Indian State-Level Business Reforms, First Quarter 2017

By Richard Rossow —

Prime Minister Narendra Modi addresses a crowd. Source: Narendra Modi Official’s flickr photostream, used under a creative commons license.

Indian Prime Minister Narendra Modi has made the concept of “competitive federalism’’ — encouraging states to compete to win the title of India’s best-performing state — a key element of his governing philosophy. States have taken up the baton, working hard to outdo each other in governance reforms. Every three months, the CSIS Wadhwani Chair in U.S.-India Policy Studies prepares an overview of key state-level reforms from India’s twenty-nine states as well as Delhi and Puducherry (which have their own legislatures). In the first quarter of 2017, 1 January through 31 March, the total number of significant positive state-level reforms rose to 20, compared to fourteen in the fourth quarter of 2016. More news and analysis on Indian states can be found at indianstates.csis.org.

States governed by Modi’s Bharatiya Janata Party (BJP) have tended to lead in terms of the number of positive business reforms, and this quarter is no different. Maharashtra heads the pack with four positive reforms. Haryana and Rajasthan are right behind, with three apiece. Andhra Pradesh, Tamil Nadu, Karnataka, West Bengal, Bihar, Madhya Pradesh, and Delhi also registered positive reforms.

States Led the Way

Apart from state policy reforms, there are a few important efforts underway that are shifting the balance of power between the central government and the states. Of note:

  • Ujwal DISCOM Assurance Yojana (UDAY): The electricity utility bailout program signed on five more states, bringing the total number of participating states to 26. (Mizoram subsequently signed on in early April, bringing the total to 27).
  • Goods and Services Tax: Parliament approved the implementing legislation required for a July 1, 2017 introduction of the new tax regime. State legislatures then began the process of adopting implementing legislation themselves; the tax went into effect on schedule.
  • Ranking Indian States’ Business Environments: The Department of Industrial Policy and Promotion, in consultation with states and the World Bank, has pruned the number of action points in its new ranking of ease of doing business in states, reducing the list to 294 down from 340. The final list, which now reflects states’ priorities for action, is due to be released shortly

Below, we capture the significant state-level reforms—both positive and negative—that caught our attention during the first quarter of 2017.

Land

  • Andhra Pradesh: The Andhra Pradesh cabinet has decided to issue an ordinance making crucial amendments to the Right to Fair Compensation in Relief, Rehabilitation and Resettlement Act of 2013, removing the law’s requirements that a social impact assessment be performed and consent of land users given before land can be seized through eminent domain.
  • Maharashtra: The state published the first rules related to implementing the Real Estate (Regulation and Development) Act, passed in Parliament last year.
  • Tamil Nadu: The Tamil Nadu State Legislative Assembly passed a bill amending the Tamil Nadu Town and Country Planning Act, 1971 to extend the validity of planning permission from three to five years. The amendment is meant to make it easier for developers to complete large-scale products before their permissions expire.
  • Haryana: The Haryana Assembly amended a series of laws to adjust the legal relationship between landlords and tenants in the state in order to give tenants better access to credit and crop insurance while increasing the safeguards preventing tenants from claiming ownership of land. The amendments are also designed to minimize the length and frequency of litigation over land rights.
  • Maharashtra: The Maharashtra government set a mandatory 90 day period to complete land transfers for development priorities from one government department to the implementing department.
  • Maharashtra: The state has made all land records available online.
  • Karnataka: Karnataka’s cabinet has amended the Karnataka Industrial Areas Development Board rules to remove the 99-year lease term for industries leasing land in industrial estates. The state will return to the previous policy, under which tenants could purchase the land outright after showing that they intend to use the land for the stated purpose.
  • Tamil Nadu: Tamil Nadu circulated draft rules putting into effect the central Real Estate (Regulation and Development) Act of 2016. The rules allow jail time for developers who fail to deliver housing projects on time and mandate registration of real estate agents. The draft rules do not address single window approval for development projects, which was high on developers’ wish lists.

Labor

  • Maharashtra: The Maharashtra government has issued a notification amending the Contract Labour (Regulation and Abolition) Act 1970 which substantially reduces the number of establishments covered by the law. The law will now apply only to units with 50 or more employees, compared to 20 or more previously. The law mandates certain on-site amenities, such as a day care, and sets the number of yearly holidays and maximum work hours.
  • West Bengal: The state assembly passed the West Bengal School Service Commission (Amendment) Bill which removes regional restrictions on the hiring and placement of teaching staff.
  • Rajasthan: The Rajasthan government will require employers of formal-sector shop and factory workers to pay their employees via check or bank deposit rather than cash.

Water, Power, Sanitation

  • Bihar: Announced a major hike in electric power rates. Bihar has one of India’s worst-performing electric power grids, in part because of low cost recovery due to politically-driven pricing.
  • Haryana: Haryana has increased the municipal electricity tax from .07 cents per unit to 2 percent of the total power bill. The move is meant to improve the financial health of the state’s utilities.
  • Haryana: Haryana has made an in-principle decision to make it mandatory to show proof of regular payment of electricity bills when applying for government jobs, issuance and renewal of arms licenses, purchase of land plots, and approval of blueprints and construction of plots measuring 250 square yards.
  • Madhya Pradesh: Following Cabinet approval, Madhya Pradesh Urja Vikas Nigam, a public sector utility focusing on non-conventional sources of energy, will allow consumers to sell excess power back to the state government.
  • Rajasthan: Calcutta Electric Supply Corporation Limited has been appointed as a power distribution franchisee to supply electricity to Bikaner in Rajasthan. This is the group’s third distribution operation in Rajasthan after Kota and Bharatpur. The agreement has a 20-year tenure.

Other Pro-business Regulations

  • Delhi: Delhi residents can now apply online for eight transport department services, including to get a drivers license or a duplicate registration certificate, and to transfer vehicle ownership.
  • Rajasthan: Rajasthan amended its mining policy to require e-auctions for all mines in the state. The shift is meant to increase transparency and competition. New mines will now be leased for 50 years.
  • West Bengal: The West Bengal legislature amended the West Bengal Agricultural Produce (Regulation) Act, 1972 to create a single license for trading in all markets within the state.

Harmful Regulations

  • Karnataka: Ride-hailing apps Ola and Uber may have to cease operations in Karnataka after the state transport commissioner deemed them to be illegal. The state transport department ruled that the services’ permits do not allow them to pick up and drop off passengers during the course of the ride but can only offer point-to-point pick-ups and drop-offs.

Mr Richard M. Rossow holds the Wadhwani Chair in U.S.-India Policy Studies at CSIS. Follow him on twitter @RichardRossow. To learn more, visit indianstates.csis.org.

Richard Rossow

Richard Rossow

Richard M. Rossow is a senior fellow and holds the Wadhwani Chair in U.S.-India Policy Studies at CSIS.

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