The relative unease of doing business in India

MAHATMA GANDHI believed it was difficult to conduct business in a strictly honest way. In India it has become hard to conduct business any way at all. It sits a lowly 142nd out of 189 countries in the World Bank’s ease-of-doing-business rankings. The country’s present-day boosters say a huge market of 1.25 billion people, half of them under 27, will continue to draw big companies to invest there, whatever the difficulties. Yet though India is a big market, it is not a uniform one. Each of its 29 states has its own rules on land purchase, employment, tax and the environment. And some states are friendlier to enterprise than are others.

India’s biggest states have more people living and earning in them than do most countries. For instance, Uttar Pradesh has a population of 200m, as many as in all of Brazil. But the World Bank rankings give no guide as to where it is easiest to set up shop in India. Its ranking for India is based only on business regulation in Delhi and Mumbai, the two largest cities. To plug this gap in knowledge, India’s commerce department has just published it first-ever ranking of India’s 29 states according to the ease of doing business in each place. (The report also covers three enclaves run by the central government from Delhi.) The scores are based on progress made in reforming business regulations in eight separate areas, including tax and employment. Gujarat, a state of 60m renowned for its business-friendliness, tops the list. Uttar Pradesh, the most populous state, is ranked tenth. Bihar, a largely rural state with 104m people that goes to the polls in October, is ranked a dismal 21st. Maharashtra, the state that encompasses Mumbai, is ranked a respectable eighth.

The idea behind the report is that naming and shaming low-ranking states will push them to make changes, that they may be awarded higher scores in future years. The best states might use their high ranking to pitch for more foreign-direct investment. State-led deregulation may even prove to be the best way to improve India’s overall lure to business. The government of Narendra Modi, who won an election last year on a pledge to revive the economy, has been thwarted by the most recent session of parliament in its efforts to change the national land-purchase law and to harmonise taxes across India. It has since indicated that it will allow state-level reforms to supersede national law, as a way around the gridlock. It has already blessed a labour reform by this back-door route in Rajasthan, a northern state. More states might now follow Rajasthan’s lead.