Measuring ease of doing business in India’s sub-national economies: a novel index

Abstract

Purpose The purpose of this paper is to contribute to the literature by introducing a novel index that measures ease of doing business (EDB) at the sub-national level. The authors provide a comprehensive assessment of both de jure and de facto business conditions in 21 sub-national economies of India, with the help of a holistic framework that encompasses indicators capturing Attractiveness to Investors, Business Friendliness and Competitive Policies (ABC), the three broad environments that constitute the EDB–ABC index. Design/methodology/approach The authors’ index EDB–ABC index is constructed using 81 indicators. The index values reported are standardized scores and the framework is applied to 21 Indian sub-national economies. The bottom-up approach takes into account the various operational issues that firms face at the ground level, with the emphasis being on de facto issues. A unique feature of the index is its emphasis on collecting extensive survey data at the sub-national level, given that several constraints that businesses face lie under the purview of the sub-national governments. It also combines publicly available macroeconomic data through formal statistical publications. Findings The findings suggest a positive association between the proposed EDB–ABC index and competitiveness of as well as investments into Indian sub-national economies. In terms of explanatory power, the authors find that indicators capturing attractiveness to investors and business friendliness which are representative of de facto implementation issues at the sub-national matter more than de jure competitive policies. It is also striking that the results are in stark contrast to the existing doing business studies highlighting the importance of the comprehensiveness of the index. Originality/value Easing the impediments to doing business is a pre-requisite to enhance both domestic as well as foreign investments. Existing indicators on doing business provide an incomplete picture about the prevailing business conditions as the basis for such rankings are de jure regulations and not de facto. The authors depart from this tradition by dealing with both de jure and de facto business conditions using a combination of primary and secondary data at the sub-national level in India.