Continuing discord between the Center and the states on issues ranging from the allocation of financial resources to the setting of GST rates has once again brought issues of our federal structure to the fore, the resolution of which is essential. for the growth of the country.
The traditional approach to federalism which sees competition and cooperation at loggerheads is no longer relevant in the post-1990s scenario. Indian federalism today allows the Center and the States to operate both exclusively and in mutualism. The new approach has shown that a combination of cooperative and competitive spirit ensures the economic prosperity and well-being of the nation equally and equitably. It is undeniable that cooperation is essential to the proper functioning of federal design. However, if coupled with positive competition between states, the overall result would be large-scale economic development throughout the country.
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Cooperation between the Center and the States is required at the vertical (between the Center and the States) and horizontal (between the States) levels and on different fronts. This includes adjusting development measures for desired outcomes, development-related policy decisions, social protection measures, administrative reforms, strategic decisions, etc. the frequent meetings of the Prime Minister with Chief Ministers as well as Chief Secretaries and District Magistrates, the periodic meetings of the President of India with Governors and the functioning of “PRAGATI” to review the progress of efforts of development have generated the necessary synergy between the Centers and the states. The Covid-19 pandemic has been a vital reminder that individual efforts are not enough to deal with national contingencies and that there is a constant need to strengthen and renew the spirit of cooperation in Indian federalism.
On the other hand, the competitive aspect of federalism can be positively exploited by encouraging states to adopt each other’s best practices. This positive competition can be ensured both vertically and horizontally. Positive efforts by states to attract investment can create an enabling environment for economic activities in urban and backward regions. Healthy competition coupled with a transparent ranking system would ensure the full realization of the vast but underutilized potential of the federal framework. In this direction, the initiatives of NITI Aayog such as the launch of sectoral indices such as the Quality of School Education Index, the Sustainable Development Goals Index, the State Health Index, the India Innovation Index, Water Management Composite Index, Export Competitiveness Index, etc. could prove to be a great contribution.
Healthy competition between states would also help them innovate and generate the necessary synergies for local businesses. Adopting best practices as well as implementing reforms on the ground would have a positive impact on the ease of doing business for MSMEs. This would take India’s manufacturing capability to the next level and drastically transform India’s growth story. The increase in economic activities would result in an increase in the collection of GST and thus strengthen the government’s social protection measures. Competition between states as well as the stranglehold of the Center has the potential to enable the achievement of the goal of a five trillion economy by 2024.
Central efforts towards the synchronization of cooperation and competition can be seen in the implementation of the reports of the 14th and 15th Finance Committees, which have greatly contributed to the decentralization of resources. Recent reform measures in the form of the new Labor Code and other legislative amendments/promulgations also illustrate this trend. The growing stature of the Indian economy on the world stage can only be enhanced by an appropriate approach to cooperation and competition. The mandate to marry the two would inevitably be the collective responsibility of the Center and the States. Any ideological differences between them will inevitably have to be put on the back burner for the grand Indian federal structure to succeed and prosper.
This column first appeared in the print edition of May 21, 2022, under the title “The Federalism Affair”. The writer is Managing Director, FICCI