by Rakesh Mohan
Nearly all state governments contracted out the task of building roads to private parties. Despite the risk of corruption and lack of capacity in the state line departments for such a massive project, a moderate- to good-quality road network has been laid out and is expanding rapidly. Moreover, despite the presence of interstate variations, the maintenance of these roads has been a welcome change from the past, when rural roads were known for their poor quality.
Telecommunications
Finally, the telecom sector (see Table 5). This change has been largely due to investments and efforts in the private sector but was primarily achieved through farsighted central government policy and regulation. Even state governments provided rare support to the private entities and their contractors. As per ITU (International Telecommunication Unit) data, between 2001 and 2011 the percentage of households with telecom connections increased from 9 per cent to 63 per cent and further crossed 81 per cent by 2015.
But wide dispersion is not the most important part of the story. It was achieved with no subsidies and at low cost for the user (see Table 6). The tariff rates are much lower than the maximum rates specified by the Telecom Regulatory Authority of India (TRAI), which only goes to show the success of competitive forces in the sector.
The ITU provides international comparisons that further underscore the same (see Table 7). The reforms have enabled a great combination of competition and regulation, and together, they have enabled rapid expansion and coverage and low cost
It is sometimes claimed by many that the telecom network was easier to create because it was largely wireless. That is not entirely the case: telecom towers need to be put up in the vicinity of large population centres and are susceptible to the same forces that beset any infrastructure. In this case, the pressure for cellular connectivity was not only driven from the top, but from the ground up as well. The greater demand was natural, given the low cost and great accessibility to the consumer. The state governments actively contributed and supported the rapid roll-out of telecom tower construction, enabled land for setting up cable networks and supported the need for the security of the large network of unmanned towers in the hinterlands.
Table 5: Tele-density across Different States in India as Overtime
States
As of 31 December 2015
All
Urban
Rural
Andhra Pradesh
87
178
51
Assam
55
128
41
Bihar + Jharkhand
53
162
35
Gujarat
98
143
65
Haryana
84
131
58
Himachal Pradesh
125
366
93
Jammu and Kashmir
79
134
57
Karnataka
102
180
53
Kerala
101
215
62
Madhya Pradesh + Chhattisgarh
63
127
39
Maharashtra
85
124
62
North-East States 1
78
154
53
North-East States 2
Odisha
66
155
47
Punjab
104
147
71
Rajasthan
82
161
57
Tamil Nadu
117
140
83
Uttar Pradesh + Uttarakhand
64
141
41
West Bengal
61
133
49
Delhi
241
–
–
All India
82
153
50
Source: Annual Reports (relevant years), Department of Telecommunications, Ministry of Communications and Information Technology, Government of India.
Table 6: Ceiling Tariff, 2013–2015
Item
Ceiling tariff as per TTO (55th Amendment), 2013
Ceiling tariff as per TTO (60th Amendment), 2015
Outgoing local voice call
Re 1 per minute
Rs 0.80 per minute
Outgoing long distance (inter-circle) voice call
Rs 1.50 per minute
Rs 1.15 per minute
Incoming voice call
Rs 0.75 per minute
Rs 0.45 per minute
Outgoing local SMS
Rs 1 per SMS
Rs 0.25 per SMS
Outgoing long distance (inter-circle) SMS
Rs 1.50 per SMS
Rs 0.38 per SMS
Source: Annual Report 2015–16, Department of Telecommunications, Ministry of Communications and Information Technology, Government of India.
Note: Telecommunication Tariff Order (TTO)
Table 7: Low Telecom Rates
USD
Monthly Residential Service
3-Minute Local Call Peak Rate
Mobile-Prepaid 1-min Local Peak Rate off-net
Australia
22.07
0.29
0.14
China
4.03
0.04
0.03
India
2.29
0.02
0.02
Pakistan
4.91
0.00
0.03
Sri Lanka
2.94
0.05
0.02
United States of America
16.32
0.16
0.27
Source: ITU; see: PS: http://www.itu.int/en/ITU D/Statistics/Pages/publications/wtid.aspx
Illustrations of Partial Measures
At the same time, state governments across the country have attempted other changes that have not played out fully, as a result of which their full benefits have not been realized. We take up the cases of Agricultural Produce Market Committees (APMCs), the Single-Window Clearance Mechanism (SWCM) for setting up manufacturing facilities, and reforms in the power sector as illustrations.
While it is easy to criticize the inaction of state governments and their inability to manage the political economy of change, it is also true that a basic foundation has been set up wherever possible. As opposition to change reduces with time, state governments should be able to institute many more of the most important changes.
Agricultural Produce Market Committee (APMC)
As per the Budget for the year 2014–15, there are 2477 principal regulated markets in India and another 4843 sub-market yards that are regulated by an APMC located nearby. While each state government needs to have its own legislative framework for agriculture, the practice typically has been one where the central government provides a general direction that most states follow with minor changes. In line with this, the central government came up with a model APMC Act in 2004, which has since then been followed by most states (see accompanying table).
The APMC is a marketing board for agricultural produce set up by state governments. APMCs are established in all the states in the country, and they are aimed at providing incentives to produce farmers, correcting market failures and augmenting social welfare.
The original intention of the APMC-regulated markets was to protect the farmers from intermediaries and provide them a place where they could sell their produce at appropriate prices through competitive bidding. However, as per the government mandate that trade can only occur in such markets, the APMCs have also been taken over by powerful colluding interests through broke
rs and other middlemen. Though debatable, it is often argued that the problem is more severe with items such as cash crops, fruits and vegetables, for which minimum support prices do not exist as a benchmark for the seller.
The objective of the 2004 APMC Model Act, therefore, was to free the farmer from the stranglehold of these colluding interest groups. This was only possible if the farmer was allowed to sell at any location and to any entity of his choice. This would also require direct transactions between seller and buyer and not necessarily carried out within the APMC marketplace. A level of protection to the farmer was also built-in by giving specific directions regarding market fees and receipt of payments.
Most states have adopted some version of the new APMC Act. For instance, the Government of Haryana only adopted the contract farming provision of the Act, while Odisha decided against allowing private markets for rice. While some states such as Madhya Pradesh adopted the provision that called for abolishing the commission agent system, several other states have not done the same.5 In addition, some of the features of the Model APMC Act failed to create a single national- or state-level common market. This includes the fact that the Model APMC Act retains the clause under which buyers are required to pay APMC charges even when they buy agricultural produce outside the APMC area. Together, these two would arguably have benefited the farmer the most by introducing stronger competitive elements in the agriculture marketplace. In other words, the need to protect the farmer by limiting their freedom overwhelmed the recognition that farmers needed greater choice in their decision to sell. However, recent efforts, since 2013, have aimed to create a National Agriculture Market (NAM) where mandis, or marketplaces, are integrated electronically across the country. This could, to some extent, fill the missing gaps of the Model Act of 2004.
Single-Window Clearance Mechanism (SWCM)
The single-window mechanism is defined as the establishment of a single point of contact, typically for all manufacturing or other start-ups, so that entrepreneurs don’t have to visit multiple departments for various clearances, ensuring easier and faster setup of industries.
Multiple permissions required for setting up a business is a known global phenomenon. In India, however, the combination of complex and redundant laws, an unresponsive and unmotivated bureaucracy, and extremely poor land records further add to the problem. Consequently, a single window, where an entrepreneur can obtain all required permissions in one go, is a welcome concept. It is, however, not merely a location. It is a concept where multiple applications are rendered unnecessary because of coordinated information-gathering by government departments. Moreover, this coordinated approach, in an ideal world, would also remove the necessity of many permissions and the need to apply for them. In short, a single window, if done in the right spirit, can make entry costs far lower than they are.
A good single-window mechanism would require the setting up of a dedicated (formal or informal) group—anything from an investment promotion agency or the industries department of the state government. Several states have already set up single-window mechanisms for promoting investment and industries, while many have also provided a legal backing to this initiative. Table 8 briefly reviews the differences between states.
Table 8: Statewise Single-Window Mechanism Information
Sr. No.
State
Single-Window Mechanism
1
Andhra Pradesh
SWCM under the Andhra Pradesh Industrial Single-Window Clearance Act, 2002
2
Assam
SWCM for investor queries, approvals, grievances, etc.
3
Bihar
Single-Window Clearance Act, 2006
4
Chhattisgarh
SWCM under the nodal agencies of State Investment Promotion Board or District Industries Centres depending on the proposed investment
5
Gujarat
Single-Window Facilitation Mechanism called the Investor’s Facilitation Portal (IFP)
6
Haryana
Chief minister’s office has the Single-Window Clearance System whereby all clearances are to be granted within two months
7
Jammu and Kashmir
SWCM
8
Jharkhand
SWCM in 2002 vide Rules of the Single-Window System, Jharkhand, 2002
9
Karnataka
Single-Window Facilitation is provided by Karnataka Udyog Mitra in the state only for investments above Rs 3 crore, which is being recalibrated to Rs 15 crore. Karnataka Industries (Facilitation) Act, 2002.
10
Kerala
Kerala State Single-Window Clearance Boards and Industrial Township Area Development Act, 1999, under which investors have the option of obtaining all required clearances through a single forum within a stipulated timeline
11
Madhya Pradesh
Single-window clearance system called Madhya Pradesh Trade and Investment Facilitation Corporation Limited having a common application form. However, it is primarily a nodal agency for facilitating projects with capital cost exceeding Rs 25 crore in the state
12
Maharashtra
SWCM is administered through the Maharashtra Industrial Development Corporation (MIDC) online portal. However, the service of the portal is available only for MIDC plot holders
13
Manipur
SWCM under the Industrial and Investment Policy of Manipur, 2013
14
Odisha
SWCM with a common application form
15
Puducherry
It has implemented SWCM for applications for various clearances
16
Punjab
SWCM (Punjab Industrial Facilitation Act, 2005) with a common application form (Punjab Industrial Facilitation Rules, 2008)
17
Rajasthan
SWCM: Rajasthan Enterprises Single-Window Enabling and Clearance Act, 2011, with the Bureau of Investment Promotion (BIP) as its nodal agency
18
Tamil Nadu
SWCM with a common application form
19
Telangana
SWCM through the Telangana State Industrial Project Approval and Self Certification System (TS-IPASCS) Act, 2014
20
Uttar Pradesh
Udyog Bandhu is the single-window clearance agency. Nivesh Mitra is the online portal functioning as a single-window clearance system. The state does not have a common application form for all the departments
21
Uttarakhand
SWCM backed by the Uttarakhand Single-Window Facilitation and Clearance Act, 2012
22
West Bengal
Single-window clearance system called Shilpa Sathi or the State Investment Facilitation Centre for large and medium industries. Common Application Form for use by investors also exists.
23
Andaman and Nicobar Islands
SWCM exists. The single window facilitates investors in obtaining clearances/approvals from various departments.
Source: Assessment of State Implementation of Business Reforms, World Bank Group, KPMG, CII and FICCI, Joint Publication, 2015; Survey on Business Regulatory Environment for Manufacturing, Vol. II, Report to Planning Commission by Deloitte Touche Tohmatsu, March 2014.
Despite the fact that most states have implemented some version of the SWCM and have benefited from it, field evidence suggests not much has improved over the years. The manufacturing sector’s long-term stagnation has not been controlled—apart from a few islands in Gujarat and Tamil Nadu—and much more is required for the sector to lead India’s economic growth. A critical factor in this modest success of the SWCM is its still-prevalent pre-1991 administrative requirements. Once that changes, much more would be possible.
There is little consensus on which states have performed better on the SWCM front; releva
nt studies are typically conducted based on perceptions, limited to a few sectors, and their results are not comparable across states. Though what is now evident is that a well-motivated bureaucracy is only a small part of the story; underlying structures where processes and rules have been defined in a rather straight-jacketed manner and limited bureaucratic freedom are forcing state governments’ line departments and businesses to circumvent the requirements as much as is possible.
Despite all these flaws, a common window has made one fact clear: each state government is keen to attract investment and is willing to go the extra mile required to make things easier for investors. This is a far cry from the days of licensing. What remains is the painstaking task of clearing the laws, rules and requirements on a line by line basis. And there are rumblings across the board: Rajasthan has loosened the controversial Industrial Disputes Act as well, along with some of its archaic labor laws, and is going through a systematic reappraisal of all its laws; reportedly, Maharashtra has started the process as well.
Power
In the year 2003, the Government of India enacted the Electricity Act that replaced the existing legal structure of the power sector. This included the Electric Supply Act of 1948 and the Electricity Regulatory Commissions (ERC) Act of 1998. Prior to the Electricity Act of 2003, some states had already unbundled their SEBs. The central government’s action followed some (arguably half-hearted) efforts by state governments of Odisha, Haryana, Andhra Pradesh, Uttar Pradesh, Karnataka, Rajasthan, Delhi and Madhya Pradesh, who had already unbundled their SEBs.
A State Electricity Regulatory Commission was envisaged for each state to act as independent regulator that would have the following functions among others: