The DIPP’s pressure on states to become more business-friendly seems to be working
By now, most people have a reasonably good idea about the ease of doing business initiative pushed by the department of industrial policy & promotion(DIPP). There is an antecedent that goes back to May 2014, and studies by DIPP (Accenture), FICCI (Bain), CII (KPMG) and former Planning Commission (Deloitte). There are also the Doing Business indicators of the World Bank, based on questions in 10 (or depending on how you count, 11) areas. In 2015, in the World Bank rankings, India scored 142 out of 189 countries. It is not that the Bank’s methodology is beyond reproach—in 2015, it seems to be more tentative about its methodology than used to be the case earlier.
More importantly, unless the focus is on defence, railways, highways, major ports or other such sectors, no one does business in India. Business is done in India’s states. Therefore, one needs to know how the states perform. Last year, in 2014, DIPP/Accenture identified six (seven) best practices—management of indirect taxes in Karnataka, labour management in Maharashtra, single-window clearance in Maharashtra, land interventions in Gujarat, e-governance in Gujarat and single-window clearances in Rajasthan and Punjab.
If you ask around, without doing proper sample surveys, about which states are business-friendly—you will probably be told Gujarat, Tamil Nadu and Maharashtra. If you ask about states that have improved, or have done well in labour law reform, you will probably hear the names of Rajasthan, MP, UP and Chhattisgarh. DIPP’s Doing Business initiative also has stuff on simplifications the Union government has done. Let’s ignore those and focus on the states.
For doing business purposes, there are eight heads
* 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. Straddling those 8 heads, there are now 285 questions, to be answered by the state governments. The answers are binary, yes/no. Have you done this, or haven’t you? To give an example, a state government should “publish a comprehensive checklist for all requirements for NOCs, licenses, registrations, environment clearances and land- and building-related approvals and certificates”. Either a state government has complied, or it hasn’t. Though the step is in the same direction, this isn’t what DIPP (Accenture) did in 2014, or what World Bank seeks to do. Right now, the state governments respond to specific questions. This isn’t the same as respondents (read recipients) reacting to business climate in a state, for better or for worse. Such responses require administration of questionnaires to those selected for a survey and surveys are resource- and time-intensive. Stated differently, when undertaken, surveys will validate or reject what state governments proclaim. They supplement what DIPP is attempting now and both have utility.
In addition, refining those 285 questions, there are 98 recommendations for state governments. The quote I cited is an instance. For setting up a business, there are 12 things that should be done (deadlines between January 31, 2015 and March 31, 2015). The remaining (out of 98) are spread across the other 7 heads, with time-lines for each. You will find details on DIPP’s website. What I find interesting is the pressure this has led to. Let’s take labour compliances as an example. (Labour reform doesn’t mean Chapter V-B of Industrial Disputes Act alone.) By June 30, 2015, state governments should have developed an on-line portal for labour law compliances, registration and renewal of licences; established labour arbitration courts in select industry clusters; synchronised multiple inspections under labour laws; and consolidated and rationalised all state-specific labour laws. Let’s pick a state one doesn’t usually associate with labour law reform, West Bengal. On June 18, 2015, West Bengal’s labour department issued five separate notifications, all providing for self-certification under different statutes. Each of these notifications stated, “Whereas ‘Ease of Doing Business’ is a priority of the State Government; And Whereas, there is a need for simplification of procedures for enabling facter (the typo exists in the original, should be ‘faster’) clearances under various statutes and rules; And Whereas, there is scope for hassle free statutory clearances for creating a conducive environment for rapid industrialization..” Those arguments have always existed. I don’t think these notifications would have materialised, but for the prospect of being measured and rated.
There were notifications before June 18, too. On June 15, the labour department issued a notification on simplification and rationalisation of inspections across a range of labour statutes. An order from May 21 ended unauthorised “surprise” inspections. An earlier circular (March 3, 2015) tightened delays in submitting inspection reports after inspections. For labour laws, an order from October 30, 2014, introduced a single-window system. Labour law reform isn’t only about statutes on industrial relations, more specifically, Industrial Disputes Act (IDA).
People incessantly clamour about lack of “big bang” on labour law reform, meaning Chapter V-B of IDA, and lack of its amendment at Union government level. However, there is quite a bit happening outside industrial relations and it is also occurring in the states where you would least expect it. I personally think pressure by DIPP has worked and has contributed to these changes, apart from the obvious point about competing to attract investments. If one gives up the single-minded obsession with IDA, I don’t think life is that dismal. This is also true of the other factor, land, but that’s a different story.
The author is Member, NITI Aayog. Views are personal