Factors influencing investment into Indian States

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This presentation is based on doctoral work carried out by the author at Shailesh J. Mehta School of Management, IIT Bombay

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Factors influencing investment into Indian States :

24 September 2009 Factors influencing investment into Indian states Factors influencing investment into Indian States Dr. Abhijit Phadnis Presentation based on Doctoral work carried out at Shailesh J. Mehta School of Management, IIT Bombay

Roadmap of work:

24 September 2009 Factors influencing investment into Indian states Roadmap of work H2 -04 H1 -05 H2 -05 H1 -06 H2 -06 H1 -07 H2 -07 H1 -08 H2 -08 H1- 09 Defining research objectives & scope of work Literature survey Pilot survey Primary survey Gathering secondary data Gujarat case study Assessing data availability, finalizing the scope, missing data estimation Analysis of primary & secondary data Thesis documentation

Overview of presentation:

24 September 2009 Factors influencing investment into Indian states Overview of presentation Research objectives & gaps Research questions Research methodology Literature review Results based on primary survey Results based on secondary data Key findings from Gujarat Case study Conclusion & further scope of work

Research objectives:

24 September 2009 Factors influencing investment into Indian states Research objectives Understand the factors considered important by decision makers when they set up their manufacturing or service facilities Empirically examine which factors have influenced investment in Indian states Understand the initiatives taken by a state to improve its investment attractiveness

Research gaps:

24 September 2009 Factors influencing investment into Indian states Research gaps Absence of a comprehensive primary survey which focuses on criteria influencing investment decisions Limitations of earlier studies Limited time period Limited number of states Limited number of variables In popular domains rather than with academic rigor Absence of a holistic case study on state initiatives

Research questions:

24 September 2009 Factors influencing investment into Indian states Research questions Criteria important for decision makers Which criteria? How much importance to each? Do firms belonging to different classification groupings give the same importance to each criterion? Do manufacturing and service firms give the same importance to each criterion? Which criteria together differentiate responses of manufacturing firms & services firms?

Research questions:

24 September 2009 Factors influencing investment into Indian states Research questions Historical data on states How does the investment performance of states and union territories compare over 1989 to 2002 period? Which variables explain the observed differences in investment performance? How do states differ in investment performance given the financial and physical resources at their disposal?

Research questions:

24 September 2009 Factors influencing investment into Indian states Research questions State level initiatives What are the initiatives that a state in India (Gujarat) has taken to be able to create a popular perception that it is an attractive investment destination?

PowerPoint Presentation:

24 September 2009 Factors influencing investment into Indian states Literature Review Pilot Survey (14) Primary Survey (203) Secondary data requirement Analysis for insights Data Compilation Gujarat case study Data Analysis R E S E A R C H M E T H O D O L O G Y Thesis Documentation

Research methodology:

24 September 2009 Factors influencing investment into Indian states Research methodology Pilot & primary survey To understand the thought process of the decision makers Analysis techniques: Single-factor ANOVA, Factor analysis, Cluster analysis, Discriminant function analysis, Logistic regression analysis Compilation & analysis of secondary data on states To examine the empirical evidence on factors influencing investment Analysis techniques: Panel regression, Data envelopment analysis Gujarat case study To study state initiatives for improving investment climate Comparison with other states

Literature .. overview:

24 September 2009 Factors influencing investment into Indian states Literature .. overview Theoretical framework Empirical studies Publications

Literature survey Theoretical Framework:

24 September 2009 Factors influencing investment into Indian states Literature survey Theoretical Framework Subject matter of many disciplines: Operations research Industrial engineering Geography Urban planning Economics Within economics: Trade theory & economic geography Regional economics Development economics Competitiveness

Literature survey Empirical research:

24 September 2009 Factors influencing investment into Indian states Literature survey Empirical research Empirical research: global context Empirical research: Indian context Studies by institutions & in popular media

Pilot & primary survey:

24 September 2009 Factors influencing investment into Indian states Pilot & primary survey Objective: understand the thought process of decision makers

Pilot Survey:

24 September 2009 Factors influencing investment into Indian states Pilot Survey Carried out in personal meetings with 14 senior executives Questionnaire Part I : Response sought on criticality of listed criteria, rating requested in four alternatives Part II: Respondents requested to suggest any other criteria that they consider important Part III : Respondents requested to provide ranking of these criteria. Unenthusiastic response for this aspect . Part III was, therefore, dropped from the survey instrument used for more comprehensive survey

Primary Survey Process:

24 September 2009 Factors influencing investment into Indian states Primary Survey Process Request letter, introduction letter & questionnaire Polite follow-up twice after gaps of 1 month Over 1000 firms (companies) contacted Data integrity by receiving faxes on SJM SOM fax / letters to SJM SOM address Interesting experiences !

Grouping of respondents by size :

24 September 2009 Factors influencing investment into Indian states Grouping of respondents by size Annual Turnover range Nos. Aggregate Rs. Crs. Mean Rs. Crs. Up to Rs. 50 Crores (Crs.) (i.e. Rs. 500 Million) 45 920 20.44 More than Rs. 50 Crs. and up to Rs. 100 Crs. 24 1,810 75.42 More than Rs. 100 Crs. and up to Rs. 250 Crs. 36 6,230 173.06 More than Rs. 250 Crs. and up to Rs. 1,000 Crs. 50 27,775 555.50 Turnover more than Rs. 1,000 Crs. 43 244,566 5,687.58 Not revealed 5 - - Total 203 281,301 1,420.71

Grouping of respondents by type:

24 September 2009 Factors influencing investment into Indian states Grouping of respondents by type Type No. of respondents Manufacturing 136 Service 33 Manufacturing and service 34 Total 203

Respondents by NIC codes:

24 September 2009 Factors influencing investment into Indian states Respondents by NIC codes Code Description Nos. 241 Manufacture of basic chemicals 11 242 Manufacture of other chemical products 37 291 Manufacture of general purpose machinery 10 292 Manufacture of special purpose machinery 10 343 Manufacture of parts and accessories for motor vehicles and their engines 17 722 Software consultancy and supply 18 NIC codes with more than 10 responses reported above

Statewise respondents:

24 September 2009 Factors influencing investment into Indian states Statewise respondents State Manufacturing Service Manufacturing and Service Overall Andhra Pradesh 5 4 1 10 Delhi 3 1 1 5 Goa 1 0 0 1 Gujarat 8 0 1 9 Haryana 2 0 1 3 Karnataka 4 3 6 13 Madhya Pradesh 2 0 0 2 Maharashtra 88 21 22 131 Orissa 1 0 0 1 Tamil Nadu 11 2 2 15 Uttar Pradesh 5 1 0 6 West Bengal 6 1 0 7 Total 136 33 34 203

Criteria (Finalised after literature survey & pilot):

24 September 2009 Factors influencing investment into Indian states Criteria (Finalised after literature survey & pilot) Physical Infrastructure factors (11) Business Infrastructure factors (3) Social Infrastructure factors (2) State Income & Unemployment Level (2) Political Stability (3) Geographical factors (2) State Admin. Efficiency & transparency (3) State’s investment for the future (4) Government Financial Stability Factors (3) Financial Incentives/ Disincentive Factors (4) Factor Costs & Conditions (4)

Criteria with highest & lowest mean scores:

24 September 2009 Factors influencing investment into Indian states Criteria with highest & lowest mean scores Criteria with highest mean scores, in descending order: power, telecom connectivity, national highway network, managerial talent, tap water, skilled labour, state highways, expenditure on infrastructure, wages, and single window clearance Criteria with lowest mean scores, in ascending order: domestic seaport, bureaucracy spend, revenue deficit, state debt, unemployment level, coalition vs. single party government, availability of small scale industries, per capita income, tax on transfer of property, industrial clusters

Do firms belonging to different classification groupings give the same importance to each criterion?:

24 September 2009 Factors influencing investment into Indian states Do firms belonging to different classification groupings give the same importance to each criterion? The single-factor ANOVA F-test for each criterion across firms belonging to different NIC codes indicates that in 31 criteria, our expectation about equality or otherwise of mean scores held good. In respect of the following 11 criteria, firms seems to give statistically different importance: domestic seaport, international seaport, in ternational airport, national highway, state highway, tap water availability, availability of SSI, availability of industrial clusters, higher learning institutions, expenditure on IT When firms are classified into three categories – manufacturing, service, and manufacturing and service, ANOVA F-test results are as expected for 33 criteria.

Do manufacturing and service firms give the same importance to each criterion?:

24 September 2009 Factors influencing investment into Indian states Do manufacturing and service firms give the same importance to each criterion? When manufacturing & service firms are analysed separately, the null hypothesis of equality of mean scores is not rejected for 35 criteria in case of manufacturing firms, and for 38 criteria in case of services firms. The mean responses of Maharashtra firms are equal to Non-Maharashtra firms for 33 criteria in case of manufacturing firms. It is interesting to note that the mean scores assigned by firms located in Maharashtra to the remaining 8 criteria are lower than those assigned by other firms. Mean scores are equal for all the 41 criteria in case of service sector firms with head office in Maharashtra vs. those outside the state of Maharashtra.

Results from factor & cluster analysis:

24 September 2009 Factors influencing investment into Indian states Results from factor & cluster analysis Factor analysis of responses identifies 11 factors with neat groupings of criteria, the first three factors being governance and government’s investment for the future, incentives and taxes, and government finances. Cluster analysis of the responses shows that firms don’t assign similar importance to different criteria, even if they belong to the same industry (NIC code). When responses are clustered into three groups, the top-10 criteria with highest F-values indicate that the highest contribution to cluster separation is by criteria related to governance, government’s investment for the future, and state finances. When responses are classified based on their NIC codes into 9 clusters, separation is also based on other criteria such as sales tax concessions, international airport, and industrial clusters in addition to those mentioned above.

What differentiates manufacturing & service sector firms?:

24 September 2009 Factors influencing investment into Indian states What differentiates manufacturing & service sector firms? Based on the re-classification of firms only into manufacturing and service categories, we found nine criteria with significantly different mean scores. A discriminant analysis of these criteria identified four criteria which distinguish manufacturing firms from service sector firms: international seaport, international airport, small scale industries, and sales tax concessions. Due to violation of some assumptions underlying discriminant analysis, we also carried out logistic regression analysis.

Secondary data analysis:

24 September 2009 Factors influencing investment into Indian states Secondary data analysis

PowerPoint Presentation:

24 September 2009 Factors influencing investment into Indian states Education In India Indiastat & sister websites State Statistical abstracts Central Government Websites Statistical Abstract of India Central Ministerial Reports Domestic Product of States Crime In India State Economic Surveys Annual Power Survey Review of Industrial Disputes State government websites Industrial Policy, I T Act, notifications Annual Survey of Industries State Government Responses Reserve Bank of India Website Papers – Mala Lalwani, P. Lakhchaura Economic Political Weekly India Infrastructure Database CMIE data – limited access We accessed many sources ..

Secondary Data Compilation:

24 September 2009 Factors influencing investment into Indian states Secondary Data Compilation Initial data hunt ! Data collected for over 140 variables, but not available for all time periods Suggested criteria by respondents also taken into account in finalizing the variables Letters to Chief Ministers ! In two rounds !!

PowerPoint Presentation:

24 September 2009 Factors influencing investment into Indian states Literature & Primary Data Hunt Data Analysis VAR I ABLE SELECT ION PROCESS Drop certain variables Inadequate Correlation Matrix Adequate Auxiliary Regressions Add new variables Drop certain small states Inadequate State-level availability Adequate Data estimation Check data availability Drop variables to avoid multicollinearity Log Transformation Fixed vs. Random effects Database creation Data tabulation

How does the investment performance of states and union territories compare over 1989 to 2002 period? :

24 September 2009 Factors influencing investment into Indian states How does the investment performance of states and union territories compare over 1989 to 2002 period? Maharashtra, Gujarat, Uttar Pradesh, Tamil Nadu, and Madhya Pradesh are the top five states based on gross fixed capital formation (factory sector) during the period 1989 to 2002. When data on gross fixed capital formation (factory sector) is normalized by area, population, and SDP, the rankings of states undergo a significant change. The regions ranked first are union territory of Puducherry based on area, Goa based on population, and Gujarat based on SDP. The compounded annual growth rates in gross fixed capital formation (factory sector) vary across states. The point to point estimates of growth conceal significant year to year variation in some states. The variation is significant in Goa, Gujarat, Karnataka, Orissa, Himachal Pradesh, and Puducherry. The physical and social infrastructure endowments differ among states.

Which variables explain the observed differences in investment performance?:

24 September 2009 Factors influencing investment into Indian states Which variables explain the observed differences in investment performance? The gross fixed capital formation exhibits a significant correlation with most explanatory variables as evident from the partial correlation coefficients. The signs of the coefficients are as expected except for accidents due to natural causes. We observed correlations among explanatory variables and ran auxiliary regressions to remove multicollinearity. We found that a fixed effects model is better than random effects model. The panel regression for 24 cross-sections (regions) for the period 1989 to 2002 included explanatory variables lagged by one year as investment in a period may be influenced by performance of a state during the preceding period. The plot of error terms indicates that their distribution is not normal . We used log transformation of the dependent variable to reduce skewness of the distribution of errors.

Regression analysis:

24 September 2009 Factors influencing investment into Indian states Regression analysis Out of the 24 regions, certain smaller regions have certain unique features. We run 4 regressions beginning with all the regions and then excluding the smaller regions one by one. These regions are: Jammu & Kashmir (JK), Delhi (DL), Puducherry (PU) and north-eastern states (NE) viz. Assam, Manipur, Meghalaya, Nagaland and Tripura It is significant that in all the regressions, the signs of the coefficients are consistent indicating robustness.

Final panel regression model:

24 September 2009 Factors influencing investment into Indian states Final panel regression model Accidents caused by natural causes Access to domestic airports Average wages Banking centres Buses (public transport) Corruption Development expenditure Mandays lost due to industrial disputes Remoteness Educational institutions – high schools Forest areas Coalition vs. single party government Access to drinking water Educational Institutions – Higher education Live register at employment exchanges Value of production of minerals Net value added Outstanding liabilities of the state Share of industry & services Dependence on captive power Revenue deficit Stamp duty Proportion of areas entitled to tax benefit Share of cargo by sea Teledensity Total Highways Gross Fixed Capital Formation – Factory Sector is a function of:

Summary regression results:

24 September 2009 Factors influencing investment into Indian states Summary regression results Description All Other than JK Other than JK, DL, PU Other than JK, DL, PU, NE Sign Cross-sections 24 23 21 16 Adjusted R-squared 0.8228 0.7898 0.7917 0.8152 D W Statistic 1.6902 1.7295 1.7745 1.8943 ACCINP -** -* Expected AIRTRR +*** +*** +*** +*** Expected AWAGEN +* +*** Expected BANKCA +** +*** Expected BUSESP +* +** Expected DEVEXP +** +** +** +** Expected EDUHIP +* +* Expected FORESA -* -* Expected

PowerPoint Presentation:

24 September 2009 Factors influencing investment into Indian states Description All Other than JK Other than JK, DL, PU Other than JK, DL, PU, NE Sign HDRNKN +* +*** Expected LIVERP +* Expected MINRLA -* Unexpected NETVAW + ** Expected NONAGN +** Expected OUTLIS -*** -*** -*** -*** Expected REVDFS -** Expected STAMPN +*** +*** +** +*** Unexpected TAXBEN -*** -*** -** -** Expected TCARGR -** -* -** -* Unexpected TELDNN -* -* Unexpected

Key findings:

24 September 2009 Factors influencing investment into Indian states Key findings The results suggest that access to domestic airport and development expenditure are positive and significant as expected. Outstanding liabilities of a state and tax concessions (as a measure of backwardness) are negative and significant as expected. These variables are significant in all the regressions. The other significant variables with positive coefficients in at least two regressions include average wages , number of banking centers , public transport , high schools , and drinking water . The other significant variables with negative coefficients in at least two regressions include accidents due to natural causes , and forest area , which is a proxy for difficult terrain. There are two significant variables in all regressions with unexpected signs: share in the total cargo handled by seaports (negative), and stamp duty rates (positive). The negative coefficient of share of total cargo handled by seaports suggests that industry is moving towards the hinterland. The positive coefficient of stamp duty suggests that firms are willing to invest in states with higher stamp duties if they find other factors favourable and vice versa. Even if states with unfavourable investment climate bring down the stamp duty, that is not sufficient to attract investment.

How do states differ in investment performance given the financial and physical resources at their disposal? :

24 September 2009 Factors influencing investment into Indian states How do states differ in investment performance given the financial and physical resources at their disposal? We use Data Envelopment Analysis for this purpose Efficiency Measurement System (EMS) software developed by Prof. Holgar Scheel The tool helps us in assessing the output level given various inputs Inputs can be classified as discretionary & non-discretionary Data envelopment analysis: Various physical and financial resources at the disposal of the state are inputs to this model Gross fixed capital formation is the output. Gross fixed capital formation – factory sector (14 year data) Gross fixed capital formation – overall – estimates (7 years) Ranks are assigned based on the output slack. The ranks for the 14-year and 7-year periods are estimated separately, for each year. Rank migration provides interesting insights.

Variables considered:

24 September 2009 Factors influencing investment into Indian states Variables considered Variable Description Nature POPMY Population Non-discretionary input AREAK Area Non-discretionary input NSDCO NSDP Non-discretionary input INVEC Invested capital Non-discretionary input TCARG Total cargo handled (by sea) Non-discretionary input AIRTR Domestic air traffic (number of aircrafts landed) Non-discretionary input TOTHW Total highway length Discretionary input RAILW Railway length Non-discretionary input HDRNK % population with access to drinking water Discretionary input POPTL Number of telephone connections Non-discretionary input BUSES Buses Discretionary input FACTR Factories Non-discretionary input BANKC Bank centers Non-discretionary input EDUHL Educational institutions – higher learning Discretionary input HOSPB Hospital beds Discretionary input NDEXP Non-development expenditure Non-discretionary input DEVEX Development expenditure Discretionary input TOTRD Total road length Discretionary input MINRL Value of mineral production Non-discretionary input LITRT Literacy rate Discretionary input GFCFF Gross fixed capital formation – factory sector Output variable GFCAP Gross fixed capital formation estimates – all sectors Output variable

Top 15 Ranks based Gross Fixed Capital Formation - factory sector:

24 September 2009 Factors influencing investment into Indian states Top 15 Ranks based Gross Fixed Capital Formation - factory sector Region 89 90 91 92 93 94 95 96 97 98 99 00 01 02 Median MY 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 NG 1 1 1 1 1 1 1 1 17 1 1 1 1 1 1 PU 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 PB 2 3 2 2 3 3 3 3 3 3 3 3 3 3 3 DL 1 1 1 1 4 4 4 4 7 4 4 4 4 4 4 HA 3 5 3 3 6 5 5 5 8 5 5 5 5 5 5 UP 4 6 5 4 5 7 7 7 5 6 12 14 9 9 7 TN 7 7 15 12 9 6 8 9 9 13 14 9 20 6 9 GJ 9 8 11 11 15 13 6 10 4 7 6 15 6 12 10 KR 8 10 13 10 10 9 10 13 12 9 8 12 8 14 10 HP 12 14 10 8 7 8 11 11 6 11 9 10 10 11 10 MH 6 11 7 7 13 14 13 8 16 15 15 11 19 10 12 MP 5 9 17 5 12 10 9 12 13 14 17 17 7 17 12 OS 16 15 12 13 11 12 15 6 11 18 10 22 18 13 13 BH 13 13 6 17 14 11 14 14 18 10 11 7 16 7 13

Top 15 Ranks based Gross Fixed Capital Formation - all sector estimates:

24 September 2009 Factors influencing investment into Indian states Top 15 Ranks based Gross Fixed Capital Formation - all sector estimates Region 93 94 95 96 97 98 99 Median Factory Sector ranks MY 1 1 1 1 1 1 1 1 1 NG 1 1 1 1 6 1 1 1 1 DL 2 2 3 2 3 3 2 2 4 PU 3 4 2 3 2 4 3 3 2 PB 4 3 4 4 4 6 5 4 3 MN 5 5 5 5 5 5 4 5 20 KR 6 6 8 8 8 7 6 7 10 HA 7 7 7 6 7 9 8 7 5 UP 10 11 9 9 9 8 7 9 7 MH 11 13 10 10 12 13 10 11 12 HP 9 9 11 12 10 12 13 11 10 GJ 16 18 12 16 11 10 9 12 10 TN 12 12 13 13 13 16 11 13 9 JK 8 15 6 7 14 18 20 14 19 MP 17 14 15 15 18 15 14 15 12

Findings:

24 September 2009 Factors influencing investment into Indian states Findings Some of the smaller states in remote corners of India seem to attract relatively more investment despite less resources available to them. States such as Gujarat, Maharashtra, and Tamil Nadu are ranked much lower than expected. They were not able to attract more investment despite higher endowments and access to coast and seaports, during this period. Among the bigger states, Punjab has been ranked consistently higher. Surprisingly, the ranks of Uttar Pradesh and Kerala are better than what is widely believed. Andhra Pradesh and West Bengal recorded poor performance with a significant decline in the rank of West Bengal.

Gujarat case study:

24 September 2009 Factors influencing investment into Indian states Gujarat case study What are the initiatives that Gujarat has taken to be able to create a popular perception that it is an attractive investment destination?

Highlights:

24 September 2009 Factors influencing investment into Indian states Highlights Gujarat was the fastest to respond both the times Initial visit in December 2005 Three visits in 2007 Met several government officials Perused their websites & publications Put-together & analysed comparative data

Gujarat aspects studied:

24 September 2009 Factors influencing investment into Indian states Gujarat aspects studied Gujarat, a historical perspective and its vision Physical infrastructure and endowments - Power and energy - Telecom, information technology and e-governance - Roads and highways - Water - Port infrastructure - Railway network - Airports - Mineral endowments - Public transportation - Urban development - Natural hazards Industrial scenario in Gujarat - Industrial policy - Industrial base - Industrial peace - Environment conservation and pollution control - Special Economic Zones (SEZ) - Credit availability Social infrastructure of Gujarat - Education - Health - Tourism - Law & order and security Gujarat Economy - Income and unemployment - Agriculture and other primary activities Gujarat finances Investment track record and investment promotion - Investment facilitation and promotion - Leveraging Gujarati Diaspora - Tax exemptions and other incentives Recent developments

Key findings:

24 September 2009 Factors influencing investment into Indian states Key findings While ‘marketing’ of the state is important, it is not a substitute for an all round development. Since physical infrastructure cannot be created overnight, a vision needs to be formulated and vigorously pursued to achieve the objectives. The states should also invest their efforts in making drinking water available, guiding farmers in selection of crops, security, public transport, and education. Private sector should be encouraged to participate in state priorities through a public-private partnership mode. The public sector can be entrepreneurial too. State government, through its public sector units, can also make strategic investments which would help the state in the long-term. States should exploit technology to find new ways of knowing the problems faced by people and solve the same. They can encourage setting-up of institutions of higher learning to ensure the supply of skilled labour. They can be innovative in creating their marketing strategy. States need to find new niche areas to attract new income and investment flows: Medical tourism, port-based development, Delhi – Mumbai corridor.

Conclusion & Further research opportunities:

24 September 2009 Factors influencing investment into Indian states Conclusion & Further research opportunities

Unique contributions:

24 September 2009 Factors influencing investment into Indian states Unique contributions A comprehensive primary survey to which more than 200 firms responded out of over 1,000 approached. We also compiled and analyzed secondary data for a period of 14 years, from 1989 to 2002. Compiling this data from various sources was a difficult task considering the state of statistical data publishing in India. This data was analyzed to identify the variables which influenced capital formation in different states and for analyzing comparative performance of states in attracting investments. Use of data envelopment analysis for analyzing comparative performance of states is a novel application in this study. Further, we carried out a case study of the state of Gujarat which is often portrayed as having a very vibrant investment climate. This case study along with findings from primary and secondary data analyses offers some interesting insights for state governments which intend to attract new investments.

Emerging policy lessons:

24 September 2009 Factors influencing investment into Indian states Emerging policy lessons It is critical that state governments ensure reliability of power and a high quality transport infrastructure connecting all important industry & trade centers. Harnessing water resources is also of utmost importance. Governments should ensure air connectivity of important centers in their states with those in the rest of the country. They should ensure that each district centre has adequate banking access. State governments should ensure that their governance is transparent, fair, and focused on overall development of the state including social infrastructure such as health and education. It is particularly important to set up institutions that offer programmes relevant for industry, so that industry finds employable youth in the state. State governments can play an important role in ensuring a peaceful industrial environment and those with troubled industrial history should provide priority to attracting service sector firms, since they are free from that baggage. Governments should be committed to fiscal prudence to reduce non-development expenditure and increase development spending. Our analysis shows incentives are inadequate to attract investment if state fails to offer the required infrastructure facilities to industry. While ‘marketing’ of the state is important, it is not a substitute for an all round and inclusive development effort and states should be innovative and consistent in their marketing strategy. Since physical infrastructure cannot be created overnight, a vision needs to be formulated and vigorously pursued. Further, instead of aping other states, it is important that state finds its own niches.

Limitations:

24 September 2009 Factors influencing investment into Indian states Limitations The data is not available for all the variables after 2002-03. The gross fixed capital formation (factory sector) does not distinguish between private investment and public investment. The services sector contributes to about 60% of the country’s GDP. But, in the absence of state level time series data on investments in this sector, we had no option but to analyze data on investments in registered manufacturing sector, though our primary survey includes service sector firms.

Further research possibilities ..:

24 September 2009 Factors influencing investment into Indian states Further research possibilities .. The study could be extended to include private sector investments in states in all sectors of the economy, subject to availability of data. A comparative study of factors influencing investments into countries of the region, and around the globe will offer interesting insights. The study could focus on a particular industry or group of industries such as information technology (IT), IT enabled services, and business process outsourcing. A study could be conducted focusing only on foreign direct investment in various states considering the possibility that the factors influencing foreign investment may be different from those influencing domestic investment.

Literature survey details:

24 September 2009 Factors influencing investment into Indian states Literature survey details

Trade & location theories:

24 September 2009 Factors influencing investment into Indian states Trade & location theories Adam Smith Absolute advantage in production influences its location David Ricardo Theory of comparative advantage Von Thünen Analysis of land rent Weber Location analysis Henderson Urban systems theory Ohlin Role of chance in determining the localization of industry Heckscher-Ohlin Endowment of factors of production influences production in the location Krugman New economic geography, centripetal and centrifugal forces

Regional economics:

24 September 2009 Factors influencing investment into Indian states Regional economics Walter Isard: gave drive for this new focus Christaller-Losch exercises in explaining spatial patterns of activities Coming together of: economists geographers ecologists, city and regional planners, regional scientists, urbanists

Competitiveness:

24 September 2009 Factors influencing investment into Indian states Competitiveness Contributions by: Porter, Aiginger, Ezeala-Harrison, Garelli, Blanke, Paua, and Sala-i-Martin in developing theoretical framework Trabold: competitiveness of nations ability to sell ability to attract ability to adjust ability to earn Krugman: obsession with competitiveness is wrong and dangerous!!

Studies by institutions & media:

24 September 2009 Factors influencing investment into Indian states Studies by institutions & media National Productivity Council 1992 Human Development Index (HDI) based on life expectancy, literacy rate, per capita state domestic product, population below poverty line 15 states covered Infrastructure Development Index (IDI) based on road length, navigable waterways, railway route length, tele-density, electricity consumption and number of commercial bank branches the same 15 states covered National Productivity Council 1994 Competitiveness Index based on 11 variables included in HDI & IDI studies Three additional variables: man days lost, political stability, state government taxes National Productivity Council 2004 Expanded to 75 hard data, 20 survey based criteria Average values for the period 1997-98 to 2001-02 considered

Studies by institutions & media:

24 September 2009 Factors influencing investment into Indian states Business Today 1995 Parameters used by corporate world while locating their projects Rate the states on each of these parameters Combine the ratings into a composite rank for each state Perception based Business Today 1997 Perceptions (19 parameters) + Objective index (28) 26 Indian states ranked Objective index: physical infrastructure (18), government (3), labour (4) and social infrastructure (3) Business Today 1999 Introduced a marketing index besides the objective and the perception (survey) indices. Different adhoc weights assigned to various factors Studies by institutions & media

Studies by institutions & media:

24 September 2009 Factors influencing investment into Indian states National Council of Applied Economic Research (NCAER) 2000 Study of the policy competitiveness of Indian states & the effect of FDI competition on economic development Infrastructure as the most critical variable CII-Rajiv Gandhi Institute for Contemporary Studies (RGICS) 2000 Physical, legal, and capital market infrastructure, human resource development, economic and financial performance of the state, investment climate, labor force, law & order and consumer demographics Investment Climate Assessment 2004 …. World Bank Power supply, its cost, tax & administration, labour regulation, land access, access to finance, corruption India Today Rankings Percentage of state GDP spent on administration, capital expenditure, per capita bank credit, industrial disputes, % of sick SSIs, gross capital formation, industrial workers in 15-59 age group Business World 2009 Special issue in February 2009 with the theme ‘India’s most competitive states.’ This work was undertaken in collaboration with Institute for competitiveness. The study is based on framework created by WEF’s Global Competitive Index Studies by institutions & media

Primary survey results:

24 September 2009 Factors influencing investment into Indian states Primary survey results

Criteria with highest scores:

24 September 2009 Factors influencing investment into Indian states Criteria with highest scores Rank Manufacturing Service Manufacturing and Service Overall 1 A08:Power Availability (9.16) A08:Power Availability (9.42) A08:Power Availability (9.22) A08:Power Availability (9.21) 2 A10:Telecom (8.90) A10 :Telecom (9.36) A10:Telecom (9.15) A10:Telecom (9.01) 3 A05:National Highway (8.40) A04: International Airport (8.42) H03: Expenditure on Infrastructure (8.26) A05: National Highway (8.22) 4 A06: State Highway (8.12) K03: Managerial Talent Availability (8.24) G03: Single Window Clearance (8.26) K03: Managerial Talent Availability (8.06) 5 K04: Trained Labour Force (8.04) K04: Trained Labour Force (8.05) A09: Tap Water (8.24) A09: Tap Water (8.02) 6 A09:Tap Water (8.01) A03: Domestic Airport (8.03) K03:Managerial Talent Availability (8.21) K04:Trained Labour Force (8.01) 7 K03:Managerial Talent Availability (7.99) A09: Tap Water (7.85) A05: National Highway (8.15) A06: State Highway (7.95) 8 E03:Labour Unrest (7.97) A11 : Public Transport (7.82) G01: Approval Process Efficiency (8.09) H03: Expenditure on Infrastructure (7.93) 9 K02: Labour Cost (7.95) G01: Approval Process Efficiency (7.76) K02: Labour Cost (8.09) K02: Labour Cost (7.90) 10 B03: Access to Credit (7.90) C01: Higher Learning Institutions (7.76) J01: Income Tax / Excise Exemption (7.91) G03: Single Window Clearance (7.89)

Criteria with lowest scores:

24 September 2009 Factors influencing investment into Indian states Criteria with lowest scores Rank Manufacturing Service Manufacturing and Service Overall 32 J04: Tax on Transfer of Property (6.44) D02: Per Capita Income (5.52) J03: Capital Grants (6.26) B02: Industrial Clusters (6.23) 33 B02: Industrial Clusters (6.30) B02: Industrial Clusters (5.45) A02: International Seaport (6.18) J04: Tax on Transfer of Property (6.18) 34 B01: SSI (5.98) D01: Unemployment levels (5.36) B01: SSI (6.06) D02: Per Capita Income (5.86) 35 D02: Per Capita Income (5.79) J04: Tax on Transfer of Property (5.33) J04: Tax on Transfer of Property (6.00) B01: SSI (5.73) 36 E02: Coalition vs. One Party Government (5.53) I01: State Debt % (5.13) D01: Unemployment levels (6.00) E02: Coalition vs. One Party Government (5.65) 37 D01: Unemployment levels (5.37) I02: Bureaucracy Spend % (4.71) E02: Coalition vs. One Party Government (5.94) D01: Unemployment levels (5.47) 38 I01: State Debt % (5.30) I03: Revenue Deficit % (4.63) I01: State Debt % (5.66) I01: State Debt % (5.33) 39 I03: Revenue Deficit % (5.14) B01: SSI (4.36) I03: Revenue Deficit % (5.50) I03: Revenue Deficit % (5.12) 40 I02: Bureaucracy Spend % (4.91) A02: International Seaport (4.27) I02: Bureaucracy Spend % (5.38) I02: Bureaucracy Spend % (4.95) 41 A01 : Domestic Seaport (4.25) A01 : Domestic Seaport (3.61) A01 : Domestic Seaport (3.50) A01 : Domestic Seaport ( 4.01)

Single-factor ANOVA:

24 September 2009 Factors influencing investment into Indian states Single-factor ANOVA

Are mean responses for all criteria equal?:

24 September 2009 Factors influencing investment into Indian states Are mean responses for all criteria equal? We get the expected result that the mean responses are not equal Method df Value p-value Anova F-test (40, 7339) 60.91649 0.0000 Welch F-test* (40, 2568.45) 68.34105 0.0000 *Test allows for unequal cell variances Analysis of Variance Source of Variation df Sum of Sq. Mean Sq. Between 40 9305.509 232.6377 Within 7339 28027.36 3.818961 Total 7379 37332.87 5.059340

Equality of means across all NIC codes:

24 September 2009 Factors influencing investment into Indian states Equality of means across all NIC codes In respect of 31 other criteria the means were the same as expected Criterion F-test Value P-value Result (Means) Hypothesis A04: International Airport 1.5035 0.0408 Not Equal Equal A05: National Highway 1.6806 0.0131 Not Equal Equal A06: State Highway 1.4849 0.0457 Not Equal Equal A09: Tap Water Availability 1.5239 0.0360 Not Equal Equal C01: Higher Learning Institutions 1.5593 0.0289 Not Equal Equal H04: Expenditure on IT 1.6537 0.0157 Not Equal Equal J02: Sales Tax Deferral/ Exemption 1.2211 0.1945 Equal Not Equal J04: Tax on Transfer of Property 1.0027 0.4785 Equal Not Equal K01: Cost of land 1.3637 0.0926 Equal Not Equal K03: Managerial Talent Availability 1.8800 0.0033 Not Equal Equal

Equality of means across 3 types of respondents:

24 September 2009 Factors influencing investment into Indian states Equality of means across 3 types of respondents In respect of 33 other criteria the means were the same as expected Criterion F-test Value P-value Result (Means) Hypothesis A01: Domestic Seaport 1.3819 0.2538 Equal Not Equal A03: Domestic Airport 3.3106 0.0388 Not Equal Equal A04: International Airport 6.2205 0.0025 Not Equal Equal B02: Industrial Clusters 3.0213 0.0513 Equal Not Equal E03: Labour Unrest 3.7714 0.0249 Not Equal Equal J01: Income Tax / Excise Exemption 4.5432 0.0119 Not Equal Equal J04: Tax on Transfer of Property 2.5684 0.0795 Equal Not Equal K01: Cost of land 0.3621 0.6967 Equal Not Equal

Equality of means across different NIC codes for only manufacturing firms:

24 September 2009 Factors influencing investment into Indian states Equality of means across different NIC codes for only manufacturing firms In respect of 35 other criteria the means were the same as expected Criterion F-test Value P-value Result (Means) Hypothesis A05: National Highway 2.0015 0.0031 Not Equal Equal A06: State Highway 1.5234 0.0495 Not Equal Equal B02: Industrial Clusters 1.5307 0.0476 Not Equal Equal H04: Expenditure on IT 1.9238 0.0050 Not Equal Equal I01: State Debt % 1.9233 0.0050 Not Equal Equal K03: Managerial Talent Availability 2.1024 0.0016 Not Equal Equal

Equality of means across Maharashtra & outside-Maharashtra manufacturing firms:

24 September 2009 Factors influencing investment into Indian states Equality of means across Maharashtra & outside-Maharashtra manufacturing firms Criterion F-test Value P-value Result (Means) Hypothesis Mean (Maha.) Mean (Others) B01: Small Scale Industries 9.5749 0.0024 Not equal Equal 5.52 6.53 B02: Industrial Clusters 4.5059 0.0354 Not equal Equal 6.11 6.72 B03: Access to Credit 6.2272 0.0137 Not equal Equal 7.54 8.33 E03: Labour Unrest 5.0343 0.0263 Not equal Equal 7.74 8.46 F01: Geographical Extremes 4.9808 0.0271 Not equal Equal 7.11 7.81 I01: State Debt % 4.4121 0.0374 Not equal Equal 5.06 5.75 I03: Revenue Deficit % 6.4082 0.0124 Not equal Equal 4.83 5.70 J03: Capital Grants 7.1488 0.0083 Not equal Equal 6.35 7.44

Equality of means across different NIC codes for only service sector firms:

24 September 2009 Factors influencing investment into Indian states Equality of means across different NIC codes for only service sector firms In respect of 38 other criteria the means were the same as expected Criterion F-test Value P-value Result (Means) Hypothesis A01: Domestic Seaport 2.8681 0.0238 Not Equal Equal A08: Power Availability 10.5074 0.0000 Not Equal Equal A10: Telecom 4.0309 0.0045 Not Equal Equal

Equality of means across Maharashtra & non-Maharashtra service sector firms:

24 September 2009 Factors influencing investment into Indian states Equality of means across Maharashtra & non-Maharashtra service sector firms In respect of all criteria, the null of equality of means was not rejected

Factor analysis:

24 September 2009 Factors influencing investment into Indian states Factor analysis

Factor table:

24 September 2009 Factors influencing investment into Indian states Factor table Factor Criteria Factor 1: Governance & government’s investment for the future H03: Expenditure on infrastructure, H02: Expenditure on health, H01: Expenditure on education, G01: Approval process efficiency, G02: Regulatory transparency, H04: Expenditure on IT, G03: Single window clearance Factor 2: Incentives & taxes J02: Sales tax deferral/ exemption, J01: Income tax / excise exemption, J03: Capital grants, J04: Tax on transfer of property Factor 3: Government finances I02: Bureaucracy spend %, I03: Revenue deficit %, I01: State debt % Factor 4: Critical infrastructure A10: Telecom, A08: Power availability, A11: Public transport, A09: Tap water availability Factor 5: Socio-economic situation D02: Per capita income, D01: Unemployment levels, C02: Hospital beds, C01: Higher learning institutions, B03: Access to credit Factor 6: Factor cost & conditions K03: Managerial talent availability, K04: Trained labour force, K02: Labour cost, K01: Cost of land Factor 7: Domestic transport infrastructure A07: Railway network, A06: State highway, A05: National highway Factor 8: Business support infrastructure B01: Small scale industries, B02: Industrial clusters, A02: International seaport Factor 9: Political stability & labour disputes E01: Political / violent deaths, E03: Labour unrest, E02: Coalition vs. one party Factor 10: Airport access A04: International airport, A03: Domestic airport Factor 11: Geography F01: Geographical extremes, F02: Difficult terrains

Cluster analysis:

24 September 2009 Factors influencing investment into Indian states Cluster analysis

Cluster analysis .. 3 means .. All firms:

24 September 2009 Factors influencing investment into Indian states Cluster analysis .. 3 means .. All firms Type 1 2 3 Total Manufacturing 46 21 55 122 Service 10 8 10 28 Manufacturing & Service 14 4 12 30 Grand Total 70 33 77 180

PowerPoint Presentation:

24 September 2009 Factors influencing investment into Indian states Criterion Description 1 2 3 F-value p-value G01 Approval Process Efficiency 8.83 5.76 8.00 76.4738 0.000 G02 Regulatory transparency 8.84 5.73 7.88 75.3505 0.000 G03 Single Window Clearance 8.92 5.64 8.08 62.4002 0.000 H02 Expenditure on Health 7.83 4.42 6.17 61.1515 0.000 I03 Revenue deficit % 6.57 3.21 4.60 48.4488 0.000 H01 Expenditure on Education 7.71 4.79 6.26 48.4149 0.000 H03 Expenditure on Infrastructure 8.86 6.00 8.10 47.7117 0.000 C02 Hospital Beds availability 7.93 5.03 6.35 45.2097 0.000 I01 State Debt % 6.66 3.55 4.87 44.8605 0.000 H04 Expenditure on I. Technology 8.44 5.55 7.18 43.0681 0.000 3-means cluster .. Mean scores

9-means cluster:

24 September 2009 Factors influencing investment into Indian states 9-means cluster NIC 3 Dig 1 2 3 4 5 6 7 8 9 Total 241 2 2 1 2 2 9 242 1 1 7 5 2 3 11 5 35 291 1 2 2 1 2 8 292 1 2 1 3 2 9 343 2 1 1 1 3 9 17 722 3 2 6 4 1 16 Total 4 4 10 17 6 6 6 20 21 94

PowerPoint Presentation:

24 September 2009 Factors influencing investment into Indian states Description 1 2 3 4 5 6 7 8 9 F p-val. G01: Approval Process Efficiency 7.83 5.00 8.46 8.50 8.06 4.20 7.33 7.77 8.94 31.9199 0.000 G02: Regulatory Transparency 7.33 4.75 8.15 8.50 8.11 4.60 7.40 7.46 9.04 29.2576 0.000 I01: State Debt 2.33 5.13 6.54 5.14 4.22 3.00 2.73 5.63 7.02 24.6114 0.000 J02: Sales Tax deferral/Exemption 6.67 4.88 4.23 8.50 7.83 5.00 6.93 8.69 8.77 23.4798 0.000 I03: Revenue Deficit 1.83 4.50 5.92 5.00 3.44 2.90 2.93 5.54 6.96 21.9329 0.000 A04: International Airport 9.00 5.75 9.15 8.46 3.83 4.80 7.53 5.46 8.70 21.7789 0.000 B02: Industrial Clusters 2.33 5.63 7.00 5.57 4.78 5.10 5.80 6.17 7.96 21.5420 0.000 H02: Expenditure on Health 6.17 4.00 7.38 7.54 5.72 3.20 5.47 5.83 7.91 21.5089 0.000 G03: Single Window Clearance 7.17 4.38 8.15 8.68 8.22 4.70 7.00 8.06 9.01 21.3923 0.000 H01: Expenditure on Education 6.33 4.50 7.77 7.29 6.06 3.50 5.40 5.91 7.85 20.0976 0.000 9-means cluster – mean scores

Discriminant function analysis & logistics regression analysis:

24 September 2009 Factors influencing investment into Indian states Discriminant function analysis & logistics regression analysis

PowerPoint Presentation:

24 September 2009 Factors influencing investment into Indian states Criterion F-test Value P-val. A02: International Sea Port 36.1834 0.0000 A03: Domestic Airport 4.1806 0.0424 A04: International Airport 8.3495 0.0043 A05: National Highway 3.9171 0.0493 B01: Small Scale Industries 11.1602 0.0010 E03: Labour Unrest 7.7180 0.0061 J01: Income Tax / Excise Exemption 8.4580 0.0041 J02: Sales Tax Deferral/ Exemption 20.8154 0.0000 J04: Tax on Transfer of Property 3.9132 0.0495 Criteria with significant mean differences across manufacturing & services firms

Discriminant function coefficients:

24 September 2009 Factors influencing investment into Indian states Discriminant function coefficients Criterion Function A02: International seaport .293 A04: International airport -.225 B01: Small scale industries .150 J02: Sales tax deferral / exemption .246 (Constant) -3.073

Structure matrix:

24 September 2009 Factors influencing investment into Indian states Structure matrix Criterion Structure loading A02: International seaport 0.654 A04: International airport - 0.317 B01: Small scale industries 0.366 J02: Sales tax deferral / exemption 0.493 International seaport & sales tax deferral / exemption make a greater discretionary impact.

Goodness of fit ..:

24 September 2009 Factors influencing investment into Indian states Goodness of fit .. Wilks’ Lambda Chi-square value is significant hence differences in mean discriminant scores are not due to just sampling errors 84.4% cases correctly classified on a post-hoc basis Model predicts better than chance: Maximum Chance Criterion (MCC) = 83.3% Proportional Chance Criterion (PCC) =73.4% Press’ Q statistic significant The null hypothesis that the model hit ratio is no better than chance is rejected 85.8994 > 6.635

Logistic regression analysis:

24 September 2009 Factors influencing investment into Indian states Logistic regression analysis Criteria Manufacturing Service A02 International seaport *** 7.10 > 4.20 A04 International airport ** 6.90 < 8.37 B01 Small scale industries * 5.90 > 4.57 E03 Labour unrest ** 8.01 > 6.90 J02 Sales tax deferral / exemption ** 7.99 > 6.17 The inequality is as expected consistent with each criterion.

Highlights of secondary data:

24 September 2009 Factors influencing investment into Indian states Highlights of secondary data

Gross Fixed Capital Formation – Factory Sector:

24 September 2009 Factors influencing investment into Indian states Gross Fixed Capital Formation – Factory Sector State Mean Median Rs. Lakhs Rank Rs. Lakhs Rank Maharashtra 527,976.86 1 442,272.85 1 Gujarat 464,774.25 2 311,081.76 2 Uttar Pradesh 288,642.19 4 284,872.15 3 Tamil Nadu 297,186.63 3 259,707.73 4 Madhya Pradesh 189,402.04 5 177,168.05 5 Andhra Pradesh 165,287.90 7 177,133.04 6 Karnataka 182,896.98 6 158,572.53 7 West Bengal 152,202.11 8 154,579.38 8 Bihar 141,050.79 9 137,539.17 9 Orissa 106,677.55 10 93,251.54 10 Haryana 94,941.05 11 93,081.11 11 Punjab 91,207.32 12 87,097.99 12 Rajasthan 84,527.19 13 81,663.78 13 Kerala 47,753.85 14 45,523.57 14 Delhi 25,173.58 16 21,352.56 15 Himachal Pradesh 21,546.32 17 21,317.98 16 Assam 27,416.02 15 17,277.27 17 Goa 13,493.68 18 13,089.06 18 Puducherry 9,307.49 19 8,389.01 19 Jammu and Kashmir 2,108.25 20 2,046.07 20 Meghalaya 1,369.71 21 572.47 21 Tripura 464.31 23 246.17 22 Nagaland 1,064.25 22 129.38 23 Manipur 143.90 24 31.74 24

Normalized mean values:

24 September 2009 Factors influencing investment into Indian states Normalized mean values State / Union Territory Normalized by area Normalized by population Normalized by SDP Rs. Lakhs Rank Rs. Lakhs Rank % Rank Gujarat 2,371.01 4 1,007.03 3 8.14 1 Puducherry 19,431.09 1 1,032.16 2 7.94 2 Orissa 685.12 14 314.69 10 5.67 3 Tamil Nadu 2,285.03 5 502.75 6 4.88 4 Goa 3,644.97 3 1,051.66 1 4.77 5 Maharashtra 1,715.81 8 618.31 4 4.71 6 Himachal Pradesh 387.02 17 383.00 8 4.05 7 Haryana 2,147.40 6 507.83 5 3.93 8 Karnataka 953.63 12 368.45 9 3.80 9 Madhya Pradesh 427.12 16 263.73 11 3.78 10 Uttar Pradesh 980.41 11 189.63 15 3.33 11 Bihar 811.21 13 150.37 18 3.25 12 Punjab 1,811.03 7 416.12 7 3.05 13 West Bengal 1,714.91 9 212.19 14 2.89 14 Andhra Pradesh 600.95 15 234.81 12 2.87 15 Rajasthan 246.98 19 175.19 16 2.31 16 Assam 349.52 18 110.33 19 1.82 17 Kerala 1,228.77 10 155.25 17 1.76 18 Delhi 16,974.77 2 226.60 13 1.06 19 Meghalaya 61.07 21 74.58 21 0.93 20 Nagaland 64.19 20 75.94 20 0.66 21 Jammu and Kashmir 20.79 23 23.70 22 0.32 22 Tripura 44.28 22 15.74 23 0.25 23 Manipur 6.45 24 7.54 24 0.13 24

Gross Fixed Capital Formation – Factory Sector:

24 September 2009 Factors influencing investment into Indian states Indexed values for select states Gross Fixed Capital Formation – Factory Sector

Share of select states –infrastructure:

24 September 2009 Factors influencing investment into Indian states Share of select states –infrastructure State Dom. Air Traffic Inter. Air Cargo Dom. Sea Cargo Int. Sea Cargo Andhra Pradesh 5.93 1.17 19.91 12.70 Assam 3.28 0.00 0.00 0.00 Bihar 1.13 0.00 0.00 0.00 Delhi 16.34 30.56 0.00 0.00 Gujarat 5.44 0.17 5.10 15.92 Haryana 0.00 0.00 0.00 0.00 Himachal Pradesh 0.00 0.00 0.00 0.00 Jammu and Kashmir 1.68 0.00 0.00 0.00 Karnataka 9.70 6.43 4.85 7.58 Kerala 3.90 5.85 5.49 3.65 Madhya Pradesh 1.82 0.00 0.00 0.00 Maharashtra 25.91 34.68 12.74 18.75 Orissa 0.57 0.00 14.21 5.14 Punjab 0.10 0.05 0.00 0.00 Rajasthan 2.71 0.00 0.00 0.00 Tamil Nadu 9.17 16.70 26.45 14.38 Uttar Pradesh 2.30 0.01 0.00 0.00 West Bengal 7.26 4.18 9.85 12.00

Indian states highlights - 2002:

24 September 2009 Factors influencing investment into Indian states Indian states highlights - 2002 State Population Area NSDP Factories Workers Andhra Pradesh 76,915,000 275,045 8,390,700 14,635 864,822 Assam 27,247,000 78,438 1,711,400 1,532 93,129 Bihar 112,714,000 173,877 5,369,800 2,820 165,707 Delhi 14,383,000 1,483 3,908,900 3,436 85,693 Goa 1,388,000 3,702 442,000 542 24,318 Gujarat 51,789,000 196,024 7,365,800 13,180 528,217 Haryana 21,644,000 44,212 3,199,000 4,437 223,831 Himachal Pradesh 6,178,000 55,673 743,500 509 25,375 Jammu and Kashmir 10,440,000 101,387 811,700 340 19,636 Karnataka 53,681,000 191,791 6,576,500 6,956 370,217 Kerala 32,270,000 38,863 3,754,900 4,687 227,347 Madhya Pradesh 83,375,000 443,436 6,045,400 4,248 220,336 Maharashtra 98,826,000 307,713 15,637,600 17,570 829,305 Manipur 2,443,000 22,327 176,600 44 1,048 Meghalaya 2,358,000 22,429 242,800 41 2,042 Nagaland 2,047,000 16,579 264,100 119 2,265 Orissa 37,343,000 155,707 2,153,100 1,679 92,686 Puducherry 991,000 479 258,300 606 33,361 Punjab 24,771,000 50,362 3,822,400 6,987 276,677 Rajasthan 58,125,000 342,239 4,617,700 5,409 190,971 Tamil Nadu 62,943,000 130,058 8,011,400 19,550 920,127 Tripura 3,247,000 10,486 334,300 259 10,910 Uttar Pradesh 179,486,000 294,411 10,767,600 9,695 436,931 West Bengal 81,707,000 88,752 9,007,700 6,085 428,096

Share of select states:

24 September 2009 Factors influencing investment into Indian states Share of select states State National Highways State Highways Total Roads Registered Buses Andhra Pradesh 7.05 5.97 7.47 6.01 Assam 4.99 1.32 3.71 1.60 Bihar 8.65 2.98 3.63 4.06 Delhi 0.13 0.00 1.07 5.74 Gujarat 4.33 13.94 5.71 7.30 Haryana 2.39 1.79 1.17 1.33 Himachal Pradesh 2.09 2.68 1.23 0.86 Jammu and Kashmir 1.45 0.50 0.97 3.18 Karnataka 6.29 7.15 6.33 4.82 Kerala 2.54 2.80 6.26 10.24 Madhya Pradesh 11.40 8.47 8.14 6.47 Maharashtra 6.53 24.52 11.10 8.54 Orissa 5.81 2.95 9.83 2.43 Puducherry 0.09 0.03 0.11 0.69 Punjab 2.74 1.58 2.55 2.90 Rajasthan 8.09 6.20 5.50 8.75 Tamil Nadu 6.62 5.22 6.89 11.73 Uttar Pradesh 10.59 7.37 11.70 4.89 West Bengal 3.44 2.57 3.82 5.81

Share of select states:

24 September 2009 Factors influencing investment into Indian states Share of select states State Mineral Production Railways Telephone Connection Andhra Pradesh 14.56 8.23 8.54 Assam 7.67 3.99 1.03 Bihar 14.11 7.96 2.93 Delhi 0.00 0.32 7.16 Goa 1.04 0.11 0.24 Gujarat 11.42 8.37 7.43 Haryana 0.50 2.46 2.47 Himachal Pradesh 0.10 0.43 1.04 Jammu and Kashmir 0.02 0.15 0.51 Karnataka 2.00 4.71 6.75 Kerala 0.06 1.66 6.91 Madhya Pradesh 21.67 9.51 4.08 Maharashtra 6.19 8.64 17.07 Orissa 6.83 3.68 1.58 Puducherry 0.00 0.02 0.14 Punjab 0.00 3.33 5.11 Rajasthan 1.82 9.35 3.95 Tamil Nadu 4.05 6.63 8.75 Uttar Pradesh 2.68 14.49 7.87 West Bengal 5.10 5.83 5.89

Panel regression analysis:

24 September 2009 Factors influencing investment into Indian states Panel regression analysis

Random effects vs. fixed effects:

24 September 2009 Factors influencing investment into Indian states Random effects vs. fixed effects Correlated Random Effects – Hausman Test Equation: Untitled Test cross-section random effects Test Summary Chi-Sq. Statistic Chi-Sq. d.f. P-value Cross-section random 51.1663 23 0.0006 With a very low p value, the null hypothesis that random effects are consistent and efficient is rejected.

Redundant fixed effects test:

24 September 2009 Factors influencing investment into Indian states Redundant fixed effects test Redundant Fixed Effects Tests Equation: Untitled Test cross-section fixed effects Effects Test Statistic d.f. P-value Cross-section F 7.5151 (23,264) 0.0000 Cross section fixed effects are statistically significant

Residuals prior to log-transformation:

24 September 2009 Factors influencing investment into Indian states Residuals prior to log-transformation

Residuals after log transformation :

24 September 2009 Factors influencing investment into Indian states Residuals after log transformation

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