Sustainable development goals (SDG) can be a major enabler of business competitiveness, creating conducive business conditions.
The Make in India initiative sowed the seed of ‘competitive federalism’ in India. The Modi government’s concerted push made states foray into attracting investments with messages like ‘Vibrant Gujarat’, ‘Happening Haryana’, ‘Magnetic Maharashtra’, etc. It began in December 2014 with the PMO making recommendations on 98 reform measures, mostly based on 10 business topics tracked and monitored by the World Bank’s Doing Business report. This was extended to 340 points encompassing a Business Reform Action Plan (BRAP) for Indian states which was seen to pertain to “58 regulatory processes spread across 10 reform areas that cover lifecycle of a business.”
Since the objective was to improve the nation’s rank in World Bank’s Ease of Doing Business (EDB) ranking, it was measured against parameters set by the World Bank. This raises two clear concerns. First, it is uncertain whether such indicators, meant to reduce ‘transaction costs’ from the governance perspective, adequately capture the on-ground conditions of doing business, as pointed out by the Asia Competitiveness Institute (ACI), National University of Singapore. Second, in no way can these conditions adequately represent the overall business environment that can woo investors: they reflect very few partial conditions. History and political environment have a massive bearing on business environment, which have not been accommodated here.
By recognising this gap, ACI has come up with its own index on ease of doing business based on three broad parameters: Attractiveness to investors, business friendliness and competitiveness policies. Ongoing research suggests that sustainable development goals (SDG) can be a major enabler of business competitiveness, creating conducive business conditions. With this hypothesis in mind an SDG index was developed, which claimed to be a substantial improvement over the one developed by NITI Aayog, through incorporation of climate adaptation variable, and statistical determination of weights.
ACI has come up with its own index on ease of doing business based on three broad parameters: Attractiveness to investors, business friendliness and competitiveness policies.
Econometric analysis suggests that there is a significant causal relation between this index and per capita foreign direct investment (FDI) in Indian states. This shows that FDI has been drawn towards those states where the SDG peformance in terms of the index developed by ACI is better than others. So, this index is an indicator for businesses on where to put their money, and also for states and the Centre to introspect their relative development trajectories in terms of an all-encompassing variable that reflects more than mere economic growth.
Essentially, SDGs address input and product market conditions. Especially when one looks at SDGs one to five, (No poverty, zero hunger, good health and well-being, quality education, gender equality) they are closely related to the parameters that improve labour market conditions. At the same time, SDGs eight and nine (decent work and economic growth; industry, innovation and infrastructure) are more concerned with output markets and innovation, SDGs 14 and 15 (life below water; life on land) talk of natural capital, while SDGs 10 and 16 (reduced inequality; peace and justice strong institutions) reduce the possibility of social conflicts. In a nutshell, there are elements of physical, social, natural and human capital which are absolutely essential to create a congenial business environment.
SDGs address input and product market conditions. Especially when one looks at SDGs one to five...they are closely related to the parameters that improve labour market conditions.
They also make financial capital flow towards destinations where the initial four capitals are adequately prevalent. Also created was the SDG-EDB matrix across 21 Indian states. They were classified in six categories based on their performance: embryonic state, waking from slumber, evolving stage, progressive systems, advanced stage and top performers. On a similar note, the ACI’s EDB has also been classified into six stages with stage one being the worst performance and stage six entailing the best performance.
As per the matrix, Uttar Pradesh and Assam are the worst-performing states, while Delhi is the best-performing state in terms of both EDB and SDG. Bihar and Jharkhand are a shade better due to better conditions with business, but are in the same classifications of the SDGs. Again, while Kerala’s SDG performance is really good, it is not so good in business. Interestingly, there is hardly a state that reveals a case of negative correlation between the EDB and SDGs. Instead, states seem to be clustered around each other showing a positive relation between the two.
From the “Make in India” perspective, it must be remembered that the causation of FDI flows was tracked to the SDG index that was developed by ACI, and not to the World Bank’s Ease of Doing Business index. This gives the states and the Centre a separate instrument to consider.
In other words, the investment promotion strategy of a state should not be considered as divorced from its development strategy.
This commentary originally appeared in Mail Today.
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Dr. Nilanjan Ghosh is a Director at the Observer Research Foundation (ORF), India. In that capacity, he heads two centres at the Foundation, namely, the ...
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Soumya Bhowmick is an Associate Fellow at the Centre for New Economic Diplomacy at the Observer Research Foundation. His research focuses on sustainable development and ...
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Roshan Saha was a Junior Fellow at Observer Research Foundation Kolkata under the Economy and Growth programme. His primary interest is in international and development ...
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