We are chasing the wrong rabbit. So fixated are we on the Ease of Doing Business Index (EoDB) that we have paid no heed to anything else, probably much more relevant.
And the rabbit that we are chasing is a liar – we have seen time and again that there is no correlation between the ranking and the flow of investments. Andhra Pradesh had topped the list, in terms of state-wise tally but it attracted just 6.8% of total investment flow in Q3FY21. On the other hand, Tamil Nadu was ranked at no.14 and it got 15.9% of all investments as of the third quarter of FY21. Clearly, the toppers of the EoDB, which probably indicates “investor-friendliness” are not the top investor attractors. There is no connection whatsoever between EoDB and investment coming in.
What this shows us is that investment is going to states where infrastructure is already existing and where states have got established building blocks and connectivity in terms of suppliers as well as sellers. Skilled and educated manpower, cost, availability of land, water and seamless electricity are already there. More than all these factors, the overall governance and the social fabric of the state matters a lot.
Yes, EoDB is a good thing – it keeps the Govt, especially Niti Aayog on its toes and helps states do a lot of introspection which otherwise would have never been done. But it is clearly mistaking the trees for the wood, losing relevance when it ranks Lakshwadeep higher than Karnataka. It most certainly cannot be the “be it all” ranking which the Govt has made it out to be.
And maybe its time to pay attention to a more relevant ranking - The Draper Innovation Index. This one ranks global markets based on how conducive they are for innovation. Their first set of ranking was released this week and USA topped the list, followed by Singapore, Hong Kong, Switzerland and UK at number 5. China comes at no.13. India comes at 122 out of 222.
The Index looks at key success factors, metrics, and indicators that support the performance of local startups and facilitate the creation of new jobs and economic prosperity, such as employment creation, VC funding, startup culture, tax regulations, and IP creation. It provides innovation data from an entrepreneurial/VC perspective as opposed to others that exist from an academic point of view.
The grading is based on three categories - trust and transparency in local governments, the potential for development opportunities, and an overall rank based on the balance of all factors combined.
India scores 62.6 on Govt quality, 75.3 on economics; 68.8 on regulatory frameworks; a very poor 9 on innovation; 46.8 on social factors; 39.6 on venture capital momentum; 26.9 on Crypto friendliness.
Maybe it is the EoDB which helped us get to 122 or else we could have been much lower. But the ranking on innovation, something we do not really work on – is encouraged big time but there is no real hub or environment which pushes people to think, create, innovate; the push to build via EoDB is like a shove.
Ancient India was known for its thinking ability, its intelligence. Even in the modern world, it is our unique creation of yoga or Ayurveda, knowledge of spirituality which gave India the reckoning. Innovation, R&D used to be our forte and that is what we should reclaim and not aim to become the factory of the world.
EoDB is good but much better, which will make India indispensable, is the spirit of innovation; disruptions in global trade can shift manufacturing to other countries but not creativity; you simply cannot outsource innovation ….wish the Govt recognizes this. We need to get EoDB to work in tandem with innovation – manufacturing innovation?
Simple math - knowledge drives innovation, innovation drives productivity and productivity drives economic growth.