Gujarat No 1 in ease of doing business. Really?

By Rajiv Shah
Gujarat is, again, No 1— assessed for “ease” of doing business. At least this is what a new report, titled “Assessment of State Implementation of Business Reforms”, is said to have made out by a World Bank report. The moment news broke out, I was amused, and decided to go to the source.
I visited the World Bank site, and found a small summary, prompting one to visit the Government of India’s Department of Industrial Policy and Policy (DIPP) site to download it. Initial remarks on the World Bank site were revealing: “This report captures the findings of an assessment of reform implementation by states, led by the DIPP, Ministry of Commerce & Industry, Government of India, with support of the World Bank Group and KPMG as the knowledge partner, and facilitated by the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI).”
A clear effort of the government of India to “highlight” Gujarat model, this time with the help of an “authentic” World Bank-KPMG study, facilitated by CII and FICCI! But the timing of the report has left many in Gujarat totally puzzled. It comes amidst certain disturbing signs in Gujarat, long known to be “industries friendly”.
In 2013, a US-based researcher Aseema Sinha, in a book published by Oxford, praising Gujarat’s economic reforms as one of the best, said that they “began before Modi came to power in 2001”, but underlining: “Modi’s political genius has been to take credit for these reforms. At a more theoretical level, most reforms began in crisis and proceed not by top down design but through a process of trial and error.”
Earlier, in 2004, economist Bibek Debroy, then heading the Rajiv Gandhi Foundation, declared Gujarat as No 1 in economic freedom index. While Modi took credit of all that Debroy said, I remember have done a story then, complete with data, saying the figures on which Debroy sourced his report were from the pre-Modi phase. It is quite another thing that, overlooking this crucial factor, Congress chief Sonia Gandhi played the editor, and Debroy was made to quit the foundation, pushing him close to Modi.
Now, let’s look at the “disturbing” signs: Tatas are looking for a location other than Gujarat for manufacturing a new car plant by seeking concessions similar to those it got for bringing in the Nano car to the state. Modi, it is well known, gave concessions to the tune of Rs 30,000 crore to bring Nano plant from Singur in West Bengal to Sanand in Gujarat. Over the years, Nano’s sales have reportedly failed to pick up; they are not even 10 per cent of the planned capacity of 2.5 lakh cars per year. The development follows Tatas demanding sops meant for Nano for other car models, something the Gujarat government is reluctant to give.
This has happened weeks after the decision of General Motors (GM) to shift its plant to from Halol in Gujarat to Maharashtra, not only rendering angry workers jobless, but hitting the ancillary industries dependent on it. The GM will be expanding its facility at Talegaon in Maharashtra. Meanwhile, Foxconn, the world’s largest contract electronics manufacturer, has decided to invest $5 billion in Maharashtra, as has Posco, deciding to set up a $3 billion steel plant there. All this, officials in Sachivalaya say, has already “vitiated” the state’s investment climate.
These developments have taken place close on the heels of the powerful Patidar agitation, whose root cause has been traced to rampant unemployment among the educated youth, on one hand, and a sick small scale sector, a big portion of which is controlled by Patidars, on the other.
That things are looking bad in Gujarat has been officially admitted: The state’s additional chief secretary, industries, Arvind Agrawal, addressing a recent CII-sponsored Make in India at Gujarat function in Ahmedabad, said, it is a “a matter of concern” that projects are going over to Maharashtra. “Since we have done very well in power sector in Gujarat, people invested here despite the fact that we gave them costly power. But now the power sector scenario is changing in other states too”, one reason why they are “moving to other states”, he pointed out, adding, “Not just Maharashtra, states like Tamil Nadu, Rajasthan, Madhya Pradesh, Andhra Pradesh and even Punjab are also bouncing back and giving a tough competition.”
Coming to the report declaring Gujarat No 1 in ease of doing business, it also gives some interesting insights. Its one-and-a-half page foreword by Onno Ruhl, country director, World Bank, suggests that the report was prepared on a suggestion from Prime Minister Narendra Modi, the ex-Gujarat chief minister. According to Ruhl, in 2014, Modi “requested” the World Bank Group to “support India’s efforts to enhance India’s competitiveness and increase manufactured exports”. This apparently became the main reason for coming up with the report.
Already, says Ruhl, there is “a disproportionately high regulatory burden” in doing business in India today, with India being ranked 142 among 189 nations in the World Bank’s Doing Business 2015 study. A further detail shows that India’s rank has gone by two points; it was 140 in 2014.
The report’s methodology section says the report scans eight areas of implementing reforms. But even as ranking Gujarat No 1, it suggests that Gujarat is (still) not a model for others to follow; it says no state has reached the level of being called a “leader”. At best, Gujarat is an “aspiring leader”, a category attributed to six other states – Andhra Pradesh, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha and Rajasthan.
Of the eight areas assessed for implementing the status of “reform measures”, interestingly, Gujarat ranks No 1 only in one –“complying with environment procedures”. In the area “setting up a business”, Gujarat does not figure in the first five; the first five are Punjab, Andhra Pradesh, Chhattisgarh, Odisha and Rajasthan. Similarly, in “registering and complying with tax procedures”, Gujarat again does not figure in the list of top five – Karnataka, Andhra Pradesh, Rajasthan, Odisha, and Madhya Pradesh.
In areas such as allotment of land and obtaining construction permit, complying with labour regulations, obtaining infrastructure related utilities, and carrying out inspections, Gujarat ranks No 2. In one area, “enforcing contracts”, Gujarat ranks No 3, following Maharashtra and Madhya Pradesh.
In the area, “complying with environmental procedures”, Gujarat not only scores No 1; it has received the highest, 100 per cent positive response. This seems intriguing, as it is the environmental factor which has been found to be the most suspect in Gujarat. The Central Pollution Control Board data have for several years suggested that some of Gujarat’s industrial clusters top the list of most polluting areas of India. Those who are in the know of things have also pointed out how environmental clearance has been reduced to a mere formality in Gujarat. There have been projects (such as the high-profile Mahatma Mandir convention centre in Gandhinagar) whose environmental clearances were obtained after they were implemented! And, as has been widely reported, industrialization along the Gulf of Kutch has led to major issues of environmental destruction, something about which expert-level committees have talked about in considerable detail.
The issue is: Can environmental destruction be reduced to how quickly a clearance is obtained? Yet, the report praises the Gujarat Pollution Control Board for adopting “a web based application called eXtended Green Node (XGN) to provide an IT solution for effective implementation of various pollution control board clearances/ procedures.” It notes, “XGN provides hassle free, 24 X 7 anywhere e-access to businesses to apply online, track application approvals, file returns and statements and getting online permissions under various Acts and rules.”

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