States League Tables

provide a given spread of infrastructure. After that critical income level is passed, the provision of infrastructure depends on the development policy of the state.

States with a higher level of social infrastructure attract more investment. Even though expenditure on social infrastructure may be a drain on the state exchequer, it provides a facilitating environment for private investment. This, along with a simple, non-cumbersome legislative framework, should provide the required incentive for private investment, be it foreign or domestic. Moreover, states that have made significant policy efforts and have taken initiatives for sectoral reforms, have benefited the most. Those which have attracted the maximum amount of investment include Maharashtra, which has initiated fiscal reforms and has moved over to an integrated VAT regime; Kerala, which started debt-free financing of infrastructural investment; Orissa, which has developed a competitive power market; and Gujarat, which has taken a giant leap forward by initiating structural reforms intended to improve the efficiency and utilisation of economic resources.

 

Gujarat accounts for a fifth of the fresh investments made in the country since 1991, and with its recent efforts at stabilisation and structural adjustment, this share is likely to increase. While this is good for the better-off states, the skewed distribution of private investment could aggravate regional imbalances and cause political and social problems. One way out would be to reorient the national public investment programme and make it more progressive until a level playing field across states is achieved. But the best way is for each state to review its own approach. As Orissa shows, even low-income states can attract investment if they have the right policies, and can then move up in the league.