Higher ease of doing biz ranking need not lead to greater investment: Report

The report comes after the Centre released the ease of doing business rankings over the weekend with Andhra Pradesh at the top slot, followed by Uttar Pradesh, Telangana, Madhya Pradesh and Jharkhand. Citing the case of Uttar Pradesh, Care Ratings said despite improving the state's rank to 2nd from 12th earlier, it actually lost ground from the perspective of fresh investments in 2019-20 (1.25 per cent in FY20 as against 5.69 per cent in FY19).

A higher ranking in ease of doing business does not necessarily lead to greater investments, according to a report. "...it is possible to conclude that reforms are necessary to remove hurdles for investment but are not a sufficient condition," Care Ratings said in the report explaining the dissonance between a state's ranking and investments received.

It enumerated other factors such as availability of labour, infrastructure and finance as major considerations for new investments. The report comes after the Centre released the ease of doing business rankings over the weekend with Andhra Pradesh at the top slot, followed by Uttar Pradesh, Telangana, Madhya Pradesh and Jharkhand.

Citing the case of Uttar Pradesh, Care Ratings said despite improving the state's rank to 2nd from 12th earlier, it actually lost ground from the perspective of fresh investments in 2019-20 (1.25 per cent in FY20 as against 5.69 per cent in FY19). The agency explained that opportunities presented are the "overriding factor" which determine the investments, suggesting that it is not a function of reforms alone.

Care Ratings also cited the case of Andhra Pradesh and neighbouring Telangana to illustrate its point. While Andhra Pradesh has been able to retain its share in investments and also hold on to the coveted top ranking, its neighbour has had a different experience. "Relatively new states have an incentive to clear the road for reforms but the response from business would be contingent on other factors. Hence while both Telangana and Andhra Pradesh have very high ranks, the investment announcements have been different for them," it said.

"There are other factors at work too when it comes to making investments. Hence states with lower ranks in the hierarchy tend to still attract more investments," it said citing the case of Haryana which is second in the share of new investments but was ranked 16th.