Doing Business with Indian States

Yesterday attended a conference organized by the High Commission of India about "Doing business with Indian States: Opportunities and the way forward". 

In my circles I have met many people who are gung ho about the changes in the Indian Government's approach towards investors. They speak of the improved access to the decision makers and a certain sense of speed and urgency not seen before. I have heard some of the State Chief Ministers speaking in Singapore and the excitement is visible and generally I think these outreach efforts are steps in the right direction.

Jawed Ashraf, the Indian High Commissioner's welcome remark was an articulate summary of the India story. Beyond economics, he spoke of social sectors, which is a conspicuous addition to the usual economic focus of such events. Ashraf briefly commented on the Federal structure of India and highlighted the critical role of states wrt the execution of projects and how post liberalization, the States have assumed a great role in economic matters. In this new environment, the States have their own investment bureaus and we are witnessing a certain competitive version of federalism in India. Apparently even MEA has a division focused on the states and the IFS officers are expected to adopt a state each. In this environment, Ashraf recommended that the investors should take a more granular approach and factor in the States while coming up with their India strategy.

In his opening remarks Mr Tan Soon Kim, Asst CEO, Enterprise Singapore spoke of Consumer sectors, Urban development and manufacturing as the big opportunity areas in India and spoke of the key investments from Singapore including those from DBS, Etonhouse and Breadtalk. He acknowledged India as a large but complex market and highlighted the impact of GST and the other measures that have improved the ease of doing business in India. 

First Panel Discussion on
"Role of States in Economic Development:
Competitive & Cooperative Federalism"

Mr Girija Pande, Chairman of Apex Avalon Consulting Pte. Ltd, moderated the first panel discussion on “Role of States in Economic Development: Competitive & Cooperative Federalism.” Pande felt that along with the Southern and Western leaders, the other Indian states have upped their game and remarked that the GST was like India doing an FTA with itself.  Quoting the example of how the Chinese cities compete with each other and Amazon’s HQ2 experience with the US cities, Girija commented that the time is apt for cities to collaborate and compete with each other. He opined that the big Singapore companies are already in India and the next wave will include the SMEs and they would need a sense of comfort and partners to enter the Indian market. 

Ms Anamika Singh, Director NITI Aayog, felt that the new approach also focused on the outcomes rather than on the process alone as was the case in the past. She spoke of a whole lot of social sector indices. I thought that this was an interesting approach that encouraged that oft repeated comment of competitive and collaborative federalism. In the operational environment of the states, they are often firefighting. So the analysis and feedback loops that is possible through a common benchmarking exercise can have a tremendous empowering impact on the states. Having said that Ms Singh graciously acknowledged some of the challenges and nuances associated with the data based indices approach. Currently the indices measure the rate of change rather than the absolute change and hence put the laggards at a bit of an advantage. 

Amitendu Palit, Senior Research Fellow, Institute of South Asian Studies with his strong scholarship, made a strong impression on me. His comment on the Indian federal structure was a Civics-101 lesson. He spoke of how after the 90s the unitary character of the Indian State has given way to the Federal structure. For the system to work well in the new scheme of things, the political parties need to rise above their narrow political narratives. The functioning of the GST council he felt was a successful case, with the states highlighting their common and specific concerns. 

Palit spoke of the improvements in the ease of doing business index and highlighted how in certain aspects India was already at the forefront of things. For example he spoke of how the protections available to minority shareholders has traditionally been strong in India. The other key areas of enforcing contracts, electricity etc have seen a marked improvement. He also spoke about the Bankruptcy and the insolvency code in India and specifically highlighted the huge progress in the food safety standards driven partly by the actions of the state governments. Commenting on the impact of this federalism on Foreign Policy he highlighted the India-Bangladesh land boundary agreement, which was made possible only due to the cooperation between the center and the state.

Vivek Kathpalia, Head of Nishith Desai Associates felt that digital divide between states is real and the advances in technology have played a big role in bridging that gap. He was impressed by the professional outreach attempts by the different states and felt that there was a perceptible change in the access to the govt and now it was even possible to engage with the regulators. He recounted an interesting anecdote wherein the Factories Act of 1948, mandating whitewashing walls, was repealed within 2 months of making a representation to the regulators. 

He shared that some of the states have made impressive micro level changes in the legislative structure. For example Rajasthan changed a 1947 industrial dispute resolution law that eased the process of laying-off employees. Land access is a big issue and the Title process around verification and putting them online has significantly improved the transparency in the area. He concluded that the reforms process will be long drawn out and in some cases will be painful. 

Sanjeev Dasgupta, ED & CEO, Ascendas India trust spoke about how Ascendas has been in India for almost 25 years, and its Bangalore ITPL was the first Grade A IT park in the country. Since then many local players have copied and scaled up the model. He spoke of how they have increased their India commitment from $1 Billion to about $2.5 Billion now. He spoke positively about the current leadership of Telangana and how they have proactively got MNCs like Uber and Amazon to come to India. He also highlighted how the automation of the land registration process was a big step in the right direction. 

Commenting on other states, he felt that though Tamil Nadu has a well-established industrial infrastructure and talent pool, the investor experience has been rather volatile. However he remarked that the state has made some progress in the recent past. Mumbai, he felt was always a challenging market, but the current leadership has taken some steps to help the investors get comfortable with the local environment. Gurgaon is a big and challenging market. Karnataka, has seen multiple leadership changes but has an bench of excellent bureaucrats. He concluded by highlighting that the state capacity was variable across states and unlike the impression about land, its not a big issue in India given the availability of land banks and industrial parks.

Second Panel Discussion on,
"Ease of doing business in Indian States:
Making the Right Choices for success"

Prasoon Mukherjee, Vice Chairman, SICCI and Chairman, Universal Success Enterprise Group moderated the next discussion on the, “Ease of doing business in Indian States: Making the Right Choices for success”. Prasoon made a passionate case for the high margins of India and the first mover advantage. However my personal view is that cost of increasing revenue can be quite high in the Indian context esp in the consumer sectors as many companies like P&G found to their chagrin. The attractiveness of high growth tempts many to brush things under the carpet, which then explode when the growth rates disappear. 

Sarin Paraparakath, Additional Director, Economic Development Board, Government of Andhra Pradesh, turned the panel discussion into an elaborate presentation and made some good points about the progress made in the state especially after the split with Telangana. 

Mr Anandan Karunakaran, Director, Urban Planning and Design (Africa and South Asia), Surbana Jurong spoke of how they worked for 6 months on a master plan for a project and then the plan had to be changed for Vastu reasons. The revision apparently took 9 months to complete. He made an interesting recommendation that instead of big picture master plans, it would be better to break a project into smaller measurable ones. He highlighted the need to be purpose driven, flexible and open minded to succeed in India.

Mr Vinesh Kumar Natali, Global Head, Meinhardt EPCM Group mentioned that the timelines for permit approvals is variable across states. The consistency and quality of construction skill base tends and the safety and health practices in India especially for the second and third tier contractors tend to be low. He urged a need to raise the bar for health and safety regulations. He spoke of how modular construction and Green elements were introduced into his Indian projects. Their plan of employing women was met with some resistance from certain state governments. 

Mr Anderson Tan, Chairman, Skills SG Ventures Pte Ltd. felt that the ease of doing business is determined by three factors: Politics, Policies and Practice level factors. He acknowledged the policy level improvements happening in the country, but expressed a certain frustration at the execution level. A case point was the process opening a Bank Account and proving to the banks that the money being transferred from Singapore is legitimate. He spoke about how the election season has slowed the decision making, putting their almost half a million dollars of investments at risk. He concluded by saying that the SMEs are innovative and motivated but have a short runway for patience. He advised the Indian policy makers to be cognizant of the user experience while taking measures to mitigate risk. 

Dushyant Thakor, Vice President (State Outreach),
Invest India, spoke about the facilities available
to supports investors.

As the last presenter before lunch, Mr. Dushyant Thakor, Vice President (State Outreach), Invest India rushed through his presentation on “From Interest to Implementation: Facilitating Investments in States” and focused on some impressive work done by Invest India. He highlighted some of the support infrastructure available for investors, especially the capabilities available within the Invest India framework. The gist of his slides was that the Governments at the Center, States and the Industry organisations have put a lot of resources online to make it easier for the investors. However a point that struck me was the sheer number of portals. Thakor’s presentation itself talked about multiple portals at the Central level and in addition there are at about 2-3 portals for each state. 

Having said that I think overall this is a step in the right direction and I personally experienced the energy that has been invested to target the investors. However it is important that the delivery matches up with the promise and enough attention is paid to after care issues and matters of institutional capacity all the way up to the last mile.