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States need to focus on business reforms as a priority to achieve faster growth in industrial or service sectors where they have natural advantages, the Economic Survey 2024-25 released on Friday observed.
“States should make it easier for businesses to commence operations, grow, and even close, if deemed inevitable by the entrepreneur. Allowing economic activity as far as possible and getting out of the way will foster faster convergence of living standards and per capita incomes,” the Survey said.
Making a case for Ease of Doing Business 2.0, the Survey said states need to remove prohibitions on women working in factory processes, set legal safeguards for penalties and enforcement, and reduce electricity tariff markups for industrial users.
“States impose a high markup on the sale of electricity to industries. This high markup discourages industries from formally operating and growing over time. Across states, industrial users can pay a 10–25 per cent markup over the cost of electricity supply. Other countries impose lower rates for electricity use,” the Survey said.
The Survey also highlighted that developmental disparities across states have always been a matter of keen attention, bringing the convergence of per capita incomes and living standards to the policy focus.
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“However, convergence does not mean convergence in every sector, because different states will have comparative advantages in different sectors — be it dairying and farming, manufacturing, conventional or medical tourism, software, the financial sector, or any other activity,” said the Survey.
The mining sector contributes about 8 per cent to the total industrial output. As expected, mining activity is highly concentrated, with the top five states — Assam, Chhattisgarh, Gujarat, Maharashtra, and Odisha — accounting for about 60 per cent of all-state mining gross state value added (GSVA).
The Survey noted that a high level of dependence on industrial sectors does not necessarily reflect a high level of industrial development.
“Only a few states like Gujarat, Uttarakhand, and Himachal Pradesh are able to capitalise on their high level of dependence on the industrial sector to generate reasonable levels of income for their people,” added the Survey.
Four states — the western states of Gujarat and Maharashtra, and the southern states of Karnataka and Tamil Nadu — account for about 43 per cent of the total industrial GSVA. In contrast, six states in the Northeast (excluding Sikkim and Assam) account for only 0.7 per cent of the industrial gross value added.
“There is a need for a focus on industrial strategies appropriate to unique geographies like the Northeast,” the Survey said.
Chandrajit Banerjee, director-general of the Confederation of Indian Industry, said the Survey has aptly suggested that states adopt risk-based regulations, follow simplified licensing, and introduce business-friendly policies. “Its guidance to states in this direction for identifying areas of deregulation, comparing them with other states and countries, and assessing its effect on individual enterprises, would be extremely helpful in rationalising the regulatory burden on industry,” he added.
