UP Private Sector Development

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UP Private Sector Development
Lessons From Bihar Investment Climate Reform
Program
Lucknow, January , 2009
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Agenda

• Indias Investment Climate
• Bihar Investment Climate Reform Program
• Implications for Uttar Pradesh

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Investment Climate - Why does it matter?

• Investment Climate comprises institutional and
  policy variables that have a crucial
  bearing on business performance, but over which
  individual firms have no control
  individually, such as
• Functioning of product and factor markets
  (including markets for labor, land, capital, and
  knowledge)
• Quality of public goods (such as law and order,
  business regulation)
• Physical infrastructure .
• One of the important factors on which firms
  make decisions on locating their businesses
  based on the quality of investment climate and
  one of the critical enablers is the
  business regulatory environment- entry and
  operations

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Major Investment Climate Constraints in India
World Bank Investment Climate Assessment 2006
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Inter State Differences Ability to attract
private investment and growth is closely
correlated with a states IC

• Measures both cost and perception (e.g. hours of
  power outages and sales lost due to power
  outages, and rating of electricity as an
  obstacle)
• Successfully tested for reliability (e.g. states
  with good index have higher private domestic
  investment as share of GDP and higher GDP and per
  capita GDP growth)

Karnataka
Kerala
Gujarat
Andhra Pradesh
Haryana
West Bengal
Maharashtra
Delhi
Tamil Nadu
Punjab
Jharkhand
Orissa
Madhya Pradesh
Bihar
_
Uttar Pradesh
Rajasthan
Investment Climate Index
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In 2009, despite reforms, India ranked relatively
poorly among 182 countries in the Doing Business
Report
Regulatory barriers remain a key factor which
constrain ease and cost of doing business in India
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Agenda

• Indias Investment Climate
• Bihar Investment Climate Reform Program
• Implications for Uttar Pradesh

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Private Sector Development Investment Climate
Reform Program in Bihar

• Govt. of Bihars Investment Climate Reform
  Program was supported by The World Bank Group
  starting mid 2007
• Launched through series of Public-Private
  Dialogues/Sessions led by state government and
  including active participation from private
  sector representatives, financial institutions
  and other stakeholders
• Private Sector Development engagements covered
• Business Regulatory Reforms
• Single Window Systems lessons from various
  states
• Specific Licensing Reforms
• Investment Policy and Promotion Support
• Sector Specific Development / Investment
  Attraction Strategies
• Tax Administration Reforms
• Complementary support provided via World Banks
  Development Policy Loans with Investment Climate
  Reform Components

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Improving Business Regulatory Environment in
BiharCarried out Progressively Facilitated by
WB/IFC
A
Overview of business entry requirements and
single window systems in India, comparing Bihar
with eight other Indian states
B
Detailed review assessment of investment
operating requirements in Bihar as well as its
impact on implementation of single window
overall investment climate
C
Studying Licensing reforms required in Bihar to
improve investment climate. Identifying
simplifications in prevailing business
regulatory environment in Bihar through reform of
three selected licenses
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Journey of an investor and typical time
estimatesfor a typical application in Bihar
Upon Completion of Construction
Pre-Construction Stage
During Construction Stage
1 SIPB Approval (optional) 7-8 days
3 Pollution (NOC) 45-60 days
4 Land BIADA (Lease Deed) 10 days
5 Permanent Registration 2-3 days
3 Factory (Lay out approval) 90 days
5 Pollution (Consent to Operate) 45-60 days
4 Factory (License) 30-40 days
1 Provisional Registration 1-2 days
3 Power (Load Sanction) 7 days
4 Power (Connection) 21 days in case of no
extension works
5 Commercial Taxes (CST VAT Registration) 7 days
2 Land Allotment- BIADA 65-75 days till issue of
physical possession order
4 Water Linkage (Agreement) 40-50 days
3 Water Linkage 15-20 days
5 ESI (Registration) 7-10 days
3 Fire (Lay out approval) 5-10 days
4 Labor (Contract registration) 7-10 days
5 Weights Measures (Clearance Certificate) 2-3
days
3 State Excise (NOC) 15-20 days
4 State Excise (License) 30 days
5 Employment Exchange (Registration) 7 days
Same serial number denotes parallel processing
Average timelines
160-185 days
45-60 days
40-50 days
A days reduction in overall timeline can
generate additional tax revenues of Rs. 10 Crore
!!
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Following up on implementation of
recommendations. Overall
Eliminating process related redundancies
Renewals, returns, inspections registers
Strengthening SW systems

• BIADA eliminate duplication of functions of PCC
  and SIPB
• Pollution Establish SEIAA or SEAC to avoid
  central clearances
• Business Registration - Potential for process
  amalgamation with SIPB
• Abolition of Cold Storage license
• Sugarcane Extend cane reservation orders

• Extend renewal limits to reduce administrative
  load, management time effort
• Introduce Combined Returns/Registers - follow
  best practices from TN, AP, Karnataka Gujarat
• Common periodic inspections - more stringent
  inspections for non-hazardous industries
• Provision of self certification for non-hazardous
  industries

• Base SWS on TN or AP model where ample groundwork
  has been done prior to Empowered Committee
  meeting
• Introduce comprehensive CAF - best practices from
  AP
• Create Handbook for Investors IT-enable SWS
• Create Monitoring Committee with representation
  from concerned departments to discuss status of
  applications

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Followed up with easing specific regulatory
barriers Business Licensing
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Incremental steps ..
Business licensing assessment for Bihar
identified significant scope for simplification
of the requirements for each license/regulatory
requirement
It was recommended that the state take
incremental steps at reform, copy the better
performing states but not look for best
solutions, e.g. move towards the best models for
single window in India but follow a step wise
approach suited to Bihar (i.e. deemed approval
only when the system matures)
We suggested that the state tackle the quick
wins first (reform measures which are easy to
implement and likely to be less controversial)
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Large expected gains.
WIN-WIN FOR BOTH GOVERNMENT AND PRIVATE SECTOR!!
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Going Beyond Regulatory Reform
... Being done in phased manner by Govt of Bihar
and supported by IFC and WB
All of the above should eventually lead to
significant increase in private sector
investment, new jobs and higher revenues for
government
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For addressing this PSD Cycle, GoB with IFC-WB
Support has embarked on a structured program

• Developed Strategic Framework Action Plan for
  Investment Promotion.
• Strengthening implementation and investor
  facilitation capacity at Udyog Mitra
• Developed Sectoral Strategies (Agribusiness,
  Tourism)
• Following up with ambitious Investment Promotion,
  Generation and Facilitation program
• Focusing on results - Tracking Investment
  Proposals

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Agenda

• Indias Investment Climate
• Bihar Investment Climate Reform Program
• Implications for Uttar Pradesh

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Uttar Pradesh growth story is relatively weaker..
in spite of significant advantages

• Factors land, labor, skills
• Location advantages
• Institutions Knowledge, Skills
• Existing Industries and Linkages Leather
  , Textile, Engineering, Agro- industry, IT.

Need to realize potential through private sector
development
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Uttar Pradesh Key Economic Drivers
Source IBEF
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Well spread out infrastructure activity across
the state areas/parks/estates
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We are having Public Private Dialogue (PPD) for
better business to start with Industrial Policy.
Embark on Regulatory Reforms
Public Private Dialogue
Develop Private Sector Enabling Programs
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Thank You
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The World Bank Group is well placed to support
GoUP through

• Facilitating Public Private Dialogues capturing
  inputs for Industrial /Investment Policy
  Formulation
• Help GoUP in developing a program for continuous
  but incremental regulatory reforms
• Reforming state institutions and strengthening
  capacity
• Build a program for Investment Promotion,
  Generation, Facilitation, Monitoring and Tracking