India’s State-Level Reforms, First Quarter 2020: COVID-19 stalls momentum on state reforms

The first quarter of 2020 has been a tumultuous period for Indian states. States grappling with fiscal uncertainty at the start of the quarter mobilized state budgets to discharge a wide range of populist to pro-business measures. With 21 affirmative reforms in tow, states had set the ball rolling to revive the subnational business climate. However, the turn of events following the outbreak of the corona virus disease 2019 (COVID-19) and the subsequent nation-wide lockdown has brought the states’ economy to a halt.

While state governments across the country are committing upfront investments to address the pandemic fallout, there remains a considerable variation in the subnational response due to regional politics and institutional capacity. States are stepping up in using the COVID-19 crisis as an opportunity to reform. For instance, Uttar Pradesh and Haryana have incentivized online payments of electricity bills, resulting in cash-flow relief to the distribution utilities.

Key developments were prompted before the lockdown was implemented on March 24,2020. States were deploying strategies to attract investments in the industrial sector with special attention to micro, small, and medium enterprises (MSME), and start-ups. Four states unveiled plans to improve the MSME landscape. Additionally, Madhya Pradesh approved an act to fast-track investment approvals. Jammu & Kashmir announced multiple incentives and sanctioned sectoral policies to boost industrial growth while grappling with political uncertainties.

The quarter also ushered in optimism on climate change. Odisha lead the way by introducing a climate budget to track mitigation activities. Three more states launched measures to steer environmental conservation. In addition, a slew of reforms were actioned in land regulations. Madhya Pradesh topped a survey assessing the extent of digitization of land records and their quality across 30 states, and Uttarakhand became the first state to implement agriculture leasing policy. As may be expected from state budgets, two states and Delhi introduced electricity subsidies to light up political fortunes.

Finally, in tracking the state-level reforms this quarter, we applaud two subnational agencies for turning the tide on business negative reforms. In a much-needed relief for the clean energy developers, the Andhra Pradesh Electricity Regulator directed the state electricity utilities to honour their power purchase agreements. Separately, the central electricity supply utility of Odisha will start disconnecting consumers who have not made payments despite multiple notices. We hope that more utilities follow suit.

The spread of COVID-19 continues to have a profound effect on multiple dimensions. As the scale of crisis emerges, Indian states should stay the course and tackle the challenges of economic slowdown whilst containing the virus. Any revival of the momentum of reforms is unlikely anytime soon.

Key reforms that CSIS tracked in last quarter include:

Business Regulations

· Uttar Pradesh mandates 25 percent procurement from MSME.

· Maharashtra reduces electricity duty on industrial use.

· Madhya Pradesh approves act to fast-track investment approvals.

· Haryana subsidizes electricity for horticulture-based industries.

· Jammu and Kashmir approves four sectoral policies to boost industrial growth in the state.

· Uttarakhand approves aerospace and defense industrial policy to boost investment in the defense sector.

· West Bengal introduces government receipt portal system.

· Kerala exempts electronic autorickshaws from tax for the first five years.

Land Acquisition and Labour Regulations

· Punjab releases new land lease policy.

· Uttarakhand implements agriculture land leasing policy.

Business Negative Reforms

· Delhi provides free electricity up to 200 units every month.

· West Bengal announces free electricity for quarterly consumption up to 75 units.

· Kerala hikes land and motor vehicle taxes.

Infrastructure

· Karnataka allocates $1.1 billion to decongest Bengaluru and plans a comprehensive mobility program.

Energy

· Madhya Pradesh amends renewable energy regulations to define captive generation.

· Uttar Pradesh announces incentives for rooftop solar projects.

· Jharkhand establishes regulations for renewable purchase obligation.

· Rajasthan hikes power tariff for domestic and agriculture categories.

· Haryana incentivizes online payment of electricity bills.

· Uttar Pradesh waives service fee on online payment of electricity bills.

· Odisha to start power disconnection drive in nine districts

Water

· Punjab notifies Water Resources Management and Regulation Act.

· Uttar Pradesh approves Ground Water Act,2020 to improve ground water levels.

Climate Change

· Tamil Nadu drafts action plan on climate change.

· Uttar Pradesh imposes new and stringent emission standards for industries.

· Kerala bans sale of compact fluorescent lamps and filament light bulbs.

· Odisha releases climate budget 2020-21 to track climate change mitigation.