Indian State Reforms: Cow Tax To Water Subsidy

In the first half of 2019 we saw a real slowdown in the pace of states' business reforms across India. Not surprisingly, many of the big steps state governments took on policy reforms focussed on shoring up key political constituencies, such as expanding reservations for caste and social groups in public institutions. Still, a few states did move forward with important business reforms, while a few took decisions that worsened their business environments.

In tracking state-level reforms, we occasionally find a particularly odd regulatory change. For the covered period, Uttar Pradesh takes the prize for the most bizarre business regulation. In January the state introduced a new 20 percent tax on beer and ‘Indian-made foreign liquor' to fund cow shelters.

Beyond this Uttar Pradesh tax rule, five states each had two positive reforms – Haryana, Himachal Pradesh, Karnataka, Tamil Nadu, and Uttarakhand. Half a dozen others managed a single positive reform apiece.

Six states took steps that will worsen their local business environment – including two states that also took positive steps.

Generally, the central government has been much less active in pressing states to adopt smart business policies in recent years. However, just after the May 2019 election results were announced, we have seen the Ministry of Power refocus attention on states' failing power grids by attempting to tighten the regulatory regime around states' letters of credit for power generators.

Some of the business-friendly state-level reforms we tracked in the first six months of 2019 include:

Land

• Haryana: Amended the Punjab Land Preservation Act to allow more space for mining and real estate development.

• Karnataka: New online portal to allow farmers to easily apply to have land re-zoned for commercial use.

• Uttarakhand: Relaxes commercial construction rules.

Labour

Goa: Amended its Factories Act, allowing women to work at night.

Business Regulations

• Gujarat: Amended its Shops & Establishments Act to allow stores to remain open for 24 hours a day.

• Tamil Nadu: Amended its Shops & Establishments Act to allow stores to remain open for 24 hours a day.

• Haryana: Amended its Industrial Licensing Policy, expanding the footprint of warehouses.

• Himachal Pradesh: Start-ups will be allowed to self-certify a range of approvals for the first two years of existence.

• Himachal Pradesh: Amended its Industrial Policy, shifting some licenses online and allowing new industries previously unrecognised, such as home-stay rental units.

• Punjab: Introduced a new excise policy that relaxes sales of alcohol.

• Uttarakhand: Empowers state municipal corporations to take development decisions.

Power/Water

• Karnataka: High Court has blocked an attempt by the state to retrospectively increase transmission costs for renewable energy projects.

• Andhra Pradesh: New rooftop solar policy that allows net metering for owners.

• Tamil Nadu: New rooftop solar policy that allows net metering for owners.

• Maharashtra: An Appellate Tribunal ruled against surcharges on captive power users

• Rajasthan: Introduced a forward-looking net metering policy for rooftop solar users.

Business-Negative Regulations

• Andhra Pradesh: Southern Power Distribution Company announces its plan to re-open agreements with power producers in its region.

• Kerala: Introduced a 1 percent tax on interstate trade for a flood relief fund.

• Mizoram: Banned the production and sale of alcohol.

• Rajasthan: Announced an expansion of water subsidies- 40 liters/ day to rural customers.

• Uttar Pradesh: 20 percent special tax on beer and “Indian-made foreign liquor;” funds to be uses for cow shelters.

With the national election behind us, we will hopefully see states re-commit to enacting smart business policies. India's development trajectory runs primarily through the states; with many key global markets under pressure, investors are looking for security, scale, and growth. Indian states that decide to show leadership in reforming their local economies can often provide all three.

Richard Rossow is the Wadhwani Chair in U.S. India Policy Studies at The Center for Strategic and International Studies in Washington D.C.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.