ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Weak Governance, Good Deals, and Their Economic Impact

Unmaking ‘Make in India’

India’s business climate has historically been considered poor, resulting in low-rankings in the World Bank’s Doing Business Indicators. The National Democratic Alliance government has attempted to reverse this situation by improving the de jure rules related to the business climate. Whether this approach will improve the ease of doing business in India is analysed by using firm-level data on the number of days it takes to get an operating licence or construction permit. De facto deals between the state and businesses, rather than de jure rules, characterise the state–business relationship in Indian states. States with weaker quality of governance provide higher proportions of good deals in terms of the speed of obtaining licences and permits, and easing the norms of business regulations need not necessarily lead to higher productivity.

India has been languishing in the lower half of the World Bank’s Doing Business rankings for long, ranking 142nd among 189 countries in 2015. These rankings are the result of our poor performance in several areas like starting a business, getting construction permits, getting electricity connections, contract enforcement and so on. Overall, there has been a consensus that the business environment was poor in this country. When the Narendra Modi government came to power in May 2014, it promised to change this situation completely. One of the flagship programmes that it launched soon after taking office was the “Make in India” programme. The objective of the Make in India programme was to make India “a global design and manufacturing hub” (Government of India 2015) by improving the business climate of the country. The main idea was “to develop world class manufacturing infrastructure by encouraging investments, fostering innovation, promoting skill development and strengthening intellectual property protection” (Government of India 2015: 66). A very important part of the Make in India programme was a slew of business-friendly institutional reforms, including simplification of tax procedures, bankruptcy law reforms, and other measures to improve the investment climate.

By 2017, these initiatives seem to have paid off, leading to a big jump in India’s Doing Business ranking, rising to the 100th spot from the 130th spot in 2016. This jump was noted by the World Bank, which pointed out in their 2017 Doing Business report that “India [is] one of the top 10 improvers in this year’s assessment, having implemented reforms in 8 out of 10 Doing Business indicators” (World Bank Group 2017). Predictably, the central government has taken a great deal of credit for the significant improvement in India’s Doing Business ranking.

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Updated On : 13th Mar, 2020

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