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 Any
assessment of states as investment destinations involves consideration
of several factors: Government attitudes and policy support, proximity
to markets and/or supplies, and physical and social infrastructure.
Most industrial investments in India take time
to come on stream. This arises from investor-unfriendly laws and
non-transparent procedures; the barriers vary significantly across
states. Although various governments have announced 'single window
clearance' procedures and 'investor assistance cells', these are
rarely effective. That's because the problem lies not in inadequate
coordination, but in fragmented and often arbitrary exercise of
the various powers of government. This is compounded by the fact
that the rules and regulations governing entry and operation are
neither transparent nor justiciable. Rationalisation of these various
rules, notifying them in a transparent manner, assigning accountability
and providing administrative and legal recourse are the touchstones
to assess the commitment of a State.
Entry is only the first step. Hurdles can also
come up in the course of business. Corruption, in the sense of payment
for an illegal act or as 'speed money', is one thing, but extortion
by government functionaries from perfectly legitimate businesses
is altogether more pernicious. Fortunately, this is justiciable,
although many may find the alternative cheaper. Nevertheless, the
number of cases of this type may be a fair indicator of the level
of harassment in a state.
Another method would be to examine the relative
growth rates of different sectors in the State Domestic Product
(SDP). One reason why the services sector has performed better than
the industrial one is that governance-related impediments are fewer.
Thus, if the share of the services sector in the non-agricultural
SDP of a state is increasing faster than the national average, it
would be cause for worry.
The canny entrepreneur should not only take
into account the ease of birth and growth, but also death while
assessing business climate. Different states have different attitudes
towards closure of units, and not just related to labour laws.
Tax reliefs and subsidies are frequently important
determinants of investment decision. However, there are two things
worth noting. First, these are good for new entrants but terrible
for incumbents and all entrants become incumbents. Therefore, unless
the pay-back period is significantly shorter than the concession
period, watch out. Second, states have agreed to do away with such
reliefs.
The creation of a common economic space within
the country depends on states recognising common interests. This
need has gained urgency as external barriers to trade and commerce
have come down. Unfortunately, a number of states have been increasing
barriers to internal trade. This may seem a good idea initially,
since it protects the internal market, but then the wise entrepreneur
should stick to investing only in seaboard States. A day may come
when it is cheaper to export than to sell to another State. Fortunately,
the proposed value-added tax (vat) could correct part of this problem.
Finally, law and order and the delivery of
justice are probably the most important determinants of investment
climate. There may seem to be little to choose between states on
this count, but appearances can be deceptive. Aggregate crime or
judicial records do not reflect this. A survey of practicing lawyers
should be part of every corporate's decision-making toolkits.
Dr Pronab Sen is Advisor, Perspective Planning,
Planning Commission
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