Indian State-Level Business Reforms, Fourth Quarter 2020
Indian states prepare for a post-pandemic world without improving the readiness for future waves
Following on the heels of declining Covid-19 cases and promising news about the vaccine, Indian states exhibited urgency in liberalizing business activity in the fourth quarter of 2020. States rushed to soften policies on land, labor, and liquidity, with little focus on strengthening public health safeguards. Of the 27 positive state-level reforms that CSIS tracked in the fourth quarter, only one prioritized health. Seven states introduced processes to fast-track investments, three states relaxed labor laws, two states announced multiple incentives for micro and small-scale enterprises (MSME), and three states eased conversion of land use.
If not pandemic resilience, green recovery took prominence in the Indian states’ policy discourse. Eight states announced sustainable measures, including building grid resilience, ramping energy efficiency, accelerating electric mobility, and clean-energy generation. Thus, in the fourth quarter, states were preparing for a post-pandemic world without improving the readiness for a future Covid-19 wave.
On the path to economic recovery
To induce new investments and steer the economy back to normal, states used a range of policy levers to improve the business environment. While Assam and Karnataka eased statutory clearances required for setting up businesses, Kerala, Punjab, and Rajasthan set up a single-window clearance system. The MSME sector received a boost of specifically targeted incentives from Odisha and Tamil Nadu. The states continued to revamp land and labor laws to provide a fillip to local entrepreneurs. Gujarat relaxed its labor laws and Odisha extended labor working hours for women. Further, Punjab and Gujarat permitted industrial development in agricultural land.
Some states chose to accelerate the adoption of an inclusive and sustainable path to economic recovery. For instance, Andhra Pradesh and Haryana introduced water conservation measures. Gujarat, Maharashtra, and Rajasthan announced policies to encourage generation from clean energy sources. Uttar Pradesh launched a unique peer-to-peer trading platform for rooftop solar power. Andhra Pradesh kicked its energy efficiency efforts into high gear by setting up a committee of high-street banks to encourage investments within the sector. On the other hand, Telangana chose to strengthen its electricity grid and issued regulations on smart grid and demand-side management. Covid–19 had a profound and protracted impact on India’s women workforce. In response, Punjab, Haryana, and Telangana introduced reservations for women to counter a disproportional trend in gender equality.
While the central government’s new agriculture reforms are a necessity for the Indian farmers, the government has done little to rally support from the states. The reforms remained unwelcomed among the states. Rajasthan, Chhattisgarh, Punjab, and Kerala passed bills to bypass the farm laws. Similarly, the central government’s proposed electricity reforms ran into opposition. Uttar Pradesh rolled back its decision to privatize one of its power distribution companies (discom). Moreover, Uttar Pradesh and Jharkhand rejected a hike in electricity tariff. The gap between cost of supply and the average revenue realized by the discoms in both the states remains high. The lack of tariff rationalization will precipitate the dire financial health of states’ discoms.
States were aggressive in acting on routine short-sighted measures, and cautious in urging long-term sweeping reforms. The near absence of health reforms also reflects the myopic approach of states to building pandemic resilience. Strengthening the response of states to health emergencies will be crucial to ensure that states accept pandemic-driven changes without risking a backslide. As the states prepare to look forward, the coordination and resource provision from the central government will prove essential.
Key reforms that CSIS tracked in the fourth quarter of 2020 include:
Industrial policy and business regulations
- Assam passes a bill to speed up clearances required for establishing industries in the state
- Karnataka eases clearances required for setting up businesses in the state
- Rajasthan rolls out a one-stop-shop facility to fast-track investments in the state
- Kerala launches an online single-window clearance system for setting up businesses in the state
- Odisha and Tamil Nadu announce a slew of incentives for MSME
- Rajasthan, Chhattisgarh, Punjab, and Kerala pass bills to bypass the farm laws.
Land and labour regulations
- Gujarat exempts entrepreneurs from renewing labor licenses
- Odisha increases the allowable number of workers in industrial units
- Punjab allows industries the provision of automatic renewals under the state’s labor laws
- Tamil Nadu allows industries to acquire land despite any violations by the seller of the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961
- Gujarat and Punjab allow industrial development on agricultural land.
- Punjab approves single-window clearance for installing telecommunication infrastructure
- Tripura introduces a fine for officials defaulting in providing a public service
- Delhi exempts all battery electric vehicles (EV) from road tax and registration fee
- Tamil Nadu offers 100 percent motor vehicle tax exemption for EVs
- Telangana launches its EV policy which will be effective from 2020 to 2030
- Punjab and Telangana approve reservation for women in government jobs
- Haryana allows 50 percent reservation for women in local polls
- Jharkhand notifies a workplace policy on Tuberculosis.
- Gujarat and Maharashtra announce policies to encourage reduction of coal in their energy mix
- Rajasthan issues guidelines for the “Green City Initiative”, which is aimed at promoting rooftop solar power
- Uttar Pradesh launches a peer-to-peer trading platform for rooftop solar power
- Telangana drafts regulations for smart grid and demand-side management
- Andhra Pradesh sets up a committee of banks to facilitate investments in energy efficiency.
- Haryana approves its Haryana Water Resources Conservation, Management and Regulation Authority Bill, 2020
- Andhra Pradesh introduces two farming support schemes relating to groundwater irrigation
- Delhi approves a tree transplantation policy for preservation of trees in the national capital.
Business Negative Reform
- Uttar Pradesh rejects a hike in electricity tariff
- Uttar Pradesh rolls back its decision to privatize one of its five power distribution companies
- Jharkhand rejects the state discom’s plea to raise electricity tariffs.