India to launch internal ease of business ranking

The Narendra Modi government will rank states according to the ease of doing business. Several departments of the central government are working with their counterparts in the state capitals finalising the parameters for this elaborate exercise.The Prime Minister has told global and domestic investors on more than one occasion that his government will ensure that they get the red carpet treatment when they come to India instead of the red tape that they have come to expect.In line with this, he has set a target of taking India's ranking, currently at 142 out of 189 countries, to the top 50. To do this, it is critical for him to take the states along. Already, many progressive states, such as Maharashtra, Gujarat, Punjab, Haryana and some of the southern states, have policies in place that welcome investors.But many more states lag behind on this count. It is here that the ranking of the states will help - by pointing out which parameters they need to improve upon. And it's not only the laggards that will benefit. Even the higher ranked states will get to know what, if any, pain points investors are facing and take steps to correct them.Over the last few years, several traditional laggards have been trying hard to play catch up with the more industrialized states. Three - Madhya Pradesh, Orissa and Bihar - fall into this category. They are ruled by the BJP, Biju Janata Dal and Janata Dal (United), respectively. This is a good indication that, barring a few stray cases, there is broad bipartisan support for improving the ease of doing business to attract investments.A set of clearly defined and transparent parameters will help investors choose which states they want to invest in and which they want to avoid. Over time, as investments pour into the higher ranked states, creating prosperity and jobs, the lower ranked states - even those that are ruled by parties ideologically opposed to opening themselves up to private investments - will have to fall in line.Since these ruling parties do not operate in a vacuum, their rivals will use the rankings, and the resultant creation of jobs and rise in prosperity levels, to beat them with. Since young India, which accounts for two-thirds of the country's population, is highly aspirational, intransigence on improving the ease of doing business for ideological reasons could prove politically counter-productive.So, the ranking of the states will serve two purposes. First, they will force states to compete against one another to improve their own standings. And secondly, they will compel others to fall in line or face irrelevance.And overall, if at least 10 states begin to compete against each other in right earnest, it will just be a matter of time before India's overall ranking on the ease of doing business improves.

The above article was published in India Inc's print edition of the India Investment Journal launched in June 2015 in conjunction with the Policy India Roundtable 2015.