The Political Economy of Business-State Deals in Indian States

India has historically performed badly in the World Bank’s Doing Business Indicators and a key objective of the current Indian government is about improving de jure rules around investment decisions so as to facilitate economic growth. Using a novel methodology, I show that de facto deals rather than de jure rules characterise the business-state relationship in Indian states and more deal making is prevalent in states with weak capacity. I argue that reforms initiatives to increase the ease of doing business in India is unlikely to succeed when deals rather than rules characterise investment decisions and when state capacity is weak and prone to capture by the business sector.