How Telangana Topped Ease of Doing Business Ranking: The latest ranking for ease of doing business has a surprise:
Telangana and Andhra Pradesh are joint toppers and have dislodged Gujarat to the third spot. With a score 98.78 percent each, the two states outperformed Gujarat which scored 98.21 percent.
Incidentally, Gujarat was last year’s topper. Beyond the numbers, what is the real story? How did the two Telugu states, which not so long ago went through an acrimonious divorce, bounce back? The roots of the drive to top the business league tables for both states go back to the bifurcation of the state of Andhra Pradesh.
How Telangana Topped Ease of Doing Business Ranking
In 2009 the agitation for a separate state of Telangana gathered momentum once again. Among the main demands was employment. People of Telangana origin did not want to compete with Coastal Andhrites for government jobs. Once Telangana became a reality in 2014 one of the main issues was how to provide employment beyond the narrow pool of government jobs. The Telangana government’s solution was to attract industry in order to create jobs and increase tax revenues.
For both states, moving up the ease-of-doing-business table would attract industry and send an “all is normal” signal after a messy divorce. Both states started implementing reform measures proposed by the World Bank and the Department of Industrial Policy and Promotion aggressively. The measures included tax, environmental and labour reforms, single-window online clearance and setting up of commercial courts.
The centre piece reform is the establishment of a single online window for cutting red tape. The Telangana State Industrial Project Approval and Self Certification System (TS-iPASS) is an online portal for granting clearances based on self certification by entrepreneurs. The TS-iPASS Act passed in 2014 provides the legal backing. The equivalent in Andhra Pradesh is the Single Desk Portal. If the government doesn’t respond to an entrepreneur’s proposal in 15 days (Telangana) or 21 days (AP) it is “deemed” as accepted.
A highly placed Andhra Pradesh government official, who didn’t want to be identified, said that in the last 1.5 years the state has cleared 11,000 proposals. “The state is currently tracking 357 projects worth Rs 4.5 lakh crore with a potential to generate 7 lakh jobs,” the official claimed. Among the reforms Andhra Pradesh has initiated are tax and power subsidies – VAT, GST reimbursement, power at Rs 1 per unit – a digitized database of land, doing away with inspection systems and commercial courts for settling disputes. For instance, earlier an industry needed to get as many as 54 clearances from 15 departments.
The entire process would take 3 months or more. The entire process can now be cleared online in 21 days. However, has the obsession to become business friendly come at a social cost? The rationale for attracting business is that increased industrial activity will fill the state coffers through increased tax revenue.
However, a government official from Andhra Pradesh explained that this was a long term goal, something that would take 5-7 years. In the short run the state would be “revenue neutral”, which in fact may mean that the exchequer may bleed money via subsidies and incentives to industry.
The Telangana administration is targeting the IT, life sciences, automobiles, textiles, and precision engineering. Narsimha Reddy, an activist who has studied industry in Andhra Pradesh for the past 15 years, says that both states may be confusing ease of doing business with subsidies. “The World Bank rationale is to reduce the cost of regulation on businesses, but the states may be confusing this remit by provising subsidies to industry in the form of land, power and loans,” he said.
Land for industry may be the biggest hurdle for both states. Although there is a lot of barren land in both states the problem is not land, but location. Industry requires land that has water and good infrastructure, which tends to be agricultural land, hence the conflict between industry and farmers.
Although both governments are trying to build a land bank, it remains to be seen if they can avoid the conflicts around land that have plagued industrial projects in the rest of India.