Recently a blog titled “I tried starting a manufacturing unit in India” which chronicled the difficulties faced by an aspiring entrepreneur to set up a small manufacturing unit in Maharashtra was widely shared. It was cited by many to argue that this is the reality of starting a business in India. However, as many pointed out, almost all of the pain points mentioned were in the domain of states and not the Centre. Later, that entrepreneur himself clarified that the difficulties laid out in his blog were due to oversight from his side and that he will soon publish a detailed blog on actual process involved in starting a business. In any case, a number of factors needs to be taken into account before making any kind of judgement.
Over the last 6 years, undoubtedly Union Government led by PM Modi has enacted a number of reforms that has significantly improved the ease of doing business in India. Reforms like GST, Insolvency and bankruptcy code, simpler direct tax regime, reduction in corporate tax and scrapping more than 1,400 archaic laws has resulted in massive jump of 79 places in world bank’s ease of doing business ranking. By bringing in 3 major farm related ordinances, the government has made it easier for farmers to sell their goods and realise better prices for them too.
This relates entirely to Maharastra state. Things were bad. Centre acted. It scrapped 1400 laws.Processes & paperwork eliminated & digitised. India jumped up 79 positions in World Bank’s Ease of Doing Business. Now States must act & emulate Centre. They must become easy & simple. https://t.co/mVIm1tMRpb
— Amitabh Kant (@amitabhk87) August 11, 2020
But what the blog clearly showed was that in concurrence to reforms taken by Modi government, many of our state governments also need to undertake many such reforms and simplify process to further enable our entrepreneurs to set up and run their businesses smoothly.
In this regard, we at The True Picture, looked at 3 states where in the recent past, pathbreaking reforms were undertaken.
Significant Labour and Agriculture reforms in Madhya Pradesh
Madhya Pradesh CM Shivraj Singh Chouhan recently announced some path breaking labour reforms which significantly help ease of doing business and pave way for further investment in the state. These reforms include registration of industrial establishments in 1 day, making officers accountable to ensure registration get completed in one day, giving flexibility to industries to set shift timings and mutual settlement of disputes between labourers and business owners. Chief Minister Chouhan rightly said that:
“Investors had been mired in red tape and trapped in the spider’s web of regulations. We have decided to free them. This is the time for us to change our laws and bring them in tune with the times, make them simple such that we bring investors from within India and outside into Madhya Pradesh”
Significant agriculture reforms have also been implemented in Madhya Pradesh taking cue from similar reforms undertaken by Modi government. Madhya Pradesh government has allowed its farmers to sell their crops to any individual or entity willing to buy them, without having to approach a mandi, freeing them from clutches of middlemen. The traders or bulk buyers can negotiate prices directly with the farmers. It also allowed for creation of private mandis which includes cold storage chains and making prevailing prices public enabling farmers to have better price discovery. This along with the earlier discussed labour reform will be a game changer for farmers, entrepreneurs and job seekers of Madhya Pradesh.
Uttar Pradesh Initiates Major Reforms
Not far behind is U.P CM Yogi Adityanath’s announcements. The focus has been on reforms in both agriculture as well as labour markets in the states paving way for more industrial investments into the most populous state of India.
Providing major relief to industries, he announced the suspension of all labour laws save 3 laws for next 3 years. This is applicable for not only the new businesses but also for existing industries. The continuation of important labour laws such as ones banning bonded labour, timely wages and maternity care are ensured to achieve a balance in these reforms.
U.P Government has also decided to denotify 46 agricultural commodities from APMC act, which will remove multiple layers of middle-man and needless red-tape induced delays ensuring that archaic laws do not stand in way of creating productive employment and economic opportunities. These reforms combined with massive infrastructural expansion make it a very attractive state for investments.
Karnataka Enacted Further Industrial and Agricultural Reforms
Karnataka is already one of the most industrialised states in India attracting huge amounts of FDI as well as domestic investments. Now with the fresh set of reforms initiated by BS Yediyurappa Government, Karnataka can expect richer economic returns.
Just like IBC has helped industrialists exit business easily if they wish, Karnataka has enabled farmers now to sell their agricultural land easily overturning the earlier complex law that prevented them from doing so. This has enabled ease of doing business for farmers too. Now, any Indian, or a trust, society, company or an educational institution can buy farmland in Karnataka regardless of the buyer’s annual income from non-agricultural sources.
A major overhaul of industrial laws has also been carried out in Karnataka which has exempted industries employing upto 300 persons from coming under Industrial Disputes Act. This is an expansion from the earlier 100 persons limit. Further, the changes to the Contract Labour (Regulation and Abolition) Act, 1970, will exempt factories employing up to 50 workers from seeking licences. This is up from the 20 workers before.
While PM Modi continues to drive major reforms in all sectors of the economy, in the spirit of competitive and cooperative federalism, it is important for states to initiate several such reforms in light of COVID-19 pandemic induced economic shocks. The spate of balanced but bold reforms announced by the 3 states mentioned above can serve as a blueprint for other states to emulate.