Ease of doing business ranking may not be reflecting ground reality

States with higher ranking are found to lag others in terms of converting project proposals into actual investments

The ranking of states in the ease of doing business index – a joint initiative of the World Bank and the Department of Industrial Policy and Promotion (DIPP) – might not be truly reflecting the states’ ability to implement projects. 

An analysis of data on the DIPP website has shown that some states that figure high in the recently published index for 2016 have a poor track record of project implementation. On the other hand, others with a lower rank in the list have done much better in terms of converting project proposals into actual investments. 

Among the top five states in the current year’s ease of doing business list, Andhra Pradesh – which topped the list along with Telangana – received total investment of Rs 8,564 crore against the proposed Rs 21,926 crore in the first six months of FY16. This entails an implementation ratio of 39%. The ratio is worse for Telangana, which has seen implementation of projects worth Rs 2,202 crore out of Rs 19,577 crore of proposals it received during the same period. 

Similarly, with actual investment of Rs 4,146 crore out of proposed investment of Rs 44,411 crore, Gujarat, which is at third spot in the list, has clocked 9% implementation ratio. Chhattisgarh reported actual investment of Rs 605 crore from a kitty of Rs 11,659 crore proposals, while Madhya Pradesh did Rs 1,721 crore out of Rs 14,477 crore in the first six months of the current financial year. 

In contrast, Tamil Nadu, which figures at 18th spot in the list, displays 67% implementation ratio by receiving Rs 2,804 crore out of Rs 4,163 crore intended to be invested in the state during the period. Maharashtra, at 10th spot in the index, has seen Rs 39,219 crore being invested across 50 projects out of Rs 30,266 crore proposed to be invested in the state. 

West Bengal, ranked 15th on the list, recorded an implementation ratio of 50% during the first half of FY17. The state has received investment worth Rs 2,378 crore from Rs 4,695 crore worth of proposals.  

In terms of attracting investment, Karnataka, Gujarat and Maharashtra are considered to be the top three states. However, barring Gujarat, the other states are placed way below in the ease of doing business index. 

“The rankings are on the basis of 340-point business reform action plan and their implementation by states. The states are only required to comply with this action plan in pen and paper for the purpose of scoring marks in the ranking process. But, the ground situation for investment in many states is different. The bureaucracy, particularly at the lower level, are not in tune with the changed business facilitation rules. Industries face the same problem at the ground level. That is why investors still rely more on their experience in doing business in a particular state instead of the rankings for their business decisions,” said R P Panda, an industry analyst. 

Being a new concept, ease of doing business ranking has unleashed competition among states to attract investment by simplifying the formalities and offering other ingredients required for setting up of businesses, says a senior official with the industry department. “It will take some time for stakeholders to get used to these reforms and create an impact on the investment ecosystem.”