concern national
in the Enterprise surveys.
Why? For many technical reasons, but mainly because the
Enterprise surveys got data from businessmen across a country,
whereas the Doing Business surveys got data from a single city
, from lawyers and technocrats familiar with changing rules. So,
the Enterprise surveys captured the reality inclusive of bribes and
influence, whereas the Doing Business surveys captured changes
in rules that would benefit honest, but possibly non-existent,
businesses. In India, even reputable firms hire “consultants” to
handle speed money.
The Doing Business report gives a single number for the time
taken in clearances. But Hallward-Driemeier and Pritchett found
huge variations for different firms: it mattered greatly who
your contacts were. The investment climate is not the same for
everybody: some can control it, others cannot. The biggest, bestconnected firms have a big advantage.
In practice, clearances are faster than rules suggest. The time
taken for construction permits in 80 countries was only onesixth as much in the Enterprise surveys as in the Doing Business
surveys.
So, should we ignore surveys on rules and focus only on
“realities?” Sorry, but businessmen don’t tell the full truth to
surveyors about “realities” either. Still, Enterprise surveys carry
more credibility than the Doing Business report.
With the caveats already expressed, the industry ministry’s
survey of states deserves attention for what it reveals in trends,
even if its figures need a generous pinch of salt. This survey looks
at 340 changes in laws and rules agreed upon to improve the
investment climate. These are more relevant for honest than
dishonest business. That does not make them irrelevant. Rules
must be changed to make honest business easier. This may not
have a revolutionary short-term impact, but is essential for the
long term. We need to shift from an influence-based to a rulebased system.
Modi has cut big corruption in New Delhi but it continues at
the state level. The survey shows that NDA-ruled states are far
more reformist than others, occupying most top rankings. This
drives home Modi’s strategy to get re-elected by job creation
in a vibrant economy , not through giveaways or Hindutva
(though that card will be played occasionally to keep his RSS core
happy).
The BIMAROU states, once the pits, now figure high in
the rankings. This includes BJP-ruled states (Rajasthan, MP,
Chhattisgarh, Jharkhand) and non BJP ones (Bihar, Odisha,
UP). Although placed 14th and 16th, UP fulfilled 84.5 percent
and Bihar 75.8 percent of promised reforms. West Bengal,
another laggard, fulfilled 84.2 percent. It remains to be seen
how far changed rules translate into reality. Huge gaps can be
expected. Nobody should believe that the states have improved
the investment climate fabulously, or that climate control by
influential firms has disappeared. Yet the direction of change is
positive.
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November 16-30, 2016 The Dayafter
27