scorecardresearch

Improving Rajasthan’s Ease of Doing Business

The state should implement Regulatory Impact Assessment, which involves the comparison of costs and benefits of different regulatory proposals

Improving Rajasthan’s Ease of Doing Business
The state has taken radical steps in the past, such as allowing small units to start without any entry formalities for five years, but more needs to be done.

By Pradeep S Mehta & Tanya Goyal

In 2021, Rajasthan slid from being a Leader in the Ease of Doing Business (EODB) ranking of states to being an Aspirer. Considering its poor unemployment and fiscal situation, Rajasthan must attract more investment into labour-intensive sectors, making better EODB essential. The state has taken radical steps in the past, such as allowing small units to start without any entry formalities for five years, but more needs to be done.

One such step is reducing the number of documents required to apply for Certificate to Establish, and Certificate to Operate (CTO/CTE). In Punjab, CTE needs only four documents (site plan, board resolution, document indicating the designation to land, and a land document such as registration or rent deed). Andhra Pradesh requires details of potential water sources in addition. However, in addition to these five documents, Rajasthan asks for acknowledgment from the DIC/Secretariat for Industrial Assistance (ministry of commerce and industry), and a project report signed by a CA, even though these don’t add value to the evaluation process.

Also Read: Investigations are not inquisitions

Second, the state government has prescribed timelines for each authority in the process of screening applications for CTE and CTO. However, such timelines are not necessarily adhered to. Given that industries other than SMEs can’t be established without a CTE and cannot begin operations sans CTO, unreasonable delays in decision-making could lead to sunk costs.

Rajasthan provides different periods for decision-making on applications, depending on the nature of the industry. For red category industries, the application is to be accepted or rejected within 90 days; for orange, in 50 days, and for green industries, in 7 days. However, in Andhra Pradesh, the total period for decision-making is between 7 and 21 days.

Third, change of land use in Rajasthan is to be completed in 60 days, never adhered to in practice. However, in Haryana, this is to be completed in 45 days. Given ‘change of land use’ certificate is essential, the direct and indirect costs of the delay are likely to be substantial.

Fourth, Telangana grants NOC based on Third Party Verifications for fire clearances. Rajasthan doesn’t provide for self-certification or third-party verification. Here the municipal councillors have a role, and thus rent-seeking takes place.

These inconsistencies and procedural hassles in Rajasthan could be by oversight. It would be wise to adopt the best practices from other states for better procedures.

Recently, finance minister Nirmala Sitharaman released the Business Reform Action Plan (BRAP) 2020 report, listing the top states to do business in India. Rajasthan doesn’t figure in the top 13. Unnecessary and avoidable compliance requirements are a key reason for a large proportion of investment commitments not materialising. Typically, only around 15% materialises on the ground.

A CUTS International study, Doing Business in Rajasthan, with the support of the CM Rajasthan Economic Transformation Advisory Council (CMRETAC), focues on compliance and regulatory philosophy. Reviewing the frameworks adopted by different countries to enhance EODB and reduce compliance burden, CUTS zeroed in on the globally recognised Regulatory Guillotine (RG) framework to design a methodology for Rajasthan.

The RG framework rapidly reviews compliances through a consultative mechanism, reverses the burden of proof, and requires clearances to pass the tests of legality, necessity, and proportionality. Only if a requirement passes all three tests should it be retained. The RG framework can be reviewed and revived. This has already been recommended by the state government in January 2021.

Institutionalising an efficient regulation-making process, which can estimate with reasonable accuracy the possibility of a regulatory proposal achieving the regulatory objective and its likely impacts on different stakeholders in the state, is needed. Such assessment is also critical during the lifetime of regulation, to ensure it continues to remain relevant.

Rajasthan can adopt and implement the Regulatory Impact Assessment (RIA) to better the ease of doing business and to introduce better regulations. RIA is a globally recognised process that involves the estimation and comparison of costs and benefits of different regulatory proposals, and their likelihood of achieving objectives. The aim is to enhance investor confidence and augment the EODB. For this, civil society and research groups’ engagement could contribute significantly.

Authors are with CUTS International

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.