Centre's business friendliness rankings are nudging states to carry out significant reforms

Debi Prasad Mishra, Odisha's industries minister, knew he had a task at hand when the central government decided to rank states for business and investment friendliness in December 2014. The state government was in the midst of preparing an industrial policy and Mishra wanted to see Odisha among the top states in ease of doing business.

The contribution of manufacturing to the gross state domestic product (GSDP), at 33 per cent, was above the national average (16 per cent). But the ground reality was different. The state's attractiveness is its mineral wealth, and once quarrying, mining and related construction activities were taken out, the figure was 9 per cent. Mishra wanted to correct this and use the ranking exercise to carry out improvements.

"The Centre came out with a 98-point action plan and we decided to improve on each and every aspect," says Sanjiv Chopra, Industries Secretary, Odisha.

"We could succeed in some areas and not in others because it required a major overhaul of regulations," Chopra adds, though the improvements made - like single tax ID for filing all state taxes online - were good enough for the state to bag the seventh rank.

On average, only 32 per cent of the proposed reforms have been implemented, says the report

The Assessment of State Implementation of Business Reforms report, released in September, was prepared by the World Bank, the commerce ministry, CII, Ficci and KPMG.

This is not to say that the ranking reflects the actual investment potential of states. Tamil Nadu, ranked 12th, claimed to have received commitment for investments worth over Rs 1,00,000 crore during its just-concluded global investment summit. The ranking is more to be seen as "a scorecard to take stock of what reforms have happened and to identify the way forward for states", Onno Ruhl, Country Director, World Bank, says in introductory remarks to the report. "The report highlights innovations and achievements so that states can identify counterparts which have carried out reforms and can reach out to them and learn from them," he says.

Several states ruled by the Bharatiya Janata Party (BJP) or its friendly parties are among the top five, a reason why the Congress-led Karnataka government is not happy with the ranking (Karnataka is ninth, though the state government said its attractiveness as an investment destination is much higher). Gujarat topped the list, Andhra Pradesh came second, while Jharkhand, Chhattisgarh and Madhya Pradesh stood third, fourth and fifth, respectively. The BJP-ruled Goa, however, stood 19th.

The report explains the objective manner in which the exercise was carried out. "The data was collected through a structured questionnaire completed by each state and union territory. The responses were validated through a series of in-depth workshops with state government representatives and collection of supporting evidence on each parameter. Following this, the data was evaluated in detail jointly to ensure that the same yardsticks were applied to all states," says the report.

Gujarat became the top state because of its system that helps investors find suitable locations for their industries

Terming the current ranking as a step in the right direction, the report says a multitude of reforms need to be implemented."On an average, only 32 per cent of the proposed reforms have been implemented across the country. The implementation of reforms related to inspection and enforcement of contracts is less than 20 per cent," it says.

India ranks 142 among 189 nations in the World Bank's Ease of Doing Business rankings. Hence, it needs reforms, led by governments at both central and state levels. The state-wise ranking, seen from this angle, is certainly a laudable effort.