For India Inc, Gujarat model is more fact than fiction, says new survey

India’s elections are often projected as a duel between competing personalities, with the forthcoming general elections pitched in the media as a ‘big fight’ between “Shahzada” Rahul Gandhi of the Congress Party and “Pracharak” Narendra Modi of the Bharatiya Janata Party.

Yet, the vast majority of the electorate knows little about what vision drives these two politicians and how they may fare when it comes to actually governing the country. Can the BJP offer a fresh alternative to the functioning of the current UPA alliance, or will it be more of the same populist policies cloaked in the rhetoric of social welfare that has been the hallmark of the Congress government? The results from a recent survey of Indian entrepreneurs may shed some light on these questions. (Read the full survey details here)

In June 2013, the American Enterprise Institute (AEI), in collaboration with YouGov, an online polling agency, administered a survey to 594 Indian business leaders. The intent of the survey was to gauge the factors and business conditions that enabled them to conduct their day-to-day operations as well as an assessment of these individuals regarding the state of these conditions. Our results should help inform policymakers and the electorate about the current Indian business climate as the country goes into election mode.

Disaggregating the results by state, we find that there may be more fact than fiction to the Gujarat success story. Within the larger states, Gujarat stood out in the survey results as the state with the most satisfied entrepreneurs, with more than 89 percent reporting conditions as “good” or “extremely good”. The next best states ranked highly by entrepreneurs in order were Kerala, Andhra Pradesh, Maharashtra and Karnataka, Punjab and Tamil Nadu.

The results of the survey also indicated the state’s successful provision of power and non-power infrastructure as the foundations of Gujarat’s success story. Entrepreneurs consistently ranked Gujarat highly along these indicators. For power supply, Gujarat came out ahead in the survey with 83 percent of entrepreneurs reporting favourable conditions, followed by West Bengal (79 percent), National Capital Region (74 percent), Andhra Pradesh (74 percent), Kerala (69 percent), Maharashtra (68 percent) and Tamil Nadu (65 percent).

In terms of non-power infrastructure, again Gujarat came out on top with 75 percent reporting favourable conditions. Furthermore, the gap with other states was fairly large, with the states ranked below, Andhra Pradesh and Tamil Nadu, receiving 67 percent favourable responses, NCR (National Capital Region) 66 percent and Karnataka and West Bengal approximately 60 percent each. Maharashtra did fairly poorly in terms of non-power infrastructure with only 44 percent reporting conditions as being favourable.

Finally, with the Lok Sabha elections coming up in 2014, we asked Indian entrepreneurs about their political party preference and which party would best represent their needs if it came to power at the Centre. An overwhelming 60 percent of entrepreneurs reported that the Bharatiya Janata Party (or the National Democratic Alliance) would best represent their interests at the Centre. Only 30 percent said Congress, and 8 percent said the Third Front.

On the positive side, from the full sample covered by the survey, only 10 percent of entrepreneurs reported that business conditions in their state were poor. The majority, 72 percent, reported that they were good. However, when questioned more specifically about factors like infrastructure, corruption and taxes, a familiar story emerged.

Within infrastructure, about 50 percent reported inadequate roads as being a problem, another 50 percent reported lack of reliable power as being a problem, 45 percent reported non-road infrastructure as being an issue and 48 percent reported lack of reliable water supply as being problematic.

Entrepreneurs also expressed dissatisfaction with the level of corruption and the burden of taxes. More than 64 percent of entrepreneurs reported corruption to be somewhat or extremely problematic. Another 58 percent reported difficulties in obtaining licences and permits as being a major problem. About 47 percent viewed income taxes and octroi duties as being extremely burdensome, or somewhat burdensome. In terms of labour laws, on average, 46 percent reported that unionisation was a problem for them in their business.

In general, it is clear that while India may have come a long way since liberalisation, significant challenges still remain on multiple fronts. Much more work needs to be done to make the India story one of sustained growth and development, especially given the lacklustre performance of the economy over the last few years.

The 1991 reforms led to much needed liberalisation and delicensing in the private sector. By all accounts, they set the stage for India’s remarkable success in attracting foreign and domestic private investment. As a result, India’s annual GDP growth rate reached a remarkable high of 7-8 percent between 2003-08. Prime Minister Manmohan Singh predicted the end of “chronic poverty, ignorance and disease, which has been the fate of millions of our countrymen for centuries.” However, a few years down the line, the miracle seems to have all but vanished.

While global forces are partly to blame, the government itself cannot escape criticism for slowing the pace of reforms. The government has failed to make any tangible progress in liberalising the markets for labour, energy and land. Infrastructure improvements – such as have been undertaken – leave a lot to be desired. Common sense reforms such as the goods and services tax remain mired in cross-party talks. Private companies, in response, have slashed investment.

According to the latest Doing Business Report published by the World Bank, India has fallen two positions in the global rankings, slipping from 131 to 134, and ranks behind most of its South Asian neighbours. According to the latest figures published in the report, taking a worldwide view, starting a business on average takes seven procedures, 25 days and costs 32 percent of income per capita by way of government fees. In India, it takes 12 procedures, 26 days and costs 43.3 percent of income per capita.

Aparna Mathur is a resident scholar in economic policy studies at the American Enterprise Institute.

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