Forget its allegedly rough, mud-hewn culture, brash people and power-hungry politicians, the reek of money and crime and, of course, the pollution. The national capital region of Delhi is still the best bet for potential and existing investors.
Cyberabad and Dalal Street have a few takers. But for the movers and shakers of India Inc, Delhi’s the runaway bride.
Forget its allegedly rough, mud-hewn culture, brash people and power-hungry politicians, the reek of money and crime and, of course, the pollution. The national capital region of Delhi is still the best bet for potential and existing investors.
The city-state is also the most affluent, the most personal-finance and media-savvy, the leader in consumer purchases and awareness, and offers the best financial environment. It also tops in social sector performance, says a new CII study conducted on its behalf by the Rajiv Gandhi Institute of Contemporary Studies (RGICS).
However, Delhis a poor 16th among 18 states studied in terms of investment climate, just ahead of Assam and Bihar-the last is the worst and nobodys surprised-mainly because of its poor law and order situation. The pride of place there goes to Gujarat, which otherwise scores average on most of the 12 parameters on the basis of which the states have been ranked.
Still, Delhi passes the performance audit with flying colours-a score of 2.4 and first overall rank-far outstripping the widely-known good performers like Maharashtra, Gujarat, Haryana and Tamil Nadu, which managed to attract substantial foreign investment in the last 10 years and have now come in the middle segment of the rankings. Even the next best performer, Goa, has a score of 1.4, the same as Kerala, the third.
Says Bibek Debroy, director, RGICS and principal author of the study titled How are the States Doing?: "The cutting or blunting edge of reforms has moved to the states, especially since all factor markets are either in the States List or the Concurrent List of the Constitution. Also, different states have reacted differently to reforms. Inter-regional disparities in performance are not a post-reform phenomenon, but have probably increased in importance since reforms."
While most people accept this, few know whats going on at the state level, and how exactly the states are performing in different sectors of the economy. The ranking exercise was taken up to bridge this information gap. CII had announced the project to rank states earlier this year when its new president Arun Bharat Ram assumed office.
The interesting thing about the study is that it has conducted a special ranking to assess the attractiveness of the states as investment destinations. The five variables chosen for this calculation are: per capita SDP in 1998, annual average growth in SDP in the 1990s, average annual changes in commercial bank credit between 1991 and 1997, population in the 15-39 age group as a percentage of the total population and inverse of incidence of strikes to the total number of workers. By that count, too, Delhi is significantly ahead, followed by Gujarat and Maharashtra, with scores of 1.4, 1.2 and 1, respectively. The fourth state is surprisingly Goa, followed by Kerala, Tamil Nadu, Punjab and Andhra Pradesh. And West Bengal, which is again astonishingly ahead of Karnataka, the state which houses the Mecca of infotech industry, Bangalore.
Says Arun Bharat Ram: "Creating a conducive atmosphere for business goes much beyond offering mere incentives to attract investment. The key to attracting investment is to build investor confidence. Of late, states have recognised this fact and started competing with each other. This is because the investment climate of each state comes in for critical review by potential investors before they finalise their location. "
CII officials say policy and the quality of governance, both at the central and state levels, have affected the economic environment in the states. The comparative evaluation of the states individually could be helpful in testing their acceptability in the global economic community. This also assumes special importance before the second generation of reforms becomes fully operational, as the degree of acceptability would be an important indication of the role states would play in the process of integrating the Indian economy with the rest of the world.
The study has discussed the performance of all 26 states but left the Union Territories and special category states out of contention because of incomplete data. The final ranking has been done for 18 states.
The study has ranked the states performance in 12 main categories like general achievement, infrastructure penetration, finance, investment climate, labour, consumer purchases, social sector, law and order, personal finance, mass media, affluence and education-health expenditure. Each of these variables is in turn influenced by several other factors. For instance, general achievement takes into account five variables-per capita SDP in 1998 at current prices, fiscal deficit as percentage of SDP, average annual rate of growth in SDP, poverty head-count ratio and net loans as percentage of SDP in 1998.
Delhis numero uno status was strengthened by a large number of factors, primarily, its high level of affluence and infrastructure penetration apart from social sector development. It also scored high in the financial sector having the highest broker-to-population ratio. On the index of agricultural credit, Delhi stood way ahead of others at 3678.4 while the next best state Tamil Nadu logged a bare 135.1 points. It scored high on infrastructure penetration with perfect 10s in village electrification, village networking through telephones and availability of drinking water. It also had the highest rail and road coverage vis-a-vis its total area in the country and the number of Internet connections as a proportion to its population.
In the social sector too Delhi emerged a winner with a high level of female literacy and the highest circulation of daily newspapers in the country. It also had the most consumer durable purchases.
While Delhi secured the 11th rank on the law and order situation, Kerala, with its reputation of a labour-friendly state, has the top slot there. The national capital scored 92.5 on the inverse index of violence while leader Kerala stands at 176.4. Delhi also came 16th in investment climate ranking while Gujarat emerged at the top of the table on that score, followed by Punjab and Madhya Pradesh, in that order. On the labour front, Delhi came a poor ninth, right after Kerala. The state which has the least number of strikes and lockouts or labour trouble disturbing economic performance is Tamil Nadu; the next best is Gujarat.
In most areas, the findings of the study conform to general expectations. While Bihar comes out as the least attractive state, not only in the overall ranking but also in most of the 12 categories, it is followed closely from the bottom by Orissa, Assam, and the Hindi heartland of Rajasthan, Madhya Pradesh and Uttar Pradesh. These states suffer mainly in law and order, surplus income, purchasing power, labour and infrastructure penetration.
The two Communist-ruled states of West Bengal and Kerala score high on account of labour unrest and mandays lost, with the former getting a less than moderate ranking across all categories. Labour unrest, low purchasing power and a relatively unfavourable investment climate are among factors weighing the state down.
CII has decided to make the state ratings exercise an annual feature. Says Arun Bharat Ram: "State policies continue to evolve and change. Many states are already beginning to recognise their weaknesses and trying to improve on them, while at the same time consolidating their strengths. Therefore, this report cannot be static. It must be as dynamic as the states are." If the future rankings show radical changes in their structure, the purpose of the study will have been amply served.