There are two contradictory forces at work in India today. On the one hand, efforts to create a single national market by ushering in a coherent goods and sales tax have gained momentum in the last one year. On the other hand, within days of the move to create the state of Telangana, many similar statehood demands have mushroomed. Internal political divisiveness has gathered steam.
What would it be to do business in an India with more political jurisdictions, but with a semblance of a unified market?
The costs of running a business would rise greatly. Small states with poor to non-existent revenue bases would find it hard to resist imposing taxes and levies on existing businesses. There are many ways to do this. Cesses on existing taxes, raising tariffs on simple things such as electricity, water and fuel are pretty easy. Businesses are helpless against that. Many states have tried to do away with them to create a business-friendly environment. More states will ensure a movement in the opposite direction.