The Hindu : 'Good investment climate' in Andhra Pradesh, Karnataka

Online edition of India's National Newspaper
Wednesday, Mar 20, 2002

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'Good investment climate' in Andhra Pradesh, Karnataka
By Our Special Correspondent

HYDERABAD, MAR. 19. While Maharashtra and Gujarat have been categorised as the `Best Investment Climate' States by a study conducted by the Confederation of Indian Industry (CII), and the Development Research Group of World Bank, it has observed that their supremacy is being seriously challenged by the `Good Investment Climate' States like Andhra Pradesh, Karnataka and possibly Tamil Nadu.

This observation was made at a CII workshop here on Tuesday by Dr.Omkar Goswami, Chief Economist of CII, and Dr.David Dollar, Head, Macro Economics Division, Development Research Group, World Bank-who jointly conducted the study.

The study covered 1099 manufacturing companies from the 10 States in the area of Textiles, Electronics, Garments and Pharmaceuticals and was done over a three year period. The second phase, to be taken up soon, will cover some of the other States.They also propose to take up a similar study of Bangaldesh.

Based on the feedback, followed by an analytical study, it categorised Delhi and Punjab as `Medium Investment Climate' states, and Kerala, West Bengal and Uttar Pradesh as `Poor Investment Climate' States.

While forming its conclusions on the basis of 153 queries, covering aspects like regulatory frameworks,corruption and number of visits by factory inspectors, customs delays, cost of infrastructure (and power) and interest costs, the study said there was serious need for rapidly embarking on second generation of structural reforms both at the Central and State Government levels.

It concluded that investment climate was all about governance,implementation and day-to-day details, and not about fiscal concessions. It felt Maharashtra was likely to `slip up', and said it does not take long for a States with a good investment climate to deteriorate. The samples covered were mostly small and medium enterprises (SMEs-76 per cent) with 150 employees or less, while 24 per cent were larger companies.

It cautioned that unless sustained structural reforms were taken up , the gap between India and China, South-East Asia and East Asia will steadily widen.Whatever marginal advantage India had in terms of cheaper labour cost gets eroded by massive disadvantages in power costs, interest rates, delays in customs clearances, infrastructural bottlenecks and regulatory hassles, it said.

The cost of power in India was twice that in the USA, and 50 per cent more than countries like Mexico. In Andhra Pradesh, 82 per cent of firms have their own generators, against 44 per cent in Maharashtra, 70 per cent in Karnataka and 76 per cent in Tamil Nadu.

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