Chapter 3 Institutional Environment: Interstate Differences 53
3.7 Analysis and Conclusion
While the composite index (Index of Institutional Quality) gives an overview of the institutional environment of the states in the context of entrepreneurship, it is observed that while a state performs extremely well in certain indicators, its performances is not satisfactory in others. One cannot say that states with higher average institutional quality scores perform better in all respects than that of states with lower average institutional quality scores. Every region or states has its own strengths and weaknesses. Of course, there are some states having worse performances in almost all indicators, but that is not correct in the case of many states. Therefore, indexes of each indicator in the form of sub-indices have an additional advantage which provides detailed information regarding potential differences, strengths and weaknesses of the states.
Acs and Szerb (2010) has mentioned the relevance of two closely related theories, Theory of Weakest Link (TWL) and Theory of Constraints (TOC) regarding the importance of such detailed information. These two theories, which are mainly applied in production and operation management, argue that if the various indicators/areas are out of balance, development is inhabited and improvement can only be achieved by removing the weakest link that constrains the performance of the whole system. Thus, in the context of entrepreneurship, it implies that entrepreneurship development in any state depends on improving the binding institutional barriers and can be achieved by improving the worst performing indicator/variable.
There is a room for development in each state. Every state can improve its entrepreneurial climate and thereby entrepreneurial performance by addressing specific
‘bottlenecks’. For example, among the leading states, Goa has a specific problem regarding the security with a higher number of physical and economic crimes and lesser
efficient system of police and judiciary. Among the weaker and poor institutional quality states the problem is in all sectors, but the priority sector is the opportunity. Of course, a balance between the different areas and among the various indicators is desirable, but all of them cannot be achieved simultaneously. Therefore, the weak performances in a particular area, that is, a bottleneck, should be concerned first because it has the negative effect on all the features.
Any generalization about India as a whole may have misleading information and conclusions. India is a combination of states with better institutional environment and quality which can attract investment as well as the states where the problems are worrisome. There are also certain states which experience imbalances among the various institutional factors. Similarly, there are certain states who are improving their relative positions, while the performances of some are declining over time. The interstate variation is significant and policymakers should consider these potential differences. Any policy or recommendations which would be applicable for one state may not be relevant for others. Every state has its own weaknesses and separate concerns.
Along with the differences there are some similarities between the similar category states. For example, poor institutional quality states have a similarity of weaknesses in terms of opportunity. Thus, detailed information on each state and each indicator is useful in understanding the institutional environment of the states and their differences with other states. One policy and action in all the states may show different results depending upon the institutional strengths or weaknesses of the various states. The institutional environment information of the states may provide a significant contribution in understanding the different level of entrepreneurship across the Indian states.
According to which an effective policymaking can be done rendering the various needs and concerns of the states.
This chapter has tried to accomplish the first objective of the study to the possible extent, i.e., to sort out the important regional differences in the quality of institutions across the states of India in the context of entrepreneurship. Various differences among the states in terms of several indicators are highlighted in detail. A final overview is also provided for a general use in the form of the Institutional Quality Indices. In the next chapter, there is an exploration of the relationship between these institutional quality indices of the Indian states and the various measures of entrepreneurship, which is the second objective of the study.
Notes:
i) Census in India, which provides the information regarding the urbanisation of the states, is conducted after every ten years. Hence, the figures for the year 2013-14 and 2006-07 have been worked out by extrapolation/interpolation of 2001 and 2011 Census data.
ii) The data related to the households having the various sources of information are available only for the year 2011-12, i.e., from the Census, 2011.
Therefore, the values are kept identical for all the years (2006-07, 2011-12, and 2013-14) in the sub-index ‘index of availability’.
iii) The index of security for the year 2006-07 is based on the four variables (inverse of the violent crime rate, inverse of the pendency percentage of IPC cases by police, inverse of the pendency percentage of IPC cases by courts and recovery percentage of the stolen property).