Indian State-Level Business Reforms, Second Quarter 2020
Chhattisgarh to Punjab, Covid forcing states to reform. But a lot hinges on Modi govt support
The Covid-19 crisis has spurred Indian state governments into action with them displaying an intent to reform. From enacting new measures on migrant rural workforce to electricity payment reliefs to green Covid recovery, states like Madhya Pradesh, Chhattisgarh, Uttarakhand and Punjab have introduced a slew of reforms.
The second quarter of 2020 saw the rapid spread of Covid-19 place broad-based burdens on states’ fiscal position, which was already in peril. Repeated lockdowns, mass exodus of migrant workers, and a brewing India-China border conflict forced the states to look inwards, prompting long-standing economic reforms. Hoping to inspire market confidence, the states introduced measures in labor, law, and liquidity, including amendments to the Essential Commodities Act (ECA) and the Agriculture Produce Marketing Committee Act (APMC). Six of India’s 28 states did well in discharging relief packages to micro, small, and medium enterprises (MSMEs), which remain the largest source of employment outside agriculture.
Labour law reforms
Covid-19 caused a widespread and substantial disruption to migrant workers, compelling states to announce pro-migrant measures. Madhya Pradesh, Rajasthan, and Uttarakhand launched schemes to encourage reverse migration of workforce. Further, 11 states relaxed their labour laws, hoping to generate local jobs and boost investment. Gujarat, Uttar Pradesh, Karnataka, and Madhya Pradesh exempted industries from labour law provisions with exceptions of varying degrees. Madhya Pradesh fast-tracked issuance of registrations and licenses, initiating single-day clearance while also providing businesses the flexibility to hire and fire. Rajasthan, Assam, and Odisha were among seven states to extend labour working hours.
Migration of rural workforce from cities to their homes in rural India propelled agriculture into the mainstream discourse. In recognising the urgency to resurrect the rural economy, six states were prompt in following the Narendra Modi government’s advisory relating to making amendments to the APMC Act. Separately, Rajasthan announced an innovative financing scheme for farmers while Punjab offered 50 per cent subsidy on agriculture machinery.
MSME packages, power reliefs
Multiple states unveiled MSME packages to support small enterprises survive the economic lockdown. While Kerala offered interest subvention on term loans, Haryana allowed 100 per cent interest benefit on loans availed for wages. To catalyse the revival of businesses, states offered multiple incentives. While Uttar Pradesh and Haryana waived interest payments, Bihar provided tax exemptions. Karnataka amended the Industries Act to allow setting up of manufacturing units without requiring any statutory clearances in first three years. Delhi, Gujarat and Andhra Pradesh resorted to waiver of fixed or variable electricity charges. Also, states were quick in taking advantage of the unprecedented trading conditions. Tamil Nadu offered a 30 per cent capital subsidy on production of personal protective equipment, or PPEs. Uttar Pradesh and Mizoram granted industry status to warehousing and sports respectively.
The pandemic also brought the issues of India’s creaking electricity sector into sharp focus. The State Electricity Regulatory Commission (SERC) extended relief measures such as rebates, discounted late payment surcharge, and payment deferments to help distribution companies and consumers through an uncertain period. By implementing the “compensation for power cut” policy, the Chhattisgarh State Electricity Regulatory Commission shined the brightest. The commission was the first in the country to enact a rule that compensates consumers in the face of prolonged power cuts – a bold move.
The Covid-19 disruption also helped push the policy of adopting a green economy. While Uttarakhand approved a policy to ban petroleum coke in the state by March 2024, Andhra Pradesh launched a novel online waste exchange platform and Punjab started providing same-day consent for establishing ecologically friendly industries in the state. Finally, to meet the earning gap, 16 states and Union territories are attempting to generate additional revenues by imposing tax hikes on liquor and fuel. For instance, in Delhi taxes amounted to 69 percent of the prevailing petrol price, besides a 70 per cent extra tax on liquor.
With the pandemic expected to persist, it remains to be seen if states are able to keep the momentum going on reforms in the second half of the year. Clearly, they will need the Modi government’s support to engage in fiscal expansion and tide over the present crisis. How the states affect this ‘reset’ will determine if they will thrive or fail in the next normal.
Key reforms that CSIS tracked in last quarter:
Industrial policy and business regulations
· Tamil Nadu offers incentives to manufacture Covid-19 equipment.
· Bihar approves amendments to Bihar Industrial Investment Promotion Policy, 2016.
· Karnataka amends Industries Act to improve ease of doing business.
· Haryana announces relief measures for commercial and industrial establishments.
· Uttar Pradesh accords industry status to the state’s warehousing and logistics sectors.
· Mizoram accords industry status to sports.
· Punjab grants consent to establish “green category” industries within a day.
· Uttar Pradesh exempts three-month interest payments for commercial and industrial businesses.
· Punjab clears regulations for easing the approval process for setting up new MSME.
· Andhra Pradesh gives incentives to lockdown-hit industries.
· Karnataka amends APMC through an ordinance.
· Gujarat amends APMC by promulgating an ordinance.
· Uttar Pradesh amends the Mandi Act to facilitate direct procurement from farmers.
· Tamil Nadu amends APMC by promulgating ordinance.
· Madhya Pradesh amends Mandi Act to facilitate direct procurement from farmers.
· Goa amends APMC through an ordinance.
· Rajasthan provides loan advances up to 70 percent of the produce.
· Punjab provides subsidy of up to 50 percent on agriculture machinery.
Land and Labour Regulations
· Assam raises working hour limits by 50 per cent.
· Himachal Pradesh approves amendments to the Contract Labor Act.
· Karnataka exempts all factories from labor law provisions relating to working hours.
· Uttar Pradesh suspends 35 labor laws for the next three years.
· Rajasthan extends working hours at factories.
· Gujarat allows new industrial units to not comply with labour laws.
· Madhya Pradesh announces issuance of registrations and licenses in a day instead of 30 days.
· Karnataka allows industries to directly buy land from farmers.
· Madhya Pradesh launches an employment scheme for migrant skilled workers.
· Uttarakhand launches a self-employment scheme to encourage reverse migration.
· Rajasthan launches an online labor exchange programme.
· Chhattisgarh approves “compensation for power cut” policy.
· Maharashtra announces 8 per cent cut in electricity tariff for five years.
· Punjab incentivises advance payment of electricity bills.
· Uttarakhand approves the state’s fuel policy to reduce air pollution.
· Andhra Pradesh launches an online waste exchange platform.