Which is the state where businesses are happiest in and don’t think the grass is greener in some other state? It is the newly-created state of Telangana, with 97.1 per cent of businesses polled for a survey saying they did not think it is easier to operate a business in other states.
Businessmen in Jharkhand appear most unhappy with their state and think they would be better off elsewhere – 62.5 per cent of them said they believed ease of doing business is better in other states.
The survey is an integral part of an index ranking states on their investment drawing potential. The index, which will be an annual affair, was constructed by the National Council of Applied Economic Research (NCAER) and is called the N-SIPI (NCAER State Investment Potential Index).
Like many other indices on the business environment in states, the N-SIPI also uses hard data and facts as parameters. Four of its five pillars are data-based – labour, infrastructure, economic climate, political stability and governance. But then it goes one step further and adds a fifth pillar – perceptions, which is based on a survey of 1011 industrial units in 40 districts of 21 states. They were polled on issues relating to labour, land, infrastructure, business expectations and political stability and governance.
In the overall ranking based on all five pillars (which encompass 51 sub sections), the top five states are Gujarat, Delhi, Tamil Nadu, Andhra Pradesh and Maharashtra. The ranking based on just perception throws up a different result – then the top five states are Gujarat, Rajasthan, Chhattisgarh, Uttarakhand and Andhra Pradesh. That Andhra Pradesh should come behind Rajasthan, Chhattisgarh and Uttarakhand and states like Tamil Nadu, Maharashtra, Punjab, Karnataka and Haryana do not figure at all in the top five does boggle the mind, but businesses obviously have a better view from up close.
It is when one goes into details of the survey results that a lot of widely held assumptions are proven wrong.
Gujarat may well top the rankings in both the overall N-SIPI as well as the perception parameter, but only 64.6 per cent of units located in the state felt that conditions in other states were not better and 30.8 per cent were non-committal. Sure, 64.6 per cent is not a number to be sneezed at, but look at Punjab, which follows Telangana in having the most satisfied investors – 81 per cent of units surveyed said conditions in other states were not better. The remaining were equally divided between yes (conditions were better in other states) and can’t say. Andhra Pradesh comes third, with 80 per cent of units surveyed saying conditions elsewhere were not better than Andhra Pradesh and 20 per cent remaining non-committal. The majority of the respondents in Rajasthan and Himachal Pradesh (60 per cent each) were satisfied with their respective states.
What is even more interesting is the fact that Maharashtra comes second after Jharkhand where existing industrial units responded with a yes, they believed conditions in other states were better. That fact that Jharkhand tops this list is understandable – the state with enormous potential after its separation from Bihar has gone to seed mainly due to political instability leading to policy uncertainty and a complete lack of concern about basic infrastructure issues.
But why should more investors in Maharashtra (58.1 per cent) be unhappy with a state widely perceived to be industry-friendly than in the case of West Bengal and Uttar Pradesh (50 per cent each)? This is something the Maharashtra government clearly needs to worry about.
In the case of Karnataka and Tamil Nadu, the majority of the respondents (61.4 per cent and 64.1 per cent) were non-committal.
How do states stack up on perceptions relating to the three factors of land, labour and capital?
Industry has constantly been arguing that the existing land acquisition laws are coming in the way of its progress. But the survey shows that 73 per cent of respondents find land acquisition is not a problem at all. All the respondents in Rajasthan and Telangana said they faced no problems whatsoever in getting land.
Five states – Uttarakhand, Gujarat, Assam, Andhra Pradesh and Himachal Pradesh – had more than 90 per cent respondents say they faced no problem in getting land. Acquiring land is most problematic in West Bengal (82.6 per cent) and Odisha (65.1 per cent). Haryana comes third with 52.5 per cent.
Nor does industry appear handicapped by labour laws, the relaxation of which is a permanent item on India Inc’s wish list. It turns out that only 10.3 per cent of the companies surveyed find this a severe constraint. As many as 52.9 per cent feel it is not a problem and 36.8 per cent feel it is a moderate problem.
It is only in Delhi (24 per cent) and Kerala (20.5 per cent) that businesses reported problems with labour laws. Across 13 states, the percentage range of businesses saying labour laws are not a problem ranged from 50 per cent (Assam) to 85 per cent (Rajasthan and Himachal Pradesh). Even in West Bengal, 64.3 per cent companies say there are no labour law problems.
Gujarat tops in terms of perceptions on labour relations, with 92.3 per cent businesses saying they faced no problem. Next comes Haryana (85 per cent) and Rajasthan (80 per cent). Kerala stands out as the state with the most problematic labour relations – 25 per cent of the companies surveyed believe this problem is severe and another 45.5 per cent believe it is moderate; only 29.5 per cent felt there were no problems. Bihar and Tamil Nadu had the maximum number of respondents saying the labour relations problem is moderate – 75 per cent and 71.8 per cent respectively.
Access to finance is the most problematic in Kerala (52.3 per cent) and Assam (32.5 per cent). In Kerala, only 9.1 per cent respondents saying they face no problem at all. For the rest 20, between 22 per cent (Chhattisgarh and Karnataka) and 92.3 per cent (Gujarat) respondents say they face no problem in accessing finance.
So what is the biggest constraint of investors? Corruption, with 79.4 per cent companies listing this as a problem. The state topping the list on this parameter is Tamil Nadu – not a single company voted `no problem’; 71.8 per cent say it is a severe problem and another 28.2 say it is a moderate problem. West Bengal comes second in terms of severity of the problem, with 64.3 per cent companies saying so. The southern states, widely perceived as less corrupt than their northern counterparts, don’t do so well in the survey. In Karnataka, Andhra Pradesh and Kerala, the number of companies saying corruption was not a problem ranging between 4.4 per cent and 10.1 per cent. The rest of the companies reported severe or moderate problems. Clearly corruption is the problem that needs fixing the most.
Such indexes set off competition among states to improve on their positions. Will there be a competition on reducing corruption? The country lives in hope.