Plus&Minus

"A weekly column: Plus&Minus will be published in Hindustan Times, Jaipur Live. This will speak to the ordinary reader on contemporary economic issues in a simple format".

Double Whammy
Hindustan Times, Jaipur Live, May 07 & 08, 2009                                    <<Archive>>

By Pradeep S Mehta

Starting a business in Rajasthan takes twice the time than that in other state of the country

The investment climate in an economy is determined by a mix of factors. Out of these one very important factor is the regulatory framework. Except for a few states, the regulatory framework at the state level in India, including that in Rajasthan, has not been conducive for business, either at the entry stage or during operations.

An unfriendly regulatory climate poses certain costs for business and reduces private investment. Rajasthan has improved considerably over the years but it is still obviously behind leaders like Gujarat in facilitating business. Interesting changes are visible on the horizon -- the Government of Rajasthan is moving to develop an effective single window system to improve the ease of doing business. However, mere changes in systems for processing applications can attain little on their own. Such changes will only be effective if accompanied by a review and revision of cumbersome regulations facing businesses in this state.

Rajasthan has the advantage of being largest state in India with tremendous scope for industrial development. Richness in minerals, potential for tourism and the presence of skilled craftsmen, are reinforced by the presence of educational centres, reasonably good infrastructure, stable law and order situation and strategic location i.e. its close proximity to the large markets in Delhi, the national capital region and Western India. Such advantages are reflected in Jaipur being ranked third out of 12 major Indian cities on a composite parameter of ‘ease of doing business’ by World Bank’s Report on Doing Business in South Asia, 2007.

Despite such favourable appraisals, the state lags behind others in terms of private sector presence. The impediments are partly natural and partly man made. Among the natural factors are: scarcity of water, extreme climate in the western sector, large distance from the nearest seaport, etc. These are considerable obstacles but still not insurmountable. Rajasthan can still hope to emerge as an important investment hub, drawing on the success stories of other regions which have overcome such obstacles.

Among the man made obstacles are the business laws and regulations originally formulated under the ‘command and control’ regime - relics which have outlived their utility in an economy which has become increasingly market oriented with time. These need to be scrapped, or modified.

A plethora of inspectors and regulatory authorities, continue to exercise wide discretionary powers, nailing industrial enterprises from their inception for minor lapses or not even allowing them to be born A survey conducted at the all-India level by the Federation of Indian Chambers of Commerce and Industry (FICCI) revealed that, on an average, a factory/ establishment is subject to 37 inspections a year, with some factories facing 67 inspections in a single year, the maximum number of visits being those of the Environment Officer, State Pollution Board officials and the Labour Officer.

This Inspector Raj has proved to be a fertile breeding ground for corruption and delays in initiation/operation of businesses. On an average, starting a business in Rajasthan takes twice as long as that in the rest of the country.

One of the priorities in the Congress manifesto for recent assembly election has been its commitment to improve the quality of government-business interface at all levels of government. The newly elected Congress government is committed to a hassle free and business friendly environment in its quest to make Rajasthan a preferred business destination for both foreign and Indian entrepreneurs.

To achieve this goal, the state government in its role as facilitator is trying to remove all avoidable roadblocks to the growth of investment in the State. The main focus of these efforts is on enhancing the cost competitiveness of doing business in Rajasthan.

The key problem characterising the business environment of this state has been the slow, uncertain and opaque approval process. As a result, business investment in this state is fraught with uncertainty and in certain cases is considered an unwise gamble. One alleviating measure which the Congress government is considering in this regard is the provision of a legal basis to an effective single window system for expeditious clearance of proposals. This would significantly reduce procedural delays for getting approvals and promote transparency.

Such moves come at a critical juncture when the Indian economy and therefore the economy of this state are showing signs of a slowdown because of the global economic recession. Given the current economic slowdown, it is all the more important for the state government to take swift action for easing frictions in the business environment, and thus become an attractive investment destination.

The Government of Rajasthan is developing a new industrial policy after a gap of 10 years in which a provision is being made for the mentioned single window system to improve the ease of doing business. However, government efforts are still marked by an absence of strategic thinking: there is no effort to identify, map and review business regulations that are more cumbersome than others and can be done away without too many legislative hurdles.

Identification of these regulatory bottlenecks is of paramount importance and absolutely essential for modernising the business environment in the state. Once bottlenecks have been identified, the government should develop a decisive and integrated action plan to enhance transparency, simplify bureaucratic procedures and modify regulations.

In implementing the suggested action plan, the government should draw on the rich experience and acumen of civil society and industry. There is much room for cooperation and hardly any for conflict. The combined efforts of the government and relevant stakeholders can and must engineer a commercial and industrial revolution in Rajasthan.