Kerala- The New Emerging destination for Entrepreneurs

Kerala is now emerging as the ideal investment destination for potential entrepreneurs. The World Bank revealed this in a recent policy Research Working paper submitted to the multilateral agency by its Finance and Private Sector Development Group headed by Mr. Giuseppe Iarossi. The Group has created a new Investment Climate Index (ICI) to study and map the Investment scenario in 16 Indian States. The concept of Investment Climate Index or ICI is based on the pretext that Entrepreneurs look at and compare a wide range of features of the business climate in each state when deciding on investing. More specifically the paper assume and also inks to the fact that investors take into account a host of factors closely related to the production process such as quality and reliability of infrastructure services, availability of finance, level of corruption, etc. The paper was prepared by collecting data from 4000 Entrepreneurs through face-to-face interviews and focused group Discussions. The researchers have identified 46 variables pertaining to the 16 states and categorized them into 3 namely- Inputs, Institutions and Infrastructure and later these were classified into six sub indices based on objective values (cost) and Subjective Indicators (perception). These sub indices are combined to form the Investment Climate Index.

Investment Climate Index also gives an abstract on other parameters associated with factors conducive for attracting investors to a state. They are the following
A better ICI pertains to a higher level of domestic private investments
A better ICI means a higher growth and reduced poverty.
A better ICI means a climate for better investments.

Based on the ICI the 16 states ranked are as follows
Karnataka
Kerala
Gujarat
Andhra Pradesh
Haryana
West Bengal
Maharashtra
Delhi
Tamil Nadu
Punjab
Jharkand
Orissa
Madhya Pradesh
Bihar
Uttar Pradesh
Rajesthan


According to the ICI ranking of Figure 3the states with the best investment climate are Karnataka and Kerala, followed by Gujarat, Andhra Pradesh, Haryana, West Bengal Maharashtra and Delhi. The worst investment climate is on the contrary found in Bihar, Uttar Pradesh, and Rajasthan. While it is not surprising to see Karnataka as one of the states with the best investment climate in India the ranking of Kerala within the top tear appears a bit unexpected. A closer examination of the data shows that Kerala consistently scores better than average on most objective and perception indicators, although it appears that Kerala manufacturers and retailers perceive their state as having a better business climate than those in the other 15 states in almost all
categories of perception questions.

Nevertheless perception and objective questions do not contradict themselves in almost all dimensions of the investment climate. Hence although Kerala appears among the most optimistic Indian states, its high-ranking does not appears to be driven solely by their perception rankings. As a matter of fact Kerala performs very well on all the 3 categories of indicators, infrastructure, institutions and inputs. More specifically for both objective and perception measures of infrastructure Kerala performs better than average. In objective measures only Karnataka and West Bengal performs better than Kerala in all five indicators. Punjab also performs above average in all indicators but not as much as Kerala. Within the perception variables Kerala performs above average for all indicators as does Karnataka, Andhra Pradesh, Tamil Nadu, and Orissa.

In conclusion, it seems that firms in Kerala tend to complain less about constraints than in other countries. However Kerala is not the only state with above average perception on all indicators. Furthermore the perception and objective data do not contradict themselves. So, it is both perception and objective data that make Kerala second in the ranking.