Effective relations between states and business have been increasingly identified as an important institution for sustaining economic development. This note describes the construction of quantitative indices measuring the quality of state-business relations (SBRs) across Indian states in the 1975-2008 period. It represents the first effort to systematically characterise SBRs across sub-national units within a country without resorting to subjective surveys. This poses specific methodological challenges and encourages us to use a number of different variables (both from secondary and primary sources) to quantify the magnitude of effectiveness of SBRs. We discuss the possible sensitivity of the indices to minor and major definitional changes and examine the evolution of SBRs across Indian states and at the national level through the study of cross sectional and secular trends in these indices. The results suggest that the intensity of state-business relations, a measure of the positive impact of these on business sector, correlates with economic growth, although this does not imply causation. Further, state-business relations have improved over time in all states barring Bihar. Rankings of states in terms of the SBR index show varying time trends - stable and high ranking for Andhra Pradesh, Gujarat, Karnataka, and Tamil Nadu indicates a stable and low ranking for Uttar Pradesh and Assam, rapidly improving for Haryana, Rajasthan and Orissa and swift deterioration for West Bengal, Bihar and Madhya Pradesh.
Discussion Paper Series, Research Programme Consortium for Improving Institutions for Pro-Poor Growth, Manchester, UK, No. 25, 59 pp.