survey). Researchers at NCAER contacted 1049 business enterprises of different sizes in manufacturing and services sector for the survey.
Respondents to the perception survey said the law and order situation was a major issue almost 55 per cent identifying that as the primary constraint. In the 2017 round of survey almost 57 per cent of the respondents had identified corruption a major constraint.
Surprise factor
This time the proportion of respondents identifying corruption as a major constraint declined 46 per cent. Other significant constraints identified by the respondents include difficulty in getting approvals for land transition to GST quality of skilled labour and getting all approvals before starting business.

Disaggregated assessment of individual pillars of the N-SIPI showed Telangana was the best performer on the land pillar followed closely by Madhya Pradesh and Tamil Nadu. Assam and Kerala displayed significant improvement over the year moving up the rankings by seven and six places respectively.

On the labour pillar Tamil Nadu and Andhra Pradesh retained their first and second positions and on the infrastructure pillar Delhi retained its top position. Punjab moved up to the second position improving its ranking by two places.
On the economic climate pillar Delhi retained the No 1 position while Telangana moved up four places to the second spot.
On the governance and political stability pillar Tamil Nadu moved up four places to No 1 displacing Haryana which moved down to the second.
However it was the perceptions pillar that threw up some surprises. Gujarat retained its number one position Haryana moved up two places to number two and West Bengal jumped 18 places to the third position. Uttarakhand was another State that saw vast improvement on perceptions moving up 10 places to the sixth position.

The NCAER State Investment Potential Index (N-SIPI) 2018

NCAER-State Investment Potential Index or N-SIPI is an evidence-based index that combines published secondary data on key relevant parameters with an extensive industry survey conducted by NCAER across twenty states and the Union Territory of Delhi. The Index is designed to provide a systematic and reliable “go-to” reference for policy makers, existing businesses and potential domestic and overseas investors. N-SIPI 2018 ranks the competitiveness of Indian states on six pillars: land, labour, infrastructure, economic climate, political stability and governance, and business perceptions. These six pillars are classified under four broad categories: factor driven (land and labour), efficiency driven (infrastructure), growth driven (economic climate and political stability and governance), and perceptions driven (ranking of business climate built on firm surveys). A unique feature of the N-SIPI index is the integration of industry perceptions of the investment potential and business climate of a state along with the fundamentals likely to drive investment decisions in that state. Another unique feature of the 2018 N-SIPI is the inclusion of GST specific questions in the survey questionnaire for the perception pillar of the index.

Delhi tops the N-SIPI 2018 rankings, followed by Tamil Nadu, Gujrat, Haryana and Maharashtra.

India’s Growth Story

India has attained much economic success in the last three decades. Yet economic deceleration in the recent years has generated worried commentaries about India’s growth outlook. In this paper, we offer a long-term macro perspective on India’s growth experience. Analyzing past five decades of data, we note that growth has slowly but steadily accelerated over this period, become less erratic, and has been well diversified across sectors and states. Assessing the period since the early 1990s more granularly, we note three distinct phases of growth. A period of slow acceleration from 1991 to early 2000s; a period of rapid growth with several features of unsustainability during 2004–08; and a corrective slowdown that started with the Global Financial Crisis in 2008. The slowdown was reflected most profoundly in investment, credit, and exports. Even as the economy recovered to a 7–7.5 percent growth rate, durably accelerating it to a higher level will require concerted policy momentum that succeeds in reversing the slowdown in investment, credit supply, and exports, and the support from the global economy. Maintaining hard-won macroeconomic stability, a definite and durable solution to banking sector issues, and realization of the expected growth and fiscal dividend from the Goods and Services Tax are some of the factors that can help attain a higher growth rate. The paper also includes a short annex on India’s new GDP series and comparisons with the old.

Possibility of three instead of four GST rates, a useful debate: Arvind Subramanian

Chief Economic Adviser Arvind Subramanian Wednesday said that it is not possible for the diverse Indian economy to have one uniform Goods and Services Tax (GST) across the country. The useful debate in fact can be whether there can be three GST rates instead of the present four rates with the possibility of reevaluating the 28 per cent rate he said at the India Policy Forum 2018 organised by The National Council of Applied Economic Research.

“Overtime we will see simplification. Once revenues stabilise 28 per cent rate can be reevaluated. We can also relook cesses” he said. While the system is stabilising the task now is to simplify the direct tax system and to increase the taxpayer base he said

Subramanian said implementation of GST Insolvency and Bankruptcy Code (IBC) and effective public provisioning of private goods such as toilets and banks accounts have been key achievements of the government. While early recognition of the twin balance sheet challenges helped in containing the non performing assets in the banking system future capital infusions in banks should be linked to reforms he said.

He said there are mainly two kinds of state-owned banks fundamentally unviable banks and the other set of banks that are moving towards viability. The unviable banks are shrinking their business and doing narrow banking while the viable banks will help support growth. He highlighted the need for moving towards a private sector ownership of banks for a new set of reasons — such as public sector banks being handicapped in many ways in terms of recruitment and public to private sector lending being very toxic.

While pitching for private ownership of banks the CEA said it is difficult to amend the Bank Nationalisation Act because of political reasons. The legislation bars the government from reducing its stake in PSU banks below 51 per cent. The government is planning to reduce its stake below 50 per cent in IDBI Bank which is not governed by the Bank Nationalisation Act.

Bank Nationalisation Act is the original sin and overtime originals sins become lasting virtues Subramanian said.

To a query on employment situation in the country he said: “I honestly don’t know what is happening to employment” because we don’t have reliable consistent data for many years.

Subramanian who will be leaving the CEA post in a few weeks said that his job as the government adviser has been supremely satisfying and he is going to have withdrawal symptoms.

 

GST on some more items to be cut

The GST Council may consider reduction in tax rates on host of items with low revenue implications as part of the tax rationalisation exercise in its next meeting on July 21.

The items which could be considered for cutting of tax rates might include sanitary napkins handicrafts and handloom goods besides certain services.

Several industry bodies and stakeholders have been demanding duty cut on items especially those linked to general health and employment generation in the unorganised sector.

“The Council will take up the issue of rationalisation of taxes on various commodities in view of demand raised by stakeholders. It would focus mainly on those items that are of general consumption and have low revenue implication” an official said.

Most handloom and handicraft products as well as sanitary napkins are currently taxed at 12 per cent while there are demands to exempt them from the levy.

Under the goods and services tax (GST) regime there are four rates – 5 per cent 12 per cent 18 per cent and 28 per cent.

Rolled out on July 1 2017 GST had subsumed over a dozen local levies and transformed India into a single market with seamless flow of goods.

The all powerful GST Council had in its meeting in January 2018 decided to slash the GST rate on 54 services and 29 items.

In its November 2017 meeting the council had removed 178 items from the highest 28 per cent category while cutting tax on all restaurants outside starred-hotels to 5 per cent.

In the first year of GST in 2017-18 the government earned Rs 7.41 lakh crore from the tax since its roll out in July. The average monthly collection was Rs 89885 crore. In the current financial year the collections in April touched a record Rs 1.03 lakh crore followed by Rs 94016 crore in May and Rs 95610 crore in June.

Union minister Arun Jaitley had exuded confidence that higher revenue collections will enhance the capacity of the government to rationalise tax rates going forward.

Meanwhile ruling out a single rate GST chief economic advisor (CEA) Arvind Subramanian on Wednesday pitched for a three-rate structure going forward as revenues stabilise.

He said the goods and services tax (GST) is a “work in progress” and there is a need for further simplification of rates with fewer exemptions and simpler policies.

“In India we can never have one rate. I had recommended a standard rate and one for demerit good one for low rate. I think in India the debate should be about ‘why can’t we have three’ rather than ‘why not one’” Subramanian said at an NCAER event here.

Under the GST regime there are four rates – 5 per cent 12 per cent 18 per cent and 28 per cent. Luxury and demerit goods are subject to cess on top of the highest slab.

Congress president Rahul Gandhi advocated the single rate GST structure. Subramanian said since GST is a regressive tax it won’t be “fair” to have a single rate structure unless there are instruments to protect the poor who get hurt by rising costs.

“I think over time we will see simplification. For example once the revenue stabilises 28 per cent can (be rationalised)…but the broader point I want to make is that why can’t we have three (tax slabs). That’s what we should ask for” said Subramanian.

Union minister Arun Jaitley too had dismissed the idea of a single rate GST as “flawed” saying that it can only work in a country where the entire population has ‘similar and high’ capacity to spend.

Subramanian said that GST implementation “has not been too bad” in the first year of difficult implementation. “My own view is the more you rely on carrot and less you rely on sticks you facilitate formalisation of economy. That’s what I like about GST. It is not heavy handed. Its a kind of self policing” he said.

The CEA headed panel had in its report way back in 2015 had recommended a range for revenue-neutral rate (RNR) of 15-15.5 per cent for the proposed GST with a preference for the lower one.

It also suggested a range of ‘standard’ tax rate of 17-18 per cent for bulk of goods and services while recommending 12 per cent for ‘low rate goods’ and 40 per cent for demerit goods like luxury car aerated beverages pan masala and tobacco. For precious metal it recommended a range of 2-6 per cent.

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