BUSINESS DIGESTVOL. NO. 8 ISSUE NO. 10 JANUARY 2012

EMPOWERING

INDIA

Pranab Mukherjee, Anand Sharma and Arun Jaitley at FICCI’s 84th Annual General Meeting

Improving Business

Insi

de…

Cover Story: » Empowering India project gets going» GDP growth may slip to 7.5% or less

in 2011-12: Pranab Mukherjee » FDI in multi-brand retail only through

consensus: Anand Sharma» GST delay on fears that Centre may be

unfair to non-UPA states: Arun Jaitley» Create wealth without sacrificing value

system: Swamiji Tejomaynanda » President Harsh Mariwala address

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Secretary General’s Message

R. V. Kanoria is new FICCI President

Kanoria lays out road map for FICCI

Economic Outlook Survey

India’s energy security on fragile ground: FICCI-E&Y Report

FICCI survey on water use by industry

Geospatial Empowerment – Paradigm for the Future

Mega Trends: FICCI, Jeremy Rifkin introduce Third Industrial

Revolution model to move to a post-carbon era

PM urges telecom industry to beef up domestic

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Harvard Professor Dani Rodrik proposes new ‘traffic rules’ for the

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India assumes presidentship of SAARC Chamber of

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FICCI’s anti-piracy initiatives gain further momentum

States Initiatives

» FICCI study delves into corporate patronage to art

» Maharashtra creating industrial growth benchmark for the country: CM

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BUSINESS DIGESTVOL. NO. 8 ISSUE NO. 10 JANUARY 2012

EMPOWERING

INDIA

Pranab Mukherjee, Anand Sharma and Arun Jaitley at FICCI’s 84th Annual General Meeting

Improving Business

For Advertising, please write to: publications@�cci.com

Bid to improve business environment

FICCI launches Empowering India project

The Federation of Indian Chambers of Commerce and Industry (FICCI), in

partnership with Bain & Company, India, has launched a nationwide Empowering India project with the release of a report that identi�es opportunities to improve the business environment across all states.

�e report identi�es best practices and high-impact reforms that have been implemented across 7 major states along 12 key factors; the report outlines actionable recommendations for implementing similar reforms in other states. �e states reviewed were Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Rajasthan, Tamil Nadu and West Bengal.

Some of the �ndings showed that Andhra Pradesh, with its time-bound single-window mechanism, supported by legislation, has considerably eased the burden of businesses in the state while Tamil Nadu leads in the promotion of industrial clusters as is demonstrated by its large automotive cluster, one of the top 10 in the world.

“In the next phase we hope to expand our coverage to the remaining major states as well, and therea�er bring the entire country under the project fold” said Harsh Mariwala, President, FICCI.

�e report and its recommendations were developed a�er seeking perspectives from government and industry through 180 interviews as well as a survey of 75 FICCI members.

Other �ndings see Gujarat emerging as one of the leaders in land acquisition due to a transparent policy, which incorporates the inputs of all stakeholders, as well as a more e�ective process enabled by its computerized land bank system that helps investors to choose suitable land.

Karnataka has introduced noticeable reforms in property regis-tration with a computerized process and ‘anywhere’ registration across major urban areas. Karnataka has also initiated progressive reforms to simplify the process of obtaining construction permits by introducing a provision for online submission of building plans in Bengaluru.

Recent initiatives by the Maharashtra government to improve

Gujarat

Gujarat, Karnataka

Karnataka (Bengaluru)

Rajasthan, Andhra

Pradesh &Tamil Nadu

Maharashtra

Rajasthan,Gujarat

Maharashtra,Gujarat

Tamil Nadu, Gujarat

Gujarat

Japan, Korea

Singapore, Portugal, Egypt

Egypt, Denmark, China

Singapore, HK, Mexico

Multiple countries

Brazil, France

US, UK

Singapore

Japan, China

Azerbaijan, China

Land acquisition

Property registration

Labour reforms

Single window clearance

mechanism

ObtainingConstruction permits

Availability of Power

Paymentof taxes

Industrial clusters

InformationAvailability

Environment related compliances

1

2

3

4

5

6

7

8

9

10

Rajasthan, Karnataka

International examples

Domestic best practice

(primary focus)

Domestic best practice frontier with international examples

Legend: In each of the spider �gures, the outer Green frontier indicates strong practices implemented internationally. �e Yellow frontier shows the strongest practices/initiatives identi�ed across 7 states, and the Red frontier in the following �gures indicates the position of each State. �e distance between each frontier is a qualitative assessment of the opportunity available to each state for introducing reforms.

16 || FICCI Business Digest || January 2012

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the administration of labour laws include introducing an online labour management system, which promises signi�cant impact.

According to Ashish Singh, Chairman, Bain & Company India Pvt Limited., “�e report makes it clear that several states have started to take proactive steps towards improving their business environment. However, there remains signi�cant potential for further improvement, which we believe can be greatly aided by learning from one other. Each state in India today is in the enviable position of facing a number of attractive growth opportunities, which, if supported by an environment that is more geared towards business, can set the stage for tremendous development in the near future.”

�e Empowering India report aims to help states chart a path for reforms that will transform India and make it a more dynamic, progressive and business friendly economy.

�e report also showed that Rajasthan has handled its power situation e�ectively to reduce its de�cit, with signi�cant thrust on alternate sources of energy. West Bengal, though not known recently for its industrial leadership, has also launched a single window system, including a common application form which cuts down the application form from 99 pages to seven.

All these examples highlight that a compelling opportunity exists for states to further improve their business environment by learning from the experience and best practices of one another. Hence, the focus of the report is on learning from best practices across Indian States to make sure our recommendations are practical and grounded in realities that exist in India today.

�e 12 identi�ed factors in�uencing the business environment are: land acquisition, property registration, obtaining construction permits, single window mechanism, availability of power, industry clusters, availability of information, labour practices, environment-related clearances, payment of taxes, dispute resolution and exit procedures. In ten of these 12 factors, we found examples where

RELATIVE PERFORMANCE AMONG STATES

Land acquisition

Property

registration

Labour reforms

Single

window clearance

mechanism

Obtaining

Construction permits

Payment

of taxes

Industrial

clusters

Information

Availability

Environment

related compliances

1

2

3

4

5

6

7

8

9

10

Availability

of Power

Land acquisition

Property

registration

Labour reforms

Single

window clearance

mechanism

Obtaining

Construction permits

Payment

of taxes

Industrial

clusters

Information

Availability

Environment

related compliances

1

2

3

4

5

6

7

8

9

10

Availability

of Power

Andhra Pradesh Gujarat

Land acquisition

Property

registration

Labour reforms

Single

window clearance

mechanism

Obtaining

Construction permits

Payment

of taxes

Industrial

clusters

Information

Availability

Environment

related compliances

1

2

3

4

5

6

7

8

9

10

Availability

of Power

Land acquisition

Property

registration

Labour reforms

Single

window clearance

mechanism

Obtaining

Construction permits

Payment

of taxes

Industrial

clusters

Information

Availability

Environment

related compliances

1

2

3

4

5

6

7

8

9

10

Availability

of Power

Karnataka Maharasthra

Property

registration

Labour reforms

Single

window clearance

mechanism

Obtaining

Construction permits

Payment

of taxes

Industrial

clusters

Information

Availability

Environment

related compliances

2

3

4

5

6

7

8

9

10

Availability

of Power

Land acquisition

Property

registration

Labour reforms

Single

window clearance

mechanism

Obtaining

Construction permits

Payment

of taxes

Industrial

clusters

Information

Availability

Environment

related compliances

1

2

3

4

5

6

7

8

9

10

Availability

of Power

Rajasthan Tamil Nadu

Land acquisition

Property

registration

Labour reforms

Single

window clearance

mechanism

Obtaining

Construction permits

Payment

of taxes

Industrial

clusters

Information

Availability

Environment

related compliances

1

2

3

4

5

6

7

8

9

10

Availability

of Power

West Bengal

states have demonstrated clear best practices or implemented strong initiatives to improve the business environment. In the remaining two factors (commercial dispute resolution and exit procedures), no clear state-led reforms emerged as the role of the Judiciary or the Centre is much stronger.

India is among the fastest growing economies – it has grown at 8% annually in real terms since 2001 and is expected to account for nearly 10% of the growth in global GDP from 2010 to 2020. Investors continue to be drawn towards India with FDI in�ows increasing more than 250 times from $140million in 1990 to $36 billion today. However, they continue

January 2012 || FICCI Business Digest || 17

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to face challenges in dealing with the current regulatory environment and some of the associated complex and time-consuming procedures required to set up and run a business in the country. �e clear silver lining is that states have recognized the need for improvement and have already introduced a number of reforms to improve the business environment and facilitate industry.

�e Empowering India project report addresses four key themes: the policy framework, e�ectiveness of procedures, critical enablers to enhance e�ectiveness, and the implementation discipline to make the various initiatives work. Implem-entation discipline is a frequently occurring theme throughout this report.

Industry, across states in India, expresses the urgency to strengthen implementation. Most states have introduced strong policy frameworks and procedural improvements but leave a lot to be desired in terms of implementation. Strengthening implementation involves cultivating a performance-driven culture among government departments; �xing clear ownership among individuals and departments who are empowered to enforce time-bound deliverables from all involved parties; establishing clear metrics to track and measure performance; and aligning incentives with performance. Furthermore, the enforcement of initiatives must be tracked through user feedback.

Industry feedback on states’ business environment varied heavily between states – not due to the absence of policy frameworks, but rather due to the varying perceptions of implementation e�ectiveness.

�e report notes that the proof of all initiatives lies in dogged and unyielding implementation on the ground, which makes investors note and acknowledge changes, and enhances their con�dence in the reforms e�ort of any government.

�e extent of reforms in each State suggests signi�cant opportunity for States by adopting domestic and international best practices

�e current status of best practice initiatives across the country along ten key factors (ex-commercial disputes and exit procedures) is shown below in relation to some international examples. �e graphic shows the international examples and the gap between the intern-ational examples and the best practices implemented in India. �e considerable distance between the Indian best practice frontier and the international example frontier shows that while many states have introduced strong reforms that other states can learn from and replicate,

there is still signi�cant room for improvement. Even in states that currently have the ‘best practices’, policies need to be more broad-based and implementation needs to be strengthened heavily before they can reach the standards being followed internationally.

�e current status of all the seven individual states along these factors has also been indicated in subsequent �gures.

Looking at the initiatives implemented in di�erent States, it is clear that reforms in the business environment are being treated as a high priority for each State. To varying degrees, all States have begun the process of investor-friendly reforms. At the same time, there is signi�cant room for further improvement as initiatives are taken o� the ground and launched into full blown implementation.

�e success of reforms depends on four key themes:

policy framework

for investors

implementation

Introduction of the appropriate policy frameworks

Improvements to existing policy frameworks

Suggestions to rationalize regimes

Reduction, simplification, consolidation or digitization of procedures to bring about greater speed and responsiveness

Enablers such as IT-enablement, GIS as well as incentives to facilitate procedural improvements

Strong tracking and monitoring mechanisms to measure progress

Clearly defined individual and departmental accountabilities enforcedthrough robust target-setting, monitoring and rewards/ penalties

Strong

Policy frameworkIm

plem

enta

tion

disc

iplin

e

Critical enablers

Impr

ovem

ents

in

Proc

edur

es

Improvedbusiness

environment

In the context of India, strengthening implementation becomes even more important as a large number of strong initiatives bear the risk of losing e�ectiveness due to lack of adequate or consistent implementation. �is may be driven by accountabilities which are not clear or not adequately enforced and o�en lack of measurable matrices for individuals involved.Based on best practice initiatives introduced and implemented by various Indian States and also reforms introduced in other countries, we have dra�ed recommendations for the ‘model template’ for a state. �e recommendations aim to address the above mentioned four critical components of reforms: policies, procedures, enablers and implementation.

RECOMMENDATION THEMES

�e Empowering India report aims to help states chart a path for reforms that will transform India and make it a more dynamic, progressive and business friendly economy.

18 || FICCI Business Digest || January 2012

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