When Ratan Tata decided to move his Nano plant last year from West Bengal to Gujarat, investors in both India and around the world sat up to notice. Why is it that one state could offer to an industrialist what another couldn’t? India, as a whole, has grown at impressive rates this decade; but, if we look closely, some parts are falling behind while others are chugging ahead.
That’s a trend visible in Doing Business in India 2009, a report released on Tuesday by the World Bank and the International Financial Corporation (its affiliate). Since 2003, the World Bank has released global Doing Business reports that rank countries on business friendliness. This week’s report is the first ever specifically on India that ranks 17 Indian cities, judging by their business regulations.
As the World Bank itself has noted, India has actually shown incremental improvement this decade, as far as its regulatory environment is concerned. Yet, the Doing Business in South Asia in 2007 report said: “Although all Indian cities have sped business startup, large sub-national variations remain.”
These regional variations are evident in the 2009 report. Ludhiana in Punjab ranks highest in its ease of doing business, while Kolkata in West Bengal ranks lowest. This regulatory climate, no doubt, influences investment. In late 2008, the Centre for Monitoring Indian Economy (CMIE) found Punjab emerging as a preferred investment destination.
West Bengal, endowed with abundant resources, appears to be suffering. According to the Associated Chambers of Commerce and Industry in India (Assocham), the state registered a 63% annual drop in investment in 2008. Given the sorry saga of land acquisition in this state, the lesson that competent state governments matter for reform perhaps rings truest from here.
Thanks to these different climates, some states become prone to Maoism—feeding on poverty and deprivation. This is also why some states and cities attract more migration—worsening urban-rural imbalances.
Next week, all eyes will be on the Centre as it unveils its budget. Whatever this may bring, state governments shouldn’t forget that they are responsible for much of the development that occurs in their backyards.
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