private player developing the zone. Contrary to SEZs, finally, State governments have in general a leading role in the development of zones, as well as in setting up the SPVs that manage them.<sup>37</sup>

# 5.3 Implementation and governance

Despite the non-negligible variation in State regulations on both labor and land documented in Sections 5.1 and 5.2, many commentators have argued that implementation and enforcement of policy tends to be far more uneven – so that governance might ultimately be what really matters in determining divergence in state outcomes.

As regards labor for example, our interviews with firms suggested that enforcement varies in many ways. In terms of regulation avoidance, Mitchell et al. (2014) and the OECD (2007) cite the example of “voluntary” retirement schemes (VRS), which sidestep the rules on retrenchment. More simply, the ILO (2008) also reports that businesses often have the capacity to arbitrage between states with varying degrees of enforcement, and just relocate to areas where it is more fluid. These observations are in line with recent empirical evidence from Hsieh and Olken (2014), who find no discontinuities in the distribution of firm size at the IDA thresholds of 50 and 100 workers. On the other hand, instead, Amirapu and Gechter (2017) argue that the distortionary effect of labor regulations depends critically on the quality of governance through the extent and type of corruption present in regulatory enforcement: firms do face a disincentive to expand beyond the 10-worker threshold of the Factories Act, but this is due more to corrupt practices by inspectors once a factory is registered than to the cost of regulatory compliance.<sup>38</sup> Warnecke and De Ruyter (2012) also report that public officials have considerable discretion in implementing government regulations, and that corruption is widespread in courts too.

There are strong elements of discretion in contract labor law as well, for example in the definition of ‘core’ activities and other activities for which use of contract labor may be prohibited in certain states, and the precise responsibilities of the labor contractor and the employer (the firm) in ensuring the contract is enforced. A qualitative survey suggests that contract labor law is poorly enforced, with workers complaining about collusive arrangements between contractors, firms and inspectors (Rajeev, 2009).

Governance seems to matter equally crucially for land-related issues (Chakravorty, 2012). Despite the DILRMP reforms, for example, a report by the World Bank (2015) on six Indian States<sup>39</sup> highlights that rural land records are generally not updated regularly (in Bihar, for instance, most maps seem not to have been updated since 1922) and lack spatial reference, while urban land records are lacking for many properties. Even when the legal and institutional framework is relatively robust, the World Bank assessment points to significant challenges in terms of implementation and enforcement: the frequent sharing of responsibility for land management by a range of different departments (up to four in certain states) and agencies causes horizontal overlap and lack of coordination in the first place, and registration of land transactions seems to be often plagued by errors and fraud. Duranton et al. (2015a), for example, note how the process of evaluation for land that is publicly purchased offers wide opportunities for corruption, as valuation is done by the public agent acquiring the property without specific guidelines. Morris and Pandey (2007) report widespread poor protection of land property rights, as well as a high degree of discretion in granting the non-agricultural clearance for the conversion of use of farmland.

> 37 Detailed information and comments on NIMZ guidelines and benefits can be respectively found in DIPP (2011) and ASA (2015). 38 Amirapu and Gechter (2017) even cite evidence that inspectors, while threatening to overreport violations, tend to demand bribes proportional to the number of workers employed in an establishment.

> 39 The States surveyed were Andhra Pradesh, Bihar, Jharkhand, Karnataka, Odisha, and West Bengal.

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