The Modi government's first year in office has been marked with difficulties in passing central legislation on labour and land acquisition, since it lacks a majority in the upper house of parliament. Central ministers have acknowledged this limitation, while asking state governments to frame new laws and implement changes directly in states.
In line with this, on September 14, the government published a ranking of states on the ease of doing business. The government argues that ultimately business is done in states, and a ranking exercise will encourage competition among states to simplify rules for business. The "Assessment of State Implementation of Business Reforms" report ranked the top five states as Gujarat, Andhra Pradesh, Jharkhand, Chhattisgarh and Madhya Pradesh. All five states are ruled by the Bharatiya Janata Party or National Democratic Alliance allies, which may have led these states to respond more promptly to the administrative changes asked of them.
But the results have triggered criticism of bias by opposition-ruled states such as Karnataka. Congress leader and former commerce minister Anand Sharma questioned how states such as Tamil Nadu, Karnataka and Delhi had failed to make it to the top five despite getting the highest foreign direct investment inflows between 2000 and 2014. He referred to the study as “propaganda”.
How states were assessed
The World Bank, which routinely publishes a ranking of countries on Ease of Doing Business internationally, led the effort for the department of industrial policy and promotion, in association with financial services firm KPMG. The study evaluated states under eight heads, each weighted equally: setting up a business; allotment of land and obtaining a construction permit; complying with environment procedures; complying with labour regulations; obtaining infrastructure-related utilities; registering and complying with tax procedures; carrying out inspections; and enforcing contracts.
It asked states to answer 295 questions in these eight areas with a "yes" or "no" – that is, had the state government complied with a particular requirement, or not. For instance, on licenses to work as contractors under the Contracts Labour (Regulation and Abolition) Act, 1970, "Is there a provision for online application and payment without the need for a physical touch point?"
The study recorded the compliance of various states on these measures during a short period from March to June 2015.
The parameters in all eight areas were chalked out by the World Bank team after state representatives took part in a “Make in India” workshop on December 29, 2014. In his note in the report, the World Bank's India director Onno Ruhl noted that this is the first evaluation to assess the states' progress and will be followed by successive such rounds “to further ease the regulatory burden on business.” The exercise is expected to help India improve its current rank of 142 among 189 nations in the World Bank’s Doing Business 2015 study.
According to the World Bank’s Enterprise Survey, businesses in India rank corruption as the number one constraint to growth, ahead of factors such as access to electricity, finance or land. Understandably, the assessment exercise focused heavily on encouraging states to increase the use of technology to reduce corruption.
The minefield of land and labour
To assess how states perform in making land available to industry, the evaluation exercise stressed on the need for states to ensure access to information on land available for business. It questioned state governments on whether they had prepared a comprehensive list of the number of land banks – parcels of government-owned land available for industrial use, whether or not organised as industrial estates – to provide serviced land to investors, and whether this information was available online.
It evaluated states on the basis of whether or not they allowed business users to filter the data on land banks by type of industry permitted to be established on the land, technology used and level of detail of information on available infrastructure such as roads and water. To encourage transparency, states were evaluated on whether there were any criteria for evaluating an application for land allotment, and whether timelines for processing of application for land allotment were defined or not.
With regard to labour, the other area which the NDA government has repeatedly called a cause of concern for industry, the study evaluated whether states have shifted to regulatory regimes based on self certification, in which a business self certifies that it has complied with the norms, instead of a system based on a system of regular government inspections.
The study recorded that 16 states allow self-certification under the Minimum Wages Act, 1948, 14 allow this for compliance with the Factories Act 1948 (which regulates safety and other conditions of work inside factories) and 13 states ticked the box for self-certification for the Contract Labour (Regulation and Abolition) Act, 1970, which lays down rules for industry for hiring workers on a temporary basis.
The World Bank team recommended that in case of inspections under laws with a safety dimension, eg. Indian Boilers Act 1923 which provides for safety from the danger of explosion of boilers, government inspections can be substituted with third-party certifications for which states may lay out the criteria for accreditation and empanelment of third-party service providers. The report noted that among all states, only Jharkhand scored 100% on easing labour law regulation for business since it offered process timelines and online solutions, and downloadable and verifiable certificates under several labour laws.
Corrections and clarifications: An earlier version of this article erroneously mentioned Rajasthan as the fifth top state. It was actually placed on the sixth spot.
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In line with this, on September 14, the government published a ranking of states on the ease of doing business. The government argues that ultimately business is done in states, and a ranking exercise will encourage competition among states to simplify rules for business. The "Assessment of State Implementation of Business Reforms" report ranked the top five states as Gujarat, Andhra Pradesh, Jharkhand, Chhattisgarh and Madhya Pradesh. All five states are ruled by the Bharatiya Janata Party or National Democratic Alliance allies, which may have led these states to respond more promptly to the administrative changes asked of them.
But the results have triggered criticism of bias by opposition-ruled states such as Karnataka. Congress leader and former commerce minister Anand Sharma questioned how states such as Tamil Nadu, Karnataka and Delhi had failed to make it to the top five despite getting the highest foreign direct investment inflows between 2000 and 2014. He referred to the study as “propaganda”.
How states were assessed
The World Bank, which routinely publishes a ranking of countries on Ease of Doing Business internationally, led the effort for the department of industrial policy and promotion, in association with financial services firm KPMG. The study evaluated states under eight heads, each weighted equally: setting up a business; allotment of land and obtaining a construction permit; complying with environment procedures; complying with labour regulations; obtaining infrastructure-related utilities; registering and complying with tax procedures; carrying out inspections; and enforcing contracts.
It asked states to answer 295 questions in these eight areas with a "yes" or "no" – that is, had the state government complied with a particular requirement, or not. For instance, on licenses to work as contractors under the Contracts Labour (Regulation and Abolition) Act, 1970, "Is there a provision for online application and payment without the need for a physical touch point?"
The study recorded the compliance of various states on these measures during a short period from March to June 2015.
The parameters in all eight areas were chalked out by the World Bank team after state representatives took part in a “Make in India” workshop on December 29, 2014. In his note in the report, the World Bank's India director Onno Ruhl noted that this is the first evaluation to assess the states' progress and will be followed by successive such rounds “to further ease the regulatory burden on business.” The exercise is expected to help India improve its current rank of 142 among 189 nations in the World Bank’s Doing Business 2015 study.
According to the World Bank’s Enterprise Survey, businesses in India rank corruption as the number one constraint to growth, ahead of factors such as access to electricity, finance or land. Understandably, the assessment exercise focused heavily on encouraging states to increase the use of technology to reduce corruption.
The minefield of land and labour
To assess how states perform in making land available to industry, the evaluation exercise stressed on the need for states to ensure access to information on land available for business. It questioned state governments on whether they had prepared a comprehensive list of the number of land banks – parcels of government-owned land available for industrial use, whether or not organised as industrial estates – to provide serviced land to investors, and whether this information was available online.
It evaluated states on the basis of whether or not they allowed business users to filter the data on land banks by type of industry permitted to be established on the land, technology used and level of detail of information on available infrastructure such as roads and water. To encourage transparency, states were evaluated on whether there were any criteria for evaluating an application for land allotment, and whether timelines for processing of application for land allotment were defined or not.
With regard to labour, the other area which the NDA government has repeatedly called a cause of concern for industry, the study evaluated whether states have shifted to regulatory regimes based on self certification, in which a business self certifies that it has complied with the norms, instead of a system based on a system of regular government inspections.
The study recorded that 16 states allow self-certification under the Minimum Wages Act, 1948, 14 allow this for compliance with the Factories Act 1948 (which regulates safety and other conditions of work inside factories) and 13 states ticked the box for self-certification for the Contract Labour (Regulation and Abolition) Act, 1970, which lays down rules for industry for hiring workers on a temporary basis.
The World Bank team recommended that in case of inspections under laws with a safety dimension, eg. Indian Boilers Act 1923 which provides for safety from the danger of explosion of boilers, government inspections can be substituted with third-party certifications for which states may lay out the criteria for accreditation and empanelment of third-party service providers. The report noted that among all states, only Jharkhand scored 100% on easing labour law regulation for business since it offered process timelines and online solutions, and downloadable and verifiable certificates under several labour laws.
Corrections and clarifications: An earlier version of this article erroneously mentioned Rajasthan as the fifth top state. It was actually placed on the sixth spot.
