Dear Sir, Re: Accelerating Economic Growth – India needs State Level Reforms & Liberalisation
India’s GDP growth has halved from over 9% in 2010-11 to just 4.5% in the current year. Many economists, industrialists, investment analysts and business observers & advisors are demanding more economic reforms from the Government. Recently, the Union Cabinet has cleared projects worth more than Rs. 3 lakh crore. Yet, industrial growth remains below 2%, and the index of industrial production has actually fallen.
One really wonders: why so much effort is producing so little result? There are many shades of opinions, answers & suggestions. One of the important reasons is that though economic reforms at Central Level are essential they have stagnated. In a Federal Structure, we also need additional economic reforms at the State Level.
Gone are the days when an industrial licence was the key hurdle. Today, not just Union Government but the State Governments too have, in their worthy search for inclusiveness, created voluminous laws and regulations regarding conservation of environment, forests, tribal areas and land acquisition etc.
Even central regulations have to be implemented by officials in the State Secretariats and at district levels. The states themselves have to approve / grant many clearances / licenses/ permits/ NOCs relating to forests, tribal areas, environment, mining rights, pollution and land acquisition, power / water supply etc. Thus, hundreds of projects do not move forward.
The States need to rethink their approach towards economic growth. They have limited technical and bureaucratic capacity, and cannot easily handle even public law & order and task of providing various basic services to the public. The Doing Business 2013 report of the World Bank ranks India at only 134th of 189 countries in ease of doing business. India comes only 179th in ease of starting a business, 182nd in ease of getting a construction permit, 111th in getting an electric connection, 158th in paying taxes, 92nd in ease of registering property and 186th in enforcing contracts.
Most hurdles to doing business in India require state-level reforms, not just the central level. State governments are important actors in granting permissions / approvals / clearances to commence a business (particularly an Industrial Project), notably in the conversion of agricultural land into an industrial land.
Businessmen pay both central and state taxes, several times a year. They pay Corporate tax, Service tax, Excise Duty, Customs duty, Octroi, Municipal taxes, Sales tax / VAT, Entry tax and a host of other minor imposts, each entailing hours of paperwork. It is ridiculous that India is 158th in this respect despite having some of the best software companies in the world, which can surely devise simplified, quick tax payments.
One rarely hears a Chief Minister or a state level Finance Minister, Law Minister, Industries Minister, Revenue Minister or Urban Development Minister ever talking about State Level Economic Reforms or laying Road-map for the same. Therefore, we need to stop focusing on just macroeconomic or central government reforms. The most urgent reforms in many fields are needed at the state level and the time has come for voters to demand similar economic reforms in various arenas in their state.
