Southern winds are catching the sails

Competition among states for marquee foreign investments in manufacturing and services is confining itself to peninsular India, except NCR around Delhi - as the healthy wooing for Foxconn attention by Telangana, Andhra Pradesh and Karnataka amply shows. Investment inflows track ease of doing business, apart from land acquisition, manpower availability and infrastructure. Coastal states are working on their access to maritime trade to plug into global supply chains. Cluster development pursued by individual states has been successful. This plays into the federal incentives for select manufacturing exports that require seeding the vendor ecosystem alongside scalable production. These factors are creating a self-reinforcing loop for foreign investment and industrialisation. Improvements in logistics haven't yet allowed laggards to make a severe dent in the attractiveness of leading states for foreign investors.

Apart from fiscal incentives, GoI is addressing infra deficit. It can offer states some helpful pointers on issues like business friendliness and workforce skills. These are, however, not enough to level the playing field among states. The north is participating in the industrialisation of the south by supplying cheap labour and markets for products. Northern states need to be much more creative to make up for their natural disadvantage in connectivity. In terms of resource endowments, they would have to work on their manpower advantage and proximity to internal markets.

States have little to differentiate themselves for a foreign investor seeking to make India a global production base. There is no tax arbitrage available in a localisation decision. Logistics costs are declining, and electricity supply is uniform with creation of a national grid. GST has created a common tax structure. States, thus, need to compete on social infrastructure that promotes industrialisation through enhanced outlays for health and education. This is where peninsular India is pressing its historical advantage, and the north must catch up.