Enhancing access to low-cost capital to businesses could serve as an important vehicle for improving the business environment, especially in poor states like Bihar, the NITI Aayog has recommended.
In its report on “Ease of Doing Business”, the premier policy think-tank says that half the enterprises do not borrow from financial institutions and about a third consider lack of access to finance as a major obstacle for business in the country.
The survey covers over 3,000 enterprises across India and makes an effort to assess ease of doing business from their perspective as opposed to the perspective of policy makers.
“There is a large variation in the experiences of enterprises in different states regarding the access to finance. This suggests that enhancing the access to low-cost capital to businesses could be an important vehicle to improve business environment, especially in poorer states such as Bihar,” said the report.
It added that there is a robust correlation between a favourable business regulatory environment and greater economic activity with faster growing states having more conducive business environment than slow growing states.
“These results should provide the impetus to press ahead with the economic reforms agenda,” it said.
The survey also found out a strong association between greater ease of doing business and higher rates of growth.
“We found that fast-growing states systematically exhibited fewer delays in the grant of permits and clearances in various areas as also greater flexibility in the implementation of labour and environmental laws.”
“While our analysis does not establish a causal relationship flowing from greater ease of doing business to faster growth, it does strongly suggest that growth and ease of doing business form a virtuous cycle such that one reinforces the other,” the report said.