NITI Aayog plans new index to rank states on competitiveness

A person familiar with the development said the idea is to pit states against each other to become more competitive, which could spur economic growth and help achieve the goal of a $5 trillion economy. Saying that it was in the spirit of competitive federalism.

The details of the new index have not yet been worked out, but the broad idea is to capture a comprehensive picture of the state’s socioeconomic status and annual incremental progress. It will overtake indicators of ease of doing business.

NITI Aayog already has a few indices, including a Sustainable Development Goals Index, an Innovation Index and an Export Readiness Index that ranks states. Rankings and annual changes enable states, including leading players in some indicators, to learn from others. The rankings are also a policy tool for central ministries and states in designing plans, budgets and assessing the outcomes of existing schemes.

Industry representatives pointed out that it would not be possible to increase the size of the economy to $5 trillion without the efforts and progress of the states. Apart from ease of doing business, he said it would require adequate social infrastructure for its people. According to Pradeep Multani, president of industry body PHDCCI, states should focus on five development pillars – ease of doing business, reduction in business cost, quality education, adequate health infrastructure and skill development and job creation.

“States need to focus on improving education and health infrastructure, facilitating agricultural infrastructure, enhancing rural development and entrepreneurship, single window system and ease of doing business for competitiveness of enterprises,” Multani said. Support industrialization to generate large scale employment opportunities, he said.

Experts said that states have been using land and tax benefits for a very long time to attract investments, but with the introduction of GST, very few states can provide enough state GST benefits to attract investments. “Investment attractiveness will largely be driven through perception of quality of governance, utility cost, logistics cost and social infrastructure. “The ease of doing business indices don’t really capture these,” said Nilay Verma, co-founder and CEO of Primus Partners, a consulting firm.