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Monday, June 27, 2022

As Indian economy grows, Centre and states must work together

Arun Chawla writes: It is undeniable that cooperation is key to the smooth functioning of federal design. However, if it is coupled with positive competition among the states, then the overall result would be large-scale economic development across the country.

Written by Arun Chawla |
Updated: May 31, 2022 11:35:43 am
Healthy competition among states would also help them innovate and generate the requisite synergies for local businesses. Adoption of best practices as well as implementation of reforms at the ground level would positively impact the ease of doing business for MSMEs.

The ongoing discords between the Centre and states over issues ranging from the allocation of financial resources to fixing of GST rates has once again brought to the fore issues pertaining to our federal structure, the resolution of which is essential for the country’s growth.

The traditional approach to federalism that sees competition and cooperation at loggerheads is no longer relevant in the post-1990s scenario. Indian federalism today enables the Centre and states to function with both exclusivity and mutualism. The new approach has shown that a combination of cooperative and competitive spirit ensures the economic prosperity and welfare of the nation in an equal and equitable manner. It is undeniable that cooperation is key to the smooth functioning of federal design. However, if it is coupled with positive competition among the states, then the overall result would be large-scale economic development across the country.

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Cooperation between the Centre and states is required at both vertical (between Centre and states) and horizontal (among states) levels and on various fronts. This includes fine-tuning of developmental measures for desired outcomes, development-related policy decisions, welfare measures, administrative reforms, strategic decisions, etc. Recent efforts in this direction, such as according greater leeway to states in the functioning of the NITI Aayog, frequent meetings of the prime minister with chief ministers as well as with chief secretaries and district magistrates, periodic meetings of the President of India with governors, and the functioning of “PRAGATI” to review the progress of developmental efforts have generated the requisite synergy between the Centre and states. The Covid-19 pandemic has served as a vital reminder that individual efforts are not enough to tackle national contingencies and there is a constant need to strengthen and renew the cooperative spirit in Indian federalism.

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On the other hand, the competitive aspect of federalism can positively be harnessed by encouraging states to adopt each other’s best practices. This positive competition can be ensured vertically as well as horizontally. Positive efforts of states towards attracting investment can create a conducive environment for economic activities in urban and backward regions alike. Healthy competition coupled with a transparent ranking system would ensure the full materialisation of the vast but least utilised potential of the federal framework. In this direction, NITI Aayog’s initiatives such as launching sector-specific indices like the School Education Quality Index, Sustainable Development Goals Index, State Health Index, India Innovation Index, Composite Water Management Index, Export Competitiveness Index, etc. could prove to be a great contribution.

Healthy competition among states would also help them innovate and generate the requisite synergies for local businesses. Adoption of best practices as well as implementation of reforms at the ground level would positively impact the ease of doing business for MSMEs. This would raise India’s manufacturing capacity to the next level and radically transform India’s growth story. The rise in economic activities would result in higher GST collection and thereby boost the government’s welfare measures. Competition among states along with hand-holding by the Centre has the potential to enable the realisation of the goal of a five-trillion economy by 2024.

Central efforts toward synchronisation of cooperation and competition can be observed in the implementation of the 14th and 15th Finance Commission reports, which have greatly contributed to resource devolution. Recent reform measures in the form of the New Labour Code and other amendments/enactments by the legislature also exhibit this trend. The rising stature of the Indian economy on the world stage can only be strengthened by a tailored approach to cooperation and competition. The mandate to marry the two would inevitably be the collective responsibility of the Centre and the states. Any ideological differences between them will have to be inevitably put on the backburner for the great Indian federal structure to succeed and prosper.

This column first appeared in the print edition on May 21, 2022, under the title ‘The business of federalism’. The writer is director-general, FICCI

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