Archives: Publication

Gujarat Delhi and Tamil Nadu are the best places to make fresh investments in India while Jharkhand Uttar Pradesh and Bihar lag on this front a latest survey by think-tank National Council of Applied Economic Research (NCAER) has revealed.

The NCAER State Investment Potential Index (N-SIPI) is based on five pillars such as labour infrastructure economic climate political stability and governance and perceptions of a conducive business climate. The survey was undertaken in 20 states and one Union Territory Delhi.

If perception of the business climate is excluded Gujarat slips to the second place and Delhi occupies the top slot. States like Kerala West Bengal and Punjab move up the rankings while others like Andhra Pradesh Chhattisgarh and Madhya Pradesh move down.

Interestingly Jharkhand which is at the bottom of the table in the NCAER rankings was placed at the third spot on the ease of doing business rankings conducted last year at the behest of the Department of Industrial Policy and Promotion (DIPP).

However both are not strictly comparable as the 2015 rankings of states by the DIPP and the World Bank were based on how the states fared in implementing a 98-point action plan adopted in December 2014 and didn’t exactly reflect the business-conducive nature of states while the NCAER rankings are based on the five pillars that are crucial for potential investments.

Shekhar Shah director general NCAER said “It provides an entry point in thinking about new investment for domestic and overseas firms and encouraging a more competitive ethos among Indian states.”

Kerala Tamil Nadu and Karnataka top the list under the pillar for labour while Delhi is ranked the best in the infrastructure pillar followed by Punjab and Gujarat. In economic climate Delhi occupies the top slot followed by Andhra Pradesh and Maharashtra. In governance and political stability Gujarat tops the charts. FE

New Delhi: Businesses ranked Gujarat Delhi and Tamil Nadu as the top three states for making new investments and corruption emerged as the biggest concern for investors according to a survey by New Delhi­based think tank National Council of Applied Economic Research (NCAER).

A ranking based on the success rate of states in implementing 98 regulatory reforms by the department of industrial policy and promotion (DIPP) in September last year ranked Gujarat Andhra Pradesh and Jharkhand as the top three performers.

Interestingly the NCAER survey puts Jharkhand at the bottom of the list below Uttar Pradesh and Bihar.

The first report of the NCAER State Investment Potential Index (NSIPI) is based on five pillars—labour infrastructure economic climate political stability and governance and perception of a good business climate. The survey was carried out across 20 states and the Union territory of Delhi.

Shekhar Shah director general NCAER said N­SIPI seeks to bridge the many information gaps surrounding questions of what how much and where to invest.

“It provides an entry point in thinking about new investment for domestic and overseas firms and encouraging a more competitive ethos among India’s states” he added.

At a disaggregated level Kerala Tamil Nadu and Karnataka top the list under the “labour” pillar. In the “infrastructure” pillar Delhi is ranked as the best place followed by Punjab and Gujarat. In terms of “economic climate” Delhi comes out on top again and is closely followed by Andhra Pradesh and Maharashtra.

In the “governance and political stability” pillar Gujarat tops the ranking followed by Tamil Nadu and Madhya Pradesh. In the fifth pillar regarding “perception of a good business climate” Gujarat again tops the list followed by Rajasthan and Chhattisgarh.

The ranking on “perception of a good business climate” also asks about the key constraints to doing business. Corruption (79.2%) ranks at the top among 22 parameters followed by getting approval before starting business and getting environment clearance. Industries ranked Uttarakhand (32.5%) as the least corrupt state and Tamil Nadu as the most corrupt with 100% of the survey participants voting against it. The bottom three parameters where industries have least concerns are availability of unskilled labour availability of water and labour relations.

DIPP secretary Ramesh Abhishek speaking at the report’s launch said the results are quite different from its own report on implementation of business reforms by states. “In the beginning it was of some concern to us before we got down to the details of what this study is all about because we thought it may send some diverse messages to various potential investors. But the two studies and the contents are so different that they supplement each other nicely” he said.

Abhishek said the findings of the report clearly underline the reforms DIPP has been proposing to the state governments. “Corruption delay in approvals before starting a business and getting environmental clearance have been cited as the top three constraints in the report. These are exactly the areas that DIPP wishes to address as part of our ease of doing business initiative” he added.

The Narendra Modi government’s focus on improving the business climate both at the centre and state level is an important component of his Make in India initiative to turn India into a manufacturing superpower.

His aim is to improve the overall business environment in the country to move up in the World Bank’s Doing Business rankings by creating a competitive atmosphere among states.

The move is also expected to encourage states to carry out reforms in areas such as land acquisition and labour laws where the Modi government has found it difficult to make legislative headway.

This year India’s Doing Business ranking improved by four notches to 130 under a revised methodology. The NITI Aayog is also preparing to conduct a nationwide “enterprise survey of business regulatory environment” of around 3000 units including 500 start­ups later this year to assess the perception of enterprises on the ease of doing business initiatives taken by the state governments.

As call drop menace continues Telecom Secretary J S Deepak today put the blame on large-scale shutting down of towers for “health reasons” and said states are not able to implement their commitments.

He also said that the complaints of call drops were like people refusing to allow water tanks on their roof-tops and at the same time demanding 24×7 water supply.

“It’s true that in pharma telecom and electronics the central government does most of the regulation but I do not agree that the role of the states is limited” Deepak said at the launch of NCAER’s State Investment Potential index report.

Citing the example of telecom sector he said that all regulations are done by the Centre but the “critical parameter for success is enforcing commitments made by states”.

He was replying to a question on limited role of the states in policy making.

Deepak said that when it comes to laying optical fibre by seeking ‘Right of Way’ permission or install a telecom tower “states are not able to implement commitments made”.

He said that large number of telecom towers are often shut down citing health issues leading to call drops.

“Some kind of clamour on the basis of health reason or other will lead to shut down of towers in large numbers and then there is complaint of call drops. It’s like saying I would not let water tank established on my roof top but I want 24×7 water supply” Deepak said.

Telecom operators have also cited difficulty in getting permissions to dig roads for laying optical fibre (right of way) and local authorities’ arbitrary orders to shut down mobile towers which is leading to call drops.

Most of the operators failed to meet call drop parameters in a drive test conducted by regulator Trai in December-January.

Deepak also said that the states need to offer incentives in order to attract investments.

The telecom secretary said “competitiveness for exports is possible only if we make up for this disability and is done through incentives.

“We in India have disabilities as far as India is concerned. In telecom and electronics sector say it is 10 to 12 per cent. Take the case of Foxconn they are planning to set up more plants. They have wish-list which is 2 meters long and they are going to states from Andhra to Maharashtra to UP to Gujarat trying to see what incentives states give.”

Andhra Pradesh has been able to attract top investments in the field of electronics manufacturing because of incentives it provides to companies he said.

Corruption is the biggest constraint being faced by businessmen across states in the country says a survey of economic think tank NCAER.

“The results (of the survey) indicate that corruption emerged as the biggest problem” it said adding that business enterprises have consistently ranked corruption as the major obstacle for growth.

The NCAER State Investment Potential Index also observed that the World Bank’s enterprises survey 2014 had also ranked corruption as the top­most difficulty faced by business enterprises.

It said that 79 per cent of the respondents rated corruption as the biggest constraint facing businesses followed by obtaining approvals for starting business and getting environmental clearances.

The other constraints being faced by them include quality of skilled labour industry related policies tax policy and access to finance.

Out of the 22 constraints being listed by the survey the least ones include availability of unskilled labour water and labour relations.

The also do not regard availability of raw material net connectivity and labour laws as major constraints as these factors are mentioned low in the list. The survey is based on responses from 1011 units across 40 districts in 21 states.

Senior Fellow at NCAER Indira Iyer said: “The findings of the survey reinforce the perception that corruption is the most significant impediment to business followed by difficulties in getting approvals. Contrary to the popular perception labour laws are not as important as the availability and quality of skilled labour.”

The Union Budget lacks political boldness as the government has frittered away its political capital on issues irrelevant to the economy said political scientist and president and chief executive of Centre for Policy Research (CPR) Pratap Bhanu Mehta.

“There is no political boldness in the budget. The Government’s political capital has been spent (on) cultural battles” Mr. Mehta said addressing select economists and analysts at the Union Budget 2016-17 seminar organised by the CPR along with four other institutions — Indian Council for Research on International Economic Relations (ICRIER) India Development Foundation (IDF) National Council of Applied Economic Research (NCAER) and National Institute of Public Finance and Policy (NIPFP) on Saturday.

Mr. Mehta said that the Budget lacked both investments in and strategies for state capacities. “Do we have the mechanisms for dealing with stuck assets? Where in it is the strategy for basic state functions of police and judiciary and the like? What is the 10-year delivery plan for education and health?” he asked. The fiscal prudence of the budget he said was not a strategy or borne out of conviction. “Instead it is like the world economy is on an uncertain trajectory so let’s be prudent.”

NCAER Director Shekhar Shah said that fertiliser and food subsidies that needed a lot of developmental effort represented the budget’s missed opportunity as it was already late in the political cycle to start on them now.

The Budget made some bold political statements on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and allocations for rural roads and gram panchayats were important steps Mr. Shah said adding that the autonomy and capacity in the States were issues to watch out for.

The streamlining achieved in the Budget with the number of schemes down from 1500 to 300 was not enough. “We’ve gone from Licence Raj to Scheme Raj. The tendency is to design schemes for everything.” Mr. Shah said that he would have liked to see a clear framework of evaluating who enjoyed the benefits of the new crop insurance scheme. “Insurance markets are not the best markets. They fail — especially in agriculture where risks are highly correlated.”

Mr. Shah also pointed out that one of the ways the Budget had managed to show a big increase in the allocation for farmers was bringing in an interest subsidy scheme that was placed in the last Budget under the Finance Ministry’s spending heads to the Agriculture Ministry. The scheme he said had received Rs. 15000 crore this year but not all of that was additional allocation since in the last Budget it had received Rs. 13000 crore. “The irrigation and water management push is the right direction to move in but a whole lot more is needed.”

Concurring with Mr. Shah IDF Director S. K. Shanthi said huge amounts of transfers of Rs.2.87 lakh crore a year had gone to the village panchayats which had no capacity to build roads and keep books. Efforts and time needed to be invested in capacity-building at those levels she emphasised. The new crop insurance scheme would be unsustainable for the government she said sharing Mr. Shah’s concerns. Since the average number of years of schooling was just about five to five-and-a-half years due to the problem of dropout the Skill India initiative was likely to face a challenge Ms. Shanthi said.

The 14th Finance Commission which recommended the doing away of the distinction between the two types of transfers from the Centre to States — from the divisible pool of the Centre’s tax collections and transfers from the Plans — had severely restricted the Centre’s spending she said.

“Fiscal devolution has ultimately led to functional devolution and the capacity constraints could make this a very costly experiment. Social sector services have got devolved to State governments.” While school education had got devolved completely to State governments she said water and sanitation would go to local bodies.

Expressing relief at the budget announcement regarding the committed fiscal deficit targets being retained unchanged at 3.9 per cent of GDP for the current year and 3.5 per cent for 2016-17 NIPFP Director Rathin Roy said: “When you borrow more to consume since we don’t print money any more others have less to borrow for investments.” He hailed the realistic targets for tax collections. “The Budget doesn’t have zamindari-style targets for tax collection.” The Budget retains “bad habits” such as the cesses which he said were essentially “thefts” from the divisible pool of taxes shared by the Centre and States. While it was being politically called a budget for farmers there was no spending boost developmental or otherwise he said. There was in fact zero per cent change in public investments as a percentage of GDP he said.

ICRIER Director Rajat Kathuria said that the Budget contained “tinkering” of duties that was in the nature of protectionism. Although external vulnerabilities were present it could have done enough to boost exports that had been declining for 14 straight months he said.