Workshop: Resource Mobilisation, Investment Climate and Growth

In 2010, the International Growth Centre (IGC) India-Bihar programme at Asian Development Research Institute, which is directed by London School of Economics and Political Science and University of Oxford, completed its first year in operation. The programme is intended to carry out demand driven research programmes to aid policy makers and other stakeholders in the continued and sustained success of the Bihar Growth experience.

As a part of the work that is being currently carried out through this initiative, IGC India Bihar organised a half-day workshop on ‘Resource Mobilisation, Investment Climate and Growth’ on December 8, 2010 at 3pm at the premises of Asian Development Research Institute (ADRI), Patna. This programme was organized in collaboration with the Bihar Chapter of the Confederation of Indian Industries.

The workshop focussed on a discussion with policy-makers and stakeholders based on presentations of two papers which have been prepared for IGC Bihar. These are:

Recommendations of Thirteenthth Finance Commission: Implications for Bihar – By Professor Pinaki Chakraborty, National Institute of Public Finance and Policy, New Delhi

What constrains business – The role of investment climate and single window clearances – By Professor Errol D’Souza, Indian Institute of Management, Ahmedabad

Dr. Shaibal Gupta, Chairman, Advisory Board, IGC India-Bihar, welcomed the participants of the meeting. Mr. Satyajit Kumar Singh, President, CII Bihar Chapter observed the need for a techno-economic survey of Bihar and emphasized the need for collaboration between academic institutions and professional organisations.

Professor Chakraborty argued that although the Finance Commission transfers have increased the share of tax devolution to the States from 30.5 to 32 per cent, the share of Bihar in total horizontal distribution at 10.917 per cent is lower than what was recommended by the Twelfth Finance Commission. The study observed that Bihar’s share of devolution has been declining consistently over the award period of the recent Finance Commissions creating serious fiscal strain on State finances. The revised road map for fiscal consolidation proposed by the Finance Commission though attainable for the State of Bihar, it will have to be with a fiscal contraction especially through reduction in discretionary development spending which can further accentuate the already existing large social and physical infrastructure bottlenecks in the State. With regard to the specific purpose grants, especially for education, the analysis reveals that it is way below the complete equalization requirement even with respect to the norms prescribed by the Twelfth Finance Commission. However, substantial increase in the in the devolution to the local bodies by the TFC and the suggested reforms for decentralization if carried forward by the State can actually strengthen the local-self governments in Bihar.

Professor D’Souza presented a comparative study of the determinants of investment climate in Indian states. He observed that investment climate refers to government policies and behaviours that firms face when they consider investment in a location. Of 16 major states in India Bihar ranks 14 in the investment climate index with the worst ranked states being Uttar Pradesh (15) and Rajasthan (16). Amongst the best ranked states are Karnataka and Gujarat. The main bottleneck to investment in Bihar is identified by business as inadequate transportation and power and telephone losses. Amongst business perception variables regarding the institutions that affect the investment climate in Bihar crime followed by corruption are identified as a major deterrent to investment. Amongst business perceptions regarding inputs, the reduced availability of finance and inadequate skills is reported to be severe in the investment climate surveys. On the plus side there are two institutions that affect business returns where the perception of business in Bihar is that their quality is better than a higher ranked state such as Gujarat (ranked third) – tax administration and rates, and the enforcement of contracts through the judicial system. Resolving a commercial dispute through a court for instance takes 792 days on average in Bihar (ranked fifth) whereas it is two-thirds longer or 1,295 days in Gujarat (ranked sixteenth). The contract enforcement cost as a per cent of the value of the claim at 16.9 per cent is lowest amongst all states in India in Bihar. The all India average for contract enforcement costs is 39.6 per cent of the value of the claim.

Mr. Sushil Kumar Modi, Hon’ble Deputy Chief Minister of Bihar observed that Bihar got Rs 1439 crores for health under 12th Finance Commission. The 13th Finance Commission dropped this. Due to strict conditionalities under the 12th FC, even if the state spent 99.9 percent expenditure, it was penalized for missing targets by 1 percent. Bihar lost its due grants from the 12th FC because of such rigid penalties. He emphasized the need to find out ways in which Bihar can be compensated for this loss and also ways in which the compliance of conditionalities can be monitored at the state level. He pointed out the constraints on the state’s development expenditure due to the constraints by FRBM. On investment climate, Shri Modi emphasized the need for rationalization and simplification of procedures for licensing and issuance of permit. Noting that the Single Window functions as multiple windows, he mentioned the effort to simplification of registration in the state. The ‘Right to Service’ Act, proposed in the state, he argued, would revolutionize the day-to-day service delivery of the state and invited suggestions from representatives of trade and industry of the type of services that can be included in this Act.

Mr. S Vijayraghavan, Advisor to Chief Minister (Investment), and Mr. Rameshwar Singh, Finance Commissioner, Government of Bihar presided over the discussions. The meeting was attended by a delegation of members representing entrepreneurs in Bihar, and key functionaries of government related to investment and resource mobilization. Key participants in the meeting were Shri JRK Rao, Principal Secretary, Commercial Tax; leading entrepreneurs of the state – Mr. O P Shah, Mr. KPS Kesri, and Mr. S N Sharan and Mr. S P Sinha; Professor P P Ghosh, Director ADRI and Dr. Chirashree Das Gupta, Deputy Country Director, IGC India-Bihar.