Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

Reforms, rankings and states

The World Bank report is the first in an annual exercise and actually serves as a good checklist on the progress of reform initiativeswhat is achieved and what is not

Last week, the Department of Industrial Policy and Promotion (DIPP) in coordination with the World Bank, put out its first report on the Assessment of State Implementation of Business Reforms.

Contrary to the title of the report, it was viewed as a ranking of states based on their reform credentials. And, predictably, this has given rise to a cacophony of claims and counter claims and of course protests from states, especially the opposition-ruled ones, that this was a grand conspiracy hatched by the Union government. (A chief minister, in an informal interaction with me, dismissed the findings claiming that his state barely figured in the top 10 states.)

This is typical of a document drafted like a report card. I can recall my annual agony when the graduating report card at the end of each school year had to be presented to my parents. It would begin and end with my rank in the class (which was never anything to write home about); and of course homilies, sometimes painfully rendered, on how I needed to emulate the brightest (as per the rankings, another matter though that later in life many of these ranked performers fell by the way side). The effects of peer pressure created by my parents (in this instance, read media) would last for a week at best and then it was business as usual.

I am afraid this may exactly be the learning that will be drawn from the findings of the report—if viewed purely as a ranking exercise. Those at the top will smugly hold this up as “I told you so", while those at the bottom of the pile would shrug their shoulders claiming it was “fixed". This is unfortunate. The report is the first in an annual exercise and actually serves as a good checklist on the progress of reform initiatives—what is achieved and what is not.

Writing in Swarajya magazine, Bibek Debroy, economist and member of NITI Aayog, sums up the objective of the study perfectly. “The idea isn’t," he writes, “that this state does better than that. The idea is that all states improve."

In fact, the conclusion to the executive summary of the DIPP-World Bank study says as much, equally succinctly. “This report is inspired by the notion that ‘what gets measured gets done’, and is therefore is intended to trigger a participatory and knowledge-driven reform process."

India is a federal polity and hence the underlying economic philosophy is that the sum of the parts is greater than the whole. The Fourteenth Finance Commission reset the fiscal relations between the centre and the states and, in the process, only accelerated this process by according greater fiscal powers to the latter.

If approached from this perspective, the report is indeed an eye opener. At one level, the findings tell us that despite all the lip service to reforms over the last three decades and more, just about a third of the desirable milestones of “business reforms" has been realized. And, worryingly, most of this is low-hanging fruit.

“There are still a multitude of reforms that need to be undertaken and implemented effectively. On average, only 32% of the proposed reforms have been implemented across the country. The implementation of reforms regarding inspection and enforcement of contracts, which necessitate medium-term actions, stands at less than 20%," the report states.

The starting point of understanding the purpose of the report is that the delivery system in India is broken—and badly at that. Rampant corruption is a manifestation of this sad reality. It is easy to pin the blame on past political regimes, but that is hardly the point. How can the system be fixed? And in such a way that it is transparent and guarantees accountability? (Using Aadhaar, the unique identity programme, to effect direct cash transfers of LPG subsidy is a good example of a transparent delivery mechanism.)

At another level, the report lists a string of success stories of reform initiatives at the state level, which at the least are inspiring, especially as they show us that change is very much doable.

Particularly striking is the decision by Maharashtra and Delhi to put in place specialized commercial courts to avoid undue delays in resolution of business disputes. The DIPP-World Bank report cites the commendable example of the high court in Maharashtra, which constituted seven commercial benches exclusively for the purpose of resolving commercial disputes. “To address the concern of time and costs associated with various legal processes, district courts in the state have been equipped with the provision for making online payments. Most vacancies for judges have been filled up in district courts and hiring of judges is undertaken as and when vacancies are created to ensure availability of adequate capacity for dealing with various cases."

To sum up then, the DIPP-World Bank study is a good initiative. Over time, the corners will be smoothed. In any case, the fact that states have signed on to the study suggests that there is an inherent desire to adopt a friendlier business environment—it makes eminent political sense, as more investments mean more jobs. Implicitly, it also flags the fact that there is a political consensus on economic reforms.

Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com.

His Twitter handle is @capitalcalculus.

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