Frustrated By India’s National Reforms? Consider State-Level Initiatives

The Modi government’s win in various state elections last month, including the prized state of Uttar Pradesh, demonstrates the powerful and enduring appeal of the Prime Minister. This is clear as the Bharatiya Janata Party (BJP) projected PM Modi as the face of all its state level campaigns, running on platforms that showcased his ‘proven’ track records.

In the past few months, Modi has managed to win mass favor as he doubled down on his 2016 decision to demonetize the 500 and 1000 currency notes in his ‘fight against black money’. Yet, while his attempts to rebrand India as a global manufacturing and investment hub have garnered global attention, many have been surprised at the slow pace of reforms given Modi’s historic mandate.

In this article, we break down some of the factors that shape India’s current business landscape by identifying what reforms have been passed, the growth of state-based reforms, and the reasons why the federal government has faltered on some of Modi’s more ambitious proposals.

Unlike at the federal level, some states have taken up the challenge to reform labor and land regulations

What reforms have the government actually implemented?

  • Passed the Goods and Services Tax (GST) Bill, which will be in effect from July 1
  • Created Single, digitized windows for starting a business and complying with labor laws
  • Established commercial courts to expedite commercial disputes
  • Liberalized foreign direct investment (FDI) policy – most sectors converted to the automatic approval route
  • Rationalized bankruptcy and insolvency policies – consolidated existing laws to deal with insolvency while regulating insolvency professionals and introducing a time limit on the bankruptcy process
  • Introduced Intellectual Property Rights (IPR) Bill

The strength of these impressive reforms now needs to be bolstered by proper implementation and enforcement. For instance, while a single window exists for opening a business, business owners still have to go through a stifling number of procedures, often subjected to unnecessary delays, to open a business.

To transform India’s business environment, the federal government needs to ensure efficiency at the operative level – securing approvals, permits, and speeding up processing times.

In September 2014, PM Modi announced his ‘Make in India’ campaign – an initiative that seeks to kick-start India’s lagging manufacturing sector. While billions of dollars have begun to enter India, a stronger manufacturing ecosystem is needed for India to actually compete with its regional manufacturing rivals.

Key areas like tax reform, contract compliance, cross-border agreements, and construction regulation need to be supported with improved logistics infrastructure as well as internet connectivity to make India’s manufacturing ecosystem a compelling proposition for foreign investors.

Indeed, two major reforms vital to establishing India as a global manufacturing hub – land acquisition and labor relations – remain elusive for the federal government. Nevertheless, these reforms are seeing greater success in individual states.

Some states are rising to the challenge

Unlike at the federal level, some states have taken up the challenge to reform labor and land regulations. Individual states have begun drafting and passing their own amendments to the 2013 Land Bill as well as simplifying labor laws to help businesses open and maintain smaller factories.

The states of Rajasthan, Gujarat, Tamil Nadu, Andhra Pradesh, and recently created Telangana are leading these reform initiatives.

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