Indias Investment Climate: What do

the data tell us about State-level

performance
Roundtable on Improving Indias Investment Climate
New Delhi, April 11, 2005

Presentation by
Priya Basu
The World Bank

I.

Disparities are growing across the

Indian states

Total investment
Percentage share of total investment (1991/92 2002/03)

Other states
Poor states

77.3
22.7
00 0

20

40

60

Source: Secretariat for Industrial Assistance, DIPP,

Government of India

80

100

FDI concentrated in a handful of states

Percentage share of FDI inflows (1999/00-2001/02)

other states,
87.3
Poor s tates,
12.7

20

40

60

Source: Secretariat for Industrial Assistance, DIPP,

Government of India

80

100

Poor states contribution to All-India GDP (total,

manufacturing and services) has declined sharply
Percentage share of states' manufacturing output in
All-India manufacturing output
82.8

2002/03

Percentage share of states' GSDP in All-India GDP

Other states

70.4

1990/91

29.6

Poor states
70.8

1980/81

75.4

2002/03

17.2

29.2

24.6
0

31.6

60

80

100

Poor states
Percentage share of states' service output in AllIndia service sector output

66.9

1980/81

40

Other states

68.4

1990/91

20

33.1
82

2002/03

20

40

60

18

80

26.2

1980/81

27.1

Poor states
72.9

Source: CSO

Other states

73.8

1990/91

20

40

60

80

100

Per capita GSDP

Average real per capita GSDP growth rates of India's
major states (%)

Average per capita income in poor states relative to

the others (%)

6
4.8

5
4
3

3.1
2.4

2.5

1999/00
Poor states

Poor states

Other states

1980/81

1
0
1980/81-1989/90

Source: CSO

1990/91-1999/00

20

40

60

80

II. How do the states compare on

investment climate indicators?

Entry: Starting a business

India- Bhubaneshawar

India - Chandigarh

Time, days

45

80

45

70

40

40
35

40

30
25

30

20
20

15
Cost
(right axis)

10

0
1

Procedure

1.
2.
3.
4.

Obtain pre-approval of name, have

documents vetted;
Stamp memorandum & articles of
association;
File for registration;
Make a seal;

Source: Doing Business, 2005

10

50

90

35

60

30
50
25
40
20
Cost
(right axis)

30

15

20

10

10

10

Cost, % of income per capita

50

Time
(left axis)

50

Time, days

60

Cost, % of income per capita

Time
(left axis)

0
1

10

11

Procedure

5. Obtain Permanent Account Number (PAN) for income tax;

6. Obtain Tax Deduction Account Number (TAN);
7. File for sales tax & Register under EPF;
8. Register for profession tax;
9. Register for Employees State Insurance Act;
10. Register with Shops and Establishment Act;
11. Register under Factories Act

Reforms launched to ease entry regulations

Clearances and approvals

Single Window Agency
Move away from in-principle to actual clearances
Move from sequential to concurrent steps (Karnataka)
Deemed clearance clause (AP)

Many states have provided a legislative framework.

for e.g. Karnataka Industries Facilitation Bill

Business facilitation agencies

For e.g, IndextB (Gujarat), Udyog Sarathi (Maharashtra), Industrial Guidance
Bureau (TN)
AP has created a special agency called APFIRST for IT firms

Application forms
Combined Application Form
E-governance

Entry: Registering a property

Time to Re g iste r Pr o p e r ty ( D ays )
160

Le a s t Ti m e - R e g i o n
14 2

140
12 3

120

10 9
10 0

100
75

80
61

63

R ajast han
( Jaip ur)

T amil N ad u
( C hennai)

67

60
40

35

20
0
Karnat aka
(B ang alo re)

M ahar asht r a
(M umb ai)

U t t ar Pr ad esh A nd hr a Pr ad esh W est B eng al

Orissa
Punjab
(Luckno w )
(Hyd er ab ad )
(C alcut t a)
(B hub aneshw ar ) ( C hand ig ar h)

C o s t to R e g is te r P ro p e rty (% o f p ro p e rty va lu e )
16
L ea st C o st - R eg io n

13 .9

14

13 .9

14.1

13.1

12

11.2

11.4

T a m il N a d u
(C he nna i)

K a rna ta ka
(B a nga lo re )

12.2

12 .2

W e st B e nga l
(C a lcutta )

U tta r P ra d e s h
(L uc kno w )

10.2

10
8
6
4
2
0
P unja b
(C ha nd iga rh)

Source: Doing Business, 2005

R a ja stha n
(J a ipur)

M a ha ra s htra
O ris sa
A nd hra P ra d e sh
(M um ba i)
(B huba ne shw a r) (H yd e ra ba d )

Regulations governing exit: Years to go

through bankruptcy
Time to go through Insolvency (Years)
25
Shortest Time - Region
20.17

20
15.42

15

10

8.33

8.83

Karnataka
(Bangalore)

Punjab
(Chandigarh)

9.5

9.5

10.0

10.42

11.34

Source: Doing Business, 2005

Tamil Nadu Andhra Pradesh Maharashtra

(Chennai)
(Hyderabad)
(Mumbai)

Rajasthan
(Jaipur)

Orissa
Uttar Pradesh
(Bhubaneshwar) (Lucknow)

W est Bengal
(Calcutta)

Exit: Labor Laws

Labor laws
Section V-B of IDA requires firms with more than 100
workers to seek state government approval on issues
related to business closure and retrenchment
Efforts underway in Maharashtra, AP to address labor
related issues affecting business
Maharashtra: Sec V-B clause for firms with > 300 workers
AP: Contract labor regulations made flexible

Regulations over operations: Days to

enforce a contract
Time to Enforce a Contract (Days)
1400

Shortest Time - Region

1165

1200
1000

934

942

Punjab
(Chandigarh)

W est Bengal
(Calcutta)

875

800

683

709

712

765

600
425

400
200
0
Maharashtra
(Mumbai)

Tamil Nadu
(Chennai)

Source: Doing Business, 2005

Karnataka Andhra Pradesh

Orissa
(Bangalore)
(Hyderabad) (Bhubaneshwar)

Rajasthan
(Jaipur)

Uttar Pradesh
(Lucknow)

Regulations over operations: Number of

inspections a year
Figure 3.14. Number of inspections by
government officials
13.0 13.6
10.8
9.3

3.9

5.0

5.4

5.5

5.6

6.8

7.6

Source: India Investment Climate Assessment, 2004

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1.9

Reforms launched to reduce the burden of

regulation over business operations

Inspections
Random sampling (Karnataka)
Reducing statutory inspections to once a year and drawing up
annual schedule of inspections (AP)
Ad hoc inspections based on written complaints
Accrediting private agencies for inspections (Gujarat)
Self certification
AP - barring major hazardous industries, all industries can self
certify compliance with labor laws
Tamil Nadu Self certification for compliance with select labor
laws being considered
Annual returns and registers for labor regulations
Streamlined and reduced
Common returns: AP, TN, Gujarat, Karnataka

Infrastructure: Access to electricity at

reasonable cost
Percent of Power Supply from Own
Generators
60

51.9

50

4 0 .9

40

2 5.9

30
20

17.1

17.6

18 .2

18 .8

2 6 .3

2 0 .8

2 7.3

3 1.4

10
0

Year 2000

Year 2003

Source: India Investment Climate Assessment, 2004

3 5.3

Main constraints to manufacturing

productivity

Unreliable and expensive power

Regulatory burden and corruption
Land
Access to finance

Need to catch up
The states with poorer investment climate need to catch-up
with the better states
But the better states also need to catch up with their
counterparts abroad on some key regulatory indicators,
as well as in providing more reliable and infrastructure
(particularly power) at more competitive prices
If each Indian state could attain the best practice in India in
terms of investment climate, the economy would grow
about 2 percentage points faster.