Are BJP-ruled states making India more attractive to businesses?

Two states with governments supportive of the BJP - the newly born Telangana and Andhra Pradesh - top the World Bank's rankings.

A few days ago, the World Bank in its Ease of Doing Business Index ranked India 130 out of 190 nations in the world. It seems the PM Modi led National Democratic Alliance (NDA) government didn’t take too kindly to the embarrassing findings. A week after the original index was published, the World Bank in a new report has ranked all BJP ruled states as the best places to do business in India.

Two states with governments supportive of the BJP – the newly born Telangana and Andhra Pradesh – top the rankings. At the helm in Andhra Pradesh is Chandrababu Naidu -  a man who has always been considered a darling of big businesses. Telangana is helped by state capital Hyderabad, that fell into its kitty after Andhra Pradesh’s bifurcation in 2014. Hyderabad contributes 95% of Telangana’s service sector revenue, 99% of its information technology exports, houses half the manufacturing hubs and almost half of all Special Economic Zones (SEZs) in the state. It is Naidu who is credited with having made Hyderabad attractive for global businesses.

All other states in the top ten, barring Uttarakhand which occupies the ninth place in the rankings, are ruled by the BJP. Even Uttarakhand’s ranking as an easy place for businesses is probably because of a few industrial towns in the Terai region. The mountains have been in a state of decline and are a no-go for businesses due to lack of supporting infrastructure and logistical challenges of setting up shop in the Himalayas.
 

So the World Bank’s report, in effect, says that despite India ranking 130 out of 190 nations in the ease of doing business, it has achieved whatever it has only because of the BJP ruled states. The Congress and regional party ruled states seem to be letting businesses and the country down.

So is there something special about the BJP ruled states that make them the cynosure of corporate eyes or are they good places to do business because the party and its allies also rule the country?

If the rankings are anything to go by, then Haryana which the BJP wrested from the Congress in 2014 is the star of the show. It is ranked at sixth place behind other BJP ruled states of Gujarat, Chattisgarh and Madhya Pradesh. But Haryana shines on the list when it comes to implementing reforms on every parameter used in the rankings. They include labour regulation, easy environmental regulation, sanctioning new electricity and water connections, online tax filing, single window clearances and making land available for businesses.  
 

By the look of it, Haryana certainly seems to have made things easy for businesses. The Haryana Enterprises Promotion Board wrests the power of sanctioning new projects with a governing council headed by Chief Minister Jagdish Khattar himself. Once the project is cleared, all other clearances can be applied online. Last year, Haryana held its first ever investors summit in Gurgaon, where investments of close to Rs 1 lakh crore were promised. How much of this translates into reality will be quite another matter altogether.
 

Gujarat, on whom Khattar has modelled his policies, doesn’t serve as an inspiring example. At the Vibrant Gujarat summit in January 2015 attended by PM Modi, around $400 billion in investments were committed by various companies. Close to 21000 Memorandum of Understandings (MOUs) were signed for the purpose by the Gujarat government. However Foreign Direct Investment (FDI) figures available with the Department of Industrial Policy and Promotion (DIPP) suggest that following the Vibrant Gujarat summit, barely $2 billion were received as FDI in the state. According to statistics from the Economist Intelligence Unit, if domestic companies were included, Gujarat received close to $8 billion as investment proposals which were a fifth of almost of all proposals in India in 2015. Impressive as these figures may be by Indian standards, they still reflect the wide gap between what reforms have promised and what they have actually achieved. 
 

The other controversial parameter on which BJP ruled states shined in the rankings was land acquisition. Although Gujarat topped the charts in this parameter, a recently concluded investors summit in Madhya Pradesh indicated that other BJP ruled states were willing to go the distance in making land available to businesses. CM Shivraj Chauhan’s had made the availability of 1.25 lakh acres of land for industrial use as the unique selling point of the summit. Even a website was opened to invite bids with details of every land parcel in all districts being made available online. The opposition, on expected lines, had cried foul calling it tantamount to a massive land grab.
 

Then there is the all-important parameter of labour regulation on which the states were ranked by the World Bank. Labour regulation in India is a touchy issue which unites trade unions across the political spectrum. Here too, BJP states like Haryana, Jharkhand and Rajasthan shine bright. Haryana followed Rajasthan’s example this year when it introduced a slew of measures that made it easy for industries to lay off workers. The changed laws also allowed industries to employ more workers without registering themselves, removing the protection workers enjoy under Indian laws.

The other Indian states that have made labour laws lenient for companies are all ruled by the BJP. Despite these reforms Rajasthan attracted $50 million in FDI during 2015-16. The Resurgent Rajasthan economic summit held in 2015 saw companies promising to invest almost $20 billion in the state.
 

To be fair, some of these investments in manufacturing and infrastructure cannot fructify in an instant. Others can be delivered with greater certainty. For instance, Singapore Airlines promised to connect Singapore to Jaipur at the Resurgent Rajasthan summit. In a few months, Air Scoot, the low cost arm of Singapore airlines started operating a direct flight between the two cities at a fraction of the cost of Indian carriers like Air India and Jet Airways.
 

But the fact remains that there is a wide chasm between how the new World Bank rankings project BJP ruled states and ground realities. For instance, Rajasthan has managed only $1.3 billion in investment in the last 15 years. Gujarat, the model for other BJP states, has managed just about $13 billion in actual FDI inflows from 2000 to 2016 under a government ruled by the same party.
 

The government’s argument is that the earlier report that ranked India among the least friendly places for businesses in the world was based on World Bank’s assessment of the business environment in just Mumbai and Delhi. The government was of the view that for a country of India’s size and diversity, that would be an unfair assessment of the Modi government’s global outreach to promote India as a preferred investment destination.

The World Bank’s new rankings showing BJP ruled states as mesmerizing hotspots  in an otherwise unattractive country shows that India has a long way to go before it can truly become the world’s investment magnet.