By Richard Rossow —
As we close out 2019, India’s mantra of “competitive federalism” to encourage state-level business reforms barely has a pulse. The Indian Ministry of Commerce and Industry has not updated its rankings of Indian states through the “Business Reforms Action Plan,” since 2017. However, even without a visible push from New Delhi, states continue to move forward with smart reforms to improve their business environment. The fourth quarter saw a very high number of significant, positive state-level business reforms — 23 in all.
Karnataka was the most active state with four positive business reforms. However, it also took a step that will harm its business attractiveness by forcing private firms to prioritize hiring native Kannadigas. Madhya Pradesh and Rajasthan had three positive reforms each. Gujarat and Kerala had two each. And nine other states had one positive reform each.
Reform areas prioritized by states in the fourth quarter of the year resembled reforms from the third quarter of 2019. States continue to move forward with policies to incentivize the adoption of renewable energy and electric vehicles. Five states amended or created new industrial policies to boost manufacturing. Six states adopted policies to encourage development of renewable energy with two focusing on rooftop solar. Three states adopted policies to strengthen the startup environment. While many states talk about “single window clearances” for establishing a new business, Kerala and Gujarat both moved to “zero window clearance”, allowing firms to operate up to three years without permits.
Political affiliation seems to be largely irrelevant for implementing reforms. Among the five states with multiple reforms, two are run by Bhartiya Janata Party (BJP) chief ministers; two by Congress chief ministers; and one by a third party.
Elections stalled reforms, as was seen in Maharashtra, Haryana, and Jharkhand which held elections in this period. Although, Haryana did adopt new net metering provisions to its rooftop solar policy just after its voting day. More troubling is that the Shiv Sena-led government in Maharashtra has spooked investors by threatening to cancel a range of contracts signed by the previous government including a high-speed railway project supported by the government of Japan. A similar story of policy instability continues to play out in Andhra Pradesh following the spring 2019 election that brought the YSR Congress to power.
Surprisingly, despite growing evidence in favor of increasing the workforce-size trigger for the Industrial Disputes Act, no additional states have taken the difficult step of amending this key law since Assam in 2017. Though Karnataka did add labor flexibility this quarter, passing a new regulation to allow female workers to handle night shifts in factories.
States Quarterly Reform Scorecard
Specific Business Reforms Covered:
- Bihar: The government approves a new regulation stipulating that people selling or “gifting” land must produce documents outlining the land’s ownership at the time of sale.
- Madhya Pradesh: Dramatically cuts the number of documents required for real estate development from 27 to five; two hectare cap for colony development has been revoked.
- Karnataka: Allows women to work night shifts in factories.
- Arunachal Pradesh: Approves new Arunachal Pradesh State Industrial and Investment Policy 2019 to boost industrial development in the state.
- Gujarat: Approves a policy change that exempts new micro, small, and medium businesses from getting formal approvals for the first three years of operation.
- Himachal Pradesh: Launches new Information Technology/ ITES, and Electronics System Development & Maintenance Policy 2019. The policy includes a range of subsidies such as reimbursement of space rental, tax exemptions, and more.
- Karnataka: Issues a New Textile and Garment Policy 2019-24. Under the policy, firms can take advantage of a range of subsidies on inputs like power, wage subsidies, and more.
- Karnataka: Allows shops to remain open 24 hours a day, seven days a week.
- Kerala: Passes legislation allowing firms with less than Rs 10 crore ($1.4 million) to start operations without any government licenses.
- Madhya Pradesh: The government approved a new Madhya Pradesh Startup Policy, 2019 that expands benefits to startups and sets out new money for seed funding and developing startup-friendly infrastructure.
- Madhya Pradesh: The government approved a new Madhya Pradesh Electric Vehicle (EV) Policy 2019. The policy has a range of incentives to promote the adoption of electric vehicles, as well as stimulating local manufacturing.
- Manipur: The Manipur government approved a new start-up policy, Stand Up Manipur. The policy strengthens the business environment for start-ups and offers subsidies for entrepreneurs from disadvantaged social groups.
- New Delhi: Approves new electric vehicle policy.
- Puducherry: The government launches the Aspiring Puducherry-Innovation & Startup Policy 2019; including a $1.4 million fund for incubators and co-working spaces. Start-ups founded by women, scheduled tribes, disabled, or third gender get additional assistance. Self-certification of labor laws for three years.
- Punjab: Gives a one-time approval for firms to migrate to the new Industrial Policy.
- Rajasthan: Launches new “Investment Promotion Scheme- 2019” containing a range of financial incentives to firms in the state.
- Gujarat: Relaxes rules around development of small-scale solar projects.
- Haryana: The government adds “net metering” to its Rooftop Solar Grid Interacting Systems Regulations, 2019.
- Karnataka: Allows third parties to set up rooftop solar on consumers’ buildings.
- Kerala: Extends validity of its off-grid solar incentive program for two more years.
- Rajasthan: Launches new Solar Energy Policy 2019; focuses on decentralized solar power and solar charging for electric vehicles.
- Rajasthan: Launches new Wind and Hybrid Energy Policy 2019; focuses on improving predictability through storage, mixing with traditional generation, and manufacturing.
- Uttar Pradesh: Issues new Open Access regulations, allowing power consumers to contract directly with producers.
- Andhra Pradesh: The government cancels the licenses of all private bars in the state; issues revised licensing policy.
- Karnataka: Private companies must give hiring priority to Kannadigas. A legislated mandate may be forthcoming with a specific hiring target as a percent of all workers in a company.
- Uttarakhand: The cabinet approved a rule that start-ups founded outside the state must have at least 50 percent local workers in Uttarakhand to take advantage of the state’s startup policy.
Richard M. Rossow is a senior fellow and holds the Wadhwani Chair in U.S.-India Policy Studies at CSIS.