Study after study has shown how poor state government responsiveness is hindering investment and growth in the country.  In most cases, investors complain of how individuals, politicians and lobbyists misuse the tied-in nature of large investments to extract rents from them. There is of course no recourse for the investor. He has to deal with those that employ such delay tactics. For his part, the entity delaying has little to lose, but the investor has.  

In the net therefore, inter-state competition should be encouraged, not discouraged. But for reasons outlined above, such competition should not be unencumbered. Certain areas will need to be brought out of the wide set of domains over which states compete.  We would also need to limit (but not eliminate) the extent of benefits that states can provide.  

The objective is to make states responsible for the promises that they make, and to deliver on them in a timely manner. Such competition will provide the natural incentive for states to eliminate delays, reduce inspector raj, provide rapid infrastructure connections, and in general be more investor friendly. Perhaps finally we have found something that the Planning Commission can do.

To come back to the Singur-Tata case, thanks to the poor compensation offered in the initial phase, it has snowballed into a highly avoidable controversy. But it is no longer about land or compensation or the emotional connect between the farmer and his land. It is about bargaining positions being taken by politicians and social activists on the one hand and the investor on the other. The Tatas appear to have had more than their fair share of such situations. By opening negotiations with other states, they have taken the negotiations away from the non-transparent sphere to a transparent one. Ratan Tata needs to be applauded for this.  

... contd.