CLAIM: Karnataka Leads In Investment Intentions; FACT: Yes, But Implementation Low

Karnataka stands 8th in both number of investment projects implemented and the value of actual investments in 2016 and 2017 combined.

As Karnataka gets ready to go to polls on May 12, claims and counter claims have begun. While the BJP is making a strong pitch to unseat the party from power by highlighting issues of law and order, lack of urban planning citing terrible traffic situation in Bengaluru and rising farmer suicides, the Congress led by CM Siddaramaiah is projecting rising investments in the state as a sign of development in the last five years.

CLAIM : Karnataka ranks first among states in investments intentions, claimed the Karnataka Congress Twitter handle on April 23, 2018. The Chief Minister Siddaramaiah also repeated this claim while releasing the party's poll manifesto on Friday.

“From the 13th position in 2013-14 in investment, Karnataka was ranked number one in 2016-17 and 2017-18,” he claimed, reports Deccan Herald.

RATING : Partly True.

FACT : Karnataka attracted the highest investment intentions in 2016 and 2017. But stood 3rd and 8th in the corresponding years for investment implementation in terms of value. (Here, investment intentions refer to the proposed investments by industrial undertakings.)

Investment Intentions: Karnataka leads in 2016 and 2017

Karnataka bagged the highest share of 38.48% and 37.2% of the total value of investment intentions secured in 2017 and 2016, respectively, according to data from the Department of Industrial Policy and Promotion (DIPP).

Karnataka attracted investment intentions to the tune of Rs. 1.52 lakh crore, double of what Gujarat attracted in 2017. Gujarat secured the second highest share (20%) of investment intentions followed by Maharashtra (12.29%) in 2017.

Data for investment intentions are obtained from Industrial Entrepreneur Memorandum (IEM) filings done by industrial undertakings of the non - MSME (Micro, Small & Medium Enterprises) category. Non MSME are undertakings where investment in plant and machinery is more than Rs. 10 crore in case of the manufacturing sector and Rs.5 crore in case of the services sector.

All non-MSME undertakings which are exempt from obtaining a direct licence from the government are required to file IEMs (Part-A IEM forms) and require no further approvals. Only 5 non-MSME industries (click here to know more), require direct licences from the government. However, Part-A IEM filings do not measure how much of it have been implemented.

Post 2010 Karnataka displayed a negative trend in the quantum of investment intentions secured and saw a huge spike in 2016 as shown below. In 2010 the state had held its first global investors meet under the then Bharatiya Janata Party (BJP) government followed by one in 2012. Again, in 2016 Karnataka held another global invest summit under the Siddharamaiah-led Congress government which secured investment intentions to the tune of Rs 1.3 lakh crore.

Despite holding high profile investors meet to attract investors, the conversion rate of proposed investments to actual investment is quite low. Only 28% and 9% of the proposed investments of the 2010 and 2012 global investment meets, respectively, took off, according to a Mint report in September 2016. While few of the proposals were dropped few others took time to get implemented.

Conversion of proposed investment to actual investment is low in Karnataka and in India as well

The case of implementation of proposed investments between 2013-17 in Karnataka seems to be no different from previous years. The state saw the realization of less than 10% of proposed investments secured between April 2013 to November 2017, reported New Indian Express in February 2018.

Of the Rs 1.47 lakh crore proposed investment secured between January to September in 2017 only Rs. 19,648 crore converted to actual investment between March to November 2017, according to data submitted in the Karnataka Legislative Council.

However, it is not just Karnataka. Non-realization and the lag in implementation of promised projects prevails in the national scenario as well.

In a span of 26 years, India has seen less that 10% of proposed investments (based on value) getting realized. Between 1991-2017, only 12% of the total Part A IEMs filed (101,231) have converted to actual investment in the country. In terms of the value of investment, only 7% of the proposed investment (Rs. 11,639,847 crore) have converted to actual investment. [Note: The calculation is based on Industrial Entrepreneuer Memorandum (IEMs) and not investments filed through Letter of Understanding and Direct Industrial Licenses. IEMs constitute 99% of the investment intentions filed.]

In the years 2017 and 2016, India saw a total of 1972 and 2283 Part A IEMs being filed with proposed investment of Rs 3.95 lakh crore and Rs 4.14 lakh, respectively in India.

Implementation of investment is captured by Part B filing done by non - MSME undertakings during commencement of commercial production.

Source : DIPP (Click here : 1, 2, 3, 4)

State wise information shows that Maharashtra saw the highest number of IEM implementations and actual investment in 2016 & 2017 combined. Karnataka stands 8th in both number of Part B IEM filings / investment implementation and the value of the actual investments in 2016 and 2017 combined. (Separately, Karnataka stood 3rd in 2016 and 8th in 2017).

Unlike year-wise data on investment intentions, DIPP data on implementation of projects is cumulative since 1991. It gives updates on the details of projects implemented since 1991 up to the current year, but does not provide data on the actual conversion of investments promised in particular years or the investments dropped.

Though what matters most is the conversion of investment intentions to actual investments, it is assumed that there cannot be a 100% conversion. K Ravi, president of the Federation of Karnataka Chamber of Commerce and Industry, was quoted saying that it is normal and that proposed projects face issues in getting environmental clearances. Projects also face bottlenecks in terms of approval for water, land and electricity which affect the ease of doing business in states.

Ease of Doing Business

DIPP's Business Reform Action Plan 2017 (BRAP 2017) ranks Karnataka 10th out of 36 states and union territories in terms of fulfilling measures towards ease of doing business.

DIPP under the Ministry of Commerce and Industry partnered with World Bank to release annual business reform plans to improve ease of doing business since 2015 and ranks states based on their performance.

Karnataka's implementation score was 99.19%. The state follows Haryana, Chattisgarh, Madhya Pradesh, Andhra Pradesh, West Bengal, Jharkhand, Telangana - all with 100%, Rajasthan (99.73%) and Gujarat (99.46%).

BRAP 2017 included 405 reforms on 'regulatory processes, policies, practices, and procedures spread across 12 reform areas, that is, labour regulation enablers; contract enforcement; registering property; inspection reform enablers; single window system; land availability and allotment; construction permit enablers; environmental registration enablers; obtaining utility permits; paying taxes; access to information and transparency enablers and sector specific reforms spanning the lifecycle of a typical business'.

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