By Pradeep S Mehta
An annual budget of a state is an ideal document to assess state’s vision on competitiveness.
Michael E Porter, the acclaimed author of seminal work on ‘Competitive Advantage of Nations’, propounded that competitiveness of a location depends on the productivity with which it uses its human, capital and natural resources. He identified four broad attributes of a nation, on which its competitive advantage depends. These are: Specialised factor conditions i.e. skilled labour and infrastructure; nature of home-market demand; supporting industries; and conditions in relation to firm structure, strategy and rivalry. With right institutions optimally exploiting these attributes, a nation can gain competitive advantage over others.
Porter’s work on competitiveness is applicable to Indian states as well, and has become relevant when the Central government is pushing states to cooperate and compete for growth and development. An annual budget of a state is an ideal document to assess state’s vision on competitiveness. Let us assess the recently presented budget of Rajasthan, on these indicators, to ascertain its focus on competitiveness.
Physical and human resources comprise a location’s factor conditions. The budget has emphasised on construction of roads for connection between villages, and making land banks available for industries. To adequately focus on labour issues, the government has proposed establishment of a non-resident labour cell, and dedicated skill and employment department. In addition, commercial training of artisans has also been proposed.
The government must be appreciated for the efforts it has made to capitalise factor conditions. The trick here would be to quickly put these ideas into action, while ensuring adequate quality. Infrastructure and skill development must not happen only on papers, but in reality. Firms accorded these critical responsibilities must be selected through a transparent process, with implementation being closely monitored.
Local demand is dependent on standard of living of consumers. Access to quality education and health services is an important indicator of standard of living. The budget focuses on construction of model schools, e-teaching and training and formulation of a higher education development plan. A 28 per cent increase in expenditure, on medical health and education has been proposed, over the last year.
Such increase in expenditure is expected to be substantially met by tax revenues, which are expected to grow by more than 18 per cent, over last fiscal. In the past, unhealthy practices of over-estimation of revenues and under budgeting of expenditure have been noticed at state and central levels. This usually resulted in cropping of social sector expenditure near the year end. While the budget proposals rightly focus on critical areas of education and health, it must be ensured that the available funds are actually and judicially utilised. Not only that but it needs to be ensured that the expenditure is spread out over the whole year rather than a rush for financial year-end utilisation.
Supporting upstream and downstream industries are usually small scale in nature. To aid their development, budget proposes to establish MSME facilitation centre and introduction of price preference policy for MSMEs. In addition, restructuring of PSUs under small scale khadi and village industries department has been proposed.
These are welcome steps. However, undue protection, especially of state owned MSMEs must not prevent them from becoming competitive and efficient. State must consult relevant stakeholders in development of policies preferring MSMEs, and must balance competition and entrepreneurial concerns.
Secondly, the government must ensure that MSME facilitation councils are effectively functioning. Experience shows that they are hardly functioning.
Firm related conditions
To facilitate ease of doing business, the budget proposes computerisation of approval process and minimal human interface, establishment of dealer facilitation centres, simplification and rationalisation of registration and stamp duty related procedures.
These are much needed measures, but the state must learn from its past mistakes of unsuccessful implementation of single window clearance mechanism. Also, it must not shy away from learning from best practices in other states.
The biggest challenge in achieving such good intentions is the mindset of bureaucrats, which needs to be changed through a bonus-malus system where performers are rewarded and bad punished.
The writer is Secretary General of CUTS International Co-authored with Amol Kulkarni.