Towards a more Functional Federalism under Market Economy
Paper for the 21st Thinkers and Writers Forum, to be held under the auspices of
Skoch Development Foundation on 21st September 2014, New Delhi
Dr. Prakash Chandra Jha
Assistant Professor (Political Science), Amity Law School
Amity University Rajasthan, Jaipur
Mobile No: +919783747305
E-mail: prakashjnu@gmail.com
pcjha@jpr.amity.edu
1
Towards a more Functional Federalism under Market Economy
No one can appreciate the advantages of a federal system more than I. I hold it to be one of
the most powerful combinations favoring human prosperity and freedom. I envy the lot of the
nations that have been allowed to adopt it (Tocqueville).
Abstract
The paper examines India’s march from so called quasi-federal or centralised
non-functional federal system to more vibrant and functional federalism today.
Needless to say centre-state relations in India during command economy
worked, by and large, as principal-agent model where states were often treated
as subordinates by centre. Adoption of market economy heralded a new era in
which states came to occupy a strategic position in India’s market-led economy.
Centre has even gone to the extent of encouraging states to negotiate
loans/FDIs with overseas banks/institutions directly. With central grants-in-aid no
longer being seen as the only source for financing their expenditure, states
began competing with each other for FDIs. And with centre not being seen as an
obstacle but as facilitator, competition among states to attract FDIs became
symmetrical. States’ capacity to attract more investment depend on forward
looking and market friendly approach of their leaders who make several trip
abroad often along with their state-based business delegations to negotiate FDIs.
Sub-national governments across the border have begun establishing trade
offices in India’s developed states. Visit of states/provinces delegation led by
their governors/premiers to states’ capital in India are becoming a regular affair.
State leaders, cutting across party lines, have increasingly realised that divisive
politics cannot ensure them re-election; hence they focussed on developmental
politics and governance. Informal interstate interactions have increased and
successful schemes/programmes started by one state began to be emulated by
others states thus making Indian federal system sort of laboratory to some
extent. Even India’s so called Bimaru states and marginalized north-eastern
2
region are undertaking reforms in order to catch up with other states. Thus, India
appears to be moving towards a truly functional federal system.
Centre-State Relations under Command Economy
It is goes without saying that India’s command economy i.e. in fact, mixed
economy with outward-looking approach, centrally-planned interventionist policy
and import substitution economic model led to widespread corruption and
inefficiency in the government. It has also affected centre-state relations with the
principles of federalism often being often held hostage by centre. According to
Nayar :
In the light of the nationalist perception of the colonial legacy having been one of capitalist
exploitation and neglect of industrialization, India’s post-independence leadership had turned to
an ambitious program of rapid import substitution industrialization (ISI) through the mechanism of
the public sector within a socialist framework. Apart from the straightforward quantitative
restrictions on imports in order to promote import substitution and protect local industry, the ISI
program entailed high customs tariffs as a matter of course. The program, however, additionally
required huge financial resources for investment in the rapidly expanding public sector. These
were obtained through deficit financing—which imposed an arduous burden on the poor through
its impact on prices—but also through almost confiscatory direct taxation and heavy doses of
indirect taxation. The quest for increased resources and the socialist aspirations, or the claim to
such aspirations, for equity and progressiveness often trumped considerations of rationality in
taxation (Nayar: 2014, 203).
During pre-liberalisation era, industrial development in the states was determined
by central government often in partisan manner. Sarkaria Commission, that was
constituted to examine the centre-state relations in 1980s, observed that this was
major complaint of states. Karnataka, a state not governed by Congress Party
when Commission was making its inquiries, cited instances of industries not
being located in Karnataka for political considerations. The location of publicsector unit was not only influenced by political considerations, but Karnataka
government also noted that private sector corporations, such as Glaxo, the Tata
Electric Locomotive Company, and Tractors India wanted to set up industries in
Karnataka and were asked by the centre (led by the Congress Party) to locate
plans elsewhere. Kerala government argued that no objective criteria had been
3
followed in deciding where investment by centre in public sector would occur
(Chhibber and Kollman: 2004, 139-140). Sinha has noted that in the primary
mode of regional competition in pre-liberalisation era was vertical through the
centre. In order to get things done through centre, until recent past, states
followed mainly two routes: some states followed through bureaucratic channels,
while others deploy partisan and political routes, shaped by coalition patterns.
Gujarat, for example has followed a more bureaucratic route that relies on intrabureaucracy lobbying and monitoring, while Tamil Nadu, West Bengal, and
Andhra Pradesh pursue a partisan route that attempts to deploy their political and
party influence at the centre for greater economic rewards (Sinha, 2010).
The command economy coupled with political centralisation embodied in so
called ‘one party dominant system’ during congress era under a constitution
weighted in favour of centre contributed massively towards centralisation and
states were virtually treated as sub-ordinate units.1 Federal principles were often
put aside. Central government also created some institutions and schemes, and
took some policy measures to influence states’ policy. Institution like Planning
Commission (PC) became extra-constitutional body for getting states to adopt
the strategy of planning to ensure rapid development. PC had weakened
constitutional body like the Finance Commission (FC) responsible for allocating
and determining revenue transfers to states. In 1970, the central government
implemented the License-Permit Raj, a policy whereby license would be required
from government to set up industry. The central government also nationalised
most private banks in March 1970 and general insurance industry in 1972.
Central government regulated the development of private industries through
licenses and control. Besides, through central planning, control over industrial
policy and financial institutions and all India civil services, states’ position was
further weakened. Centre-state relations in India during command economy
worked, by and large, as principal-agent model in which states were often treated
as subordinates by centre. Command Economy also witnessed the phenomenal
Maurice Duverger, in his classic typology of party system, has classified India as being ‘one party
dominant system’. See Duverger, (1951: 308).
1
4
growth of Centrally-sponsored schemes (CSSs) for the states designed to serve
national priorities (Singh and Verney, 2003: 1-4; Rao and Sen 1996: 35-37).
Khemani (2007) in her study shows how the central government allocated
financial transfers to the state governments purely based on political
considerations, leading to equity and efficiency distortions. By taking recourse to
concurrent list in the constitution, which includes economic and social policies,
central government made inroad in states’ subjects such as rural development,
health, agriculture and family welfare. What was worse perhaps was in important
decision affecting states in above mentioned areas, they were hardly consulted.
Appointment of governors by the central government without consultation with
states, allocation of resources from centre to states in partisan manner and
imposition of president rule in state remained the main irritants of centre-state
relations in India till recent past. One of the foremost scholars on federalism, K C
Wheare called India as quasi-federal. khan (1997) has characterised India as
‘centralised, dysfunctional, anachronistic union-system’. However, it can be
argued that “Indira Gandhi was the only leader who sought to challenge the
overall principles of federal functioning” given her conviction in “conceptually
flawed binary that a strong centre requires weak states and vice versa”
(Varshney, 2013, p. 45).
Centre-State Relations under Market Economy
Dissatisfaction of states, change in party system, regionalisation of politics,
liberalisation of Indian economy, role of judiciary among others are the important
factors responsible for the shift in centre-state relations in India. Judiciary in India
has also played some important role in curtailing power of the central
government. According to Arora judicial acceptance of federalism as basic
structure of the constitution in 1994 has had significant implication on centrestate relations n India. Arora has argued:
The doctrine of ‘Basic Structure’, enunciated in Keshavananda Bharti (1973), was further
developed in subsequent judgements to even cover federalism, albeit to a limited extent. Thus,
the judiciary moved from conditional acceptance of the federal nature of the Constitution to
5
considering it an ‘essential feature’ (Bommai, 1994), and simultaneously increased the scope of
judicial review”). “The 1990s could well be characterized as a defining decade for India’s federal
polity. Economic reform through liberalisation and redefinition of the relationship between the
state and markets, in turn, impacted the roles and responsibilities of different levels of
government” (Arora, 2014: 52-53).
Introduction of New Economic Policy (NEP) in 1991 has, indeed, led to a
paradigm shift in centre-state relations. Increasing reliance on markets has
proved to be an enabling factor for the emergence of a market economy driven
by the states and not by the centre. With the abolition of License-Permit Raj,
centre could no longer take decision over business location. Now both Indian and
foreign capitals got the freedom to seek locations which offer the best returns.
Moreover, the curtailment of centre’s discretionary power over industrial licensing
has led state governments to directly negotiate with entrepreneurs. This has led
to an intense competition among state governments to attract investment. Thus
Post 1991, the dominance of the centre in economic policy decision making has
witnessed significant deterioration paving way for the state governments to
design their own policies (Ahluwalia 2000). As states intensified their quest to
attract more and more private and foreign investments to finance their investment
requirements, there was decline in public investment and a rapid increase in
private investment. And consequently, the centre’s financial control over the
states declined steadily. In Market economy, economics prevailed over partisan
politics. Economic factors largely determined the number and magnitude of
investment inflows into the states. In the process, states which possessed
locational advantages such as larger markets, better infrastructure, a more
skilled labour force, and the presence of a large investor base in comparison to
less well-endowed states, began to benefit (Ahluwalia 2000). States’ pursuit of
FDI led to inter-jurisdictional tax war and competition for the purpose of attracting
investment both foreign as well as domestic.
Further, liberalisation of economy has reduced the role of Planning Commission
(PC). Finance Commission (FC), which had lost some of its power of revenue
allocation at the hands of PC, has regained its strength. Today it is responsible
6
for about 70 per cent of total inter-governmental transfers made to states. PC
given its role as centralising force and not considered as useful for market
economy is being replaced by new institution with states having important say in
it. In Political sphere, major development in the 1990s is that states governed by
constituents of the ruling coalition at the centre, have come to wield considerable
power in the central government. As states came to occupy strategic position in
national politics, state-based leaders of governing coalition would often prefer to
be the Chief Minister rather than Union Minister. Saez argues that India’s gradual
economic liberalisation policies led consensus building cutting across party line
around some key policy proposals. He writes: “Instead of harnessing the
credibility of reforms, gradualism appears to have cemented a broad multpartisan political consensus in favour of measured economic liberalisation”
(Saez, 2002: 139).
Environmental and Resource Federalism
Kelkar (2010) has discussed a host of new emerging issues and challenges in
the realm of fiscal federalism. Given the spurt in discovery of offshore reserves of
hydrocarbons and given the huge rents from such vast resources, which so far
remain the preserve of centre, now need to be shared. How to share these rents
have become major issue of fiscal federalism today. Constitutional amendment is
required to achieve this. Apart from the resource federalism, green federalism is
another big challenge for our fiscal federalism. Our existing intergovernmental
transfer system does not adequately recognize the environmental externalities.
For example, states with large forests are seeking compensation for
environmental services they provide to the entire federation. Kelkar further
argues that states with large hydal power potential are claiming compensation
from providing clean power for federation. Similar issues have also come up
regarding water transfers between two different states sharing same river basin.
7
Subnational Borrowing
Centre has facilitated states’ direct lending negotiations with the overseas bank.
The World Bank is directly dealing with Indian states, which is a major departure
from the established norm (Sridharan, 2003; Kirk, 2011). One important
requirement to preserve market incentives requires that borrowing by all levels of
governments be limited and that a hard budget constraint be imposed on subnational governments. India has enacted Fiscal Responsibility and Management
Budget (FRMB) act in 2003 at the central level and states were given incentives
to enact similar legislations voluntarily. Since, market economy requires tighter
hard-budget constraints at centre; they in turn affected central level plan
expenditures to the states. Now states would either borrow from the market or
seek FDIs. Influx of FDIs in 1990s arguably has gradually diminished the
importance of the central government as a principal source of revenue for rich
states. The absence of large scale capital projects in successive central budget
suggest that either the private sector or states should build the infrastructure.
This has in effect led to competitive federalism where states compete with each
other in providing the potential investors with numerous incentives such as
Special Economic Zone (SEZ), some guaranteed return on investment, and
reimbursement of Value Added Tax (VAT) etc. Given the withdrawal of central
government in starting large scale capital projects in turn put more pressure on
less developed states, and all states for that matter, to increase their
competitiveness in order to gain investment.
FDIs and States’ Paradiplomacy
With the states’ engagement in paradiplomacy, Foreign Economic Policy no
longer
remained
central
preserve.
The
economic
globalisation
and
regionalisation have made it possible for states of India to interact with their
respective investors in foreign countries in de facto sense if not in de jure sense
(Jha, 2004, 159). States’ high profile investment-promotion activities abroad are
testimony to the fact. Such activities have indeed helped some states in their
economic development and reduced their economic dependency on centre.
8
Regionalisation of political parties and coalition rule at centre do not adequately
explain the subnational paradiplomacy. Earlier in pre-liberalisation period existed
two routes, i.e., partisan route and bureaucratic routes to engage in
paradiplomatic activities. With centre donning the role of facilitator of states’
transnational economic activities, these channels are becoming ineffective now.
This has led to symmetrical horizontal competition among states to pursue
paradiplomatic initiatives to attract FDI. In this states’ capacity to engage in
economic paradiplomacy depends more on subnational-business linkage,
promotional strategies,
public relations exercises,
creating pro-business
environment etc.
States so far have adopted a host of instruments which fall under paradiplomacy.
They include putting pressure on central government to sign or not to sign or to
have a say in an international treaty affecting their region/interest, trade
negotiation with external bodies, negotiating loan directly with World Bank,
showcasing states’ achievement abroad, providing incentives to attract foreign
investments, participating in international forum such as World Economic Forum,
visiting abroad for trade prospects, hosting foreign diplomats, foreign ministers
and even heads of states and organising annual meet, conference and seminar
and wooing NRIs using their diasporas, setting up sister cities and twin cities,
border haats, among others. States’ paradiplomacy in this regard can play a
significant role in tourism which is one of the biggest industries in the world with
the capacity to employ 200 million people worldwide. Projection of tourist inflow
around the world will be in the range of 1.6 billion spending US$ 5 billion a day by
2020. It goes without saying that India has immense tourism potential that has
not been exploited so far. FDI laggard state such as Bihar and north-eastern
region are engaged paradiplomatic pursuit to attract FDI and to realise their
tourism potential (Jha, 2014). Public relation exercises have become important
driving force for attracting foreign FDIs.2 Media has become an important tool to
2
An NRI, Mahendra Khari, the president of the International Punjabi Chamber for Service Industry
(IPCSI), pointed that unlike other states like Gujarat, the Punjab government was not efficient in
propagating polices or taking initiatives to attract foreign investment. “In Punjab, they (Punjab government)
9
showcase the achievements of states. Chief Ministers, consciously seek out the
media to advertise their industrial policies and achievements, and explicitly
compare themselves with their competitor states. There is much greater
emphasis on conferences, meetings, exhibitions, road shows, and press
conferences. States make presentations at conferences, utilizing the latest
technology, video-conferencing, and computers. The promotional literature
handed out by states is usually crafted by private advertisement agencies tasked
with selling the state. The struggle over perception and image building has
become intense. After the Enron controversy, Maharashtra spent a considerable
amount of money on a public relations exercise in partnership with the Indian
Engineering Trade Fair in New Delhi in a bid to promote itself as a good
investment destination (Sinha, 2005). Recently Haryana appears to be doing the
same after Maruti-Suzuki controversy. Subnational paradiplomacy can also be
used by the centre as soft diplomacy that can complement the national foreign
policy.
Increasingly, there is realization among the foreign investors that the states in
India have become independent players in making foreign economic policies
suited to their own needs, and that the old method of approaching the central
government to pursue trade relations at the state level cannot be useful. Not
surprisingly therefore, various state capitals have/are witnessed/witnessing
opening of number of foreign trade offices. There is an interesting anecdote
about it in a newspaper. Taiwan has a trade office in New Delhi rather than a fullfledged embassy. Some year ago it has sought permission from Ministry of
External Affairs (MEA) to open a subsidiary office or consulate in Chennai since
Taiwanese companies have substantial investments in Tamil Nadu. Worried
about the reaction of Beijing, MEA dithered. Finally Taiwanese asked the then
DMK government in Chennai to use its political clout with UPA (The Asian Age,
30 July 2012).
do not have much public relations exercise like Gujarat... I have not seen much support from state
functionaries like NRI help centres, professional support, etc. It (support) is at a personal level (rather) than
any other level,” rued Khari, who is based in the UK , see Business Standard, 8 November 2012.
10
Sub-national paradiplomacy can take place both vertically and horizontally.
Indian states are new to this (horizontal) inter-subnational cross-border trade.
Visit of states/provinces delegation led by their governors/premiers to states’
capitals in India are becoming a regular affair in recent time. States in India are,
however, not allowed to open trade office abroad. A number of countries in the
world including USA, Brazil, Australia, China and Japan have taken full
advantage of states’ paradiplomacy in their efforts to strengthen ties with other
countries. The decision of Gujarat government recently to set up international
desks independently in foreign countries like the US, China and Japan for
facilitating investment in the state by overseas investors, is perhaps first attempt
by any state to start such permanent facilities overseas to directly attract Foreign
Direct Investment (FDI). Gujarat government officials used to travel to various
foreign countries ahead of Vibrant Gujarat Global Investors Summits, but with the
setting up of international desks in those countries, the process of attracting FDIs
in the state will now continue throughout the year, an official said (Business
Standard, 6 July 2014).
Nevertheless, Paradiplomacy presents challenges too. It is often argued that
states lack the skills to exercise responsible foreign policy especially in political
sphere given the fact that states do not have trained diplomats. Then there are
other concerns in form of most of India’s neighbours being hostile neighbour.
Thus states’ transnational paradiplomacy is likely to pose threat to the country’s
sovereignty and integrity from forces of terrorism, insurgency and separatism
often supported by some of India’s hostile neighbours. Thus how to reconcile the
demands of a globalising economy that relies on greater opening with security
concerns remains a major challenge?(Jha, 2014).
Developmental Politics
Developmental politics is based on conviction of political leaders that
developmental works provide much more prospect for their re-election. Following
regionalization of politics, State level politics came to be dominated by state
specific issues rather than national issues. This, in effect, has made the
11
economic development of the respective states the focal point of a potential
electorate (Ahluwalia 2000). The post 1991 period also coincides with a dramatic
surge in political participation of lower caste communities who remain
economically backward with the highest rate of unemployment, putting pressure
on state governments to provide employment opportunities. Thus, state
governments are forced to compete against each other in attracting investment
which would not only generate jobs and boost their economies, but also increase
their chances of re-election (Vadlamannati, 2011). Thus political leaders’ shift in
their approach from divisive politics to developmental politics and governance is
quite palpable. As Bhagwati (1999) has argued that as large sections of the
middle class stand to gain, the median voter too will prefer those governments or
incumbents which support capital importation.
Laboratory Federalism
It has long been argued that federalism creates a marketplace for public policy, in
which the best policies are replicated across units (Oates, 1999, pp. 1132).
Planning Commission, License Permit Raj, Centrally-Sponsored Schemes
(CSEs) also known as discretionary transfers, among others have been great
obstacles in laboratory federalism in India. Despite the recognition of the failure
of existing programmes on part of centre, half-hearted attempt was made to
curtail them. Unless state should not be given more flexibility in designing their
programmes they cannot serve as "laboratories". There are, in fact, a number of
important and intriguing examples of policies whose advent was at the state level
and that later became fixtures of central policy. Successful policies such as midday meals in Tamil Nadu, rural employment guarantees in Maharashtra, the
right-to-information acts in Delhi and elsewhere were all successful state
experiments which later received nationwide acceptance. We have Chhattisgarh
linking smart cards to the Public Distribution System, Andhra Pradesh evaluating
the impact of contract teachers on primary education, Gujarat reforming
electricity by linking higher user fees to guaranteed service provision, water
conservation programme semi-arid Saurashtra, Gujarat SWAGAT programme for
12
effective redressal of people's grievances, Indrama Housing schemes in
Andhrapradesh,
Arogyashree:
helath
Ensurance
Scheme,
anti-poverty
programme, Kudumbashree in Kerala, Gujarat’s decision to set up international
desk in foreign countries to seek FDIs etc. During their interaction at world
Economic Forum India Conference in Mumbai in November 2011, Chief Ministers
of Maharashtra, Kerala and Madhya Pradesh also backed the idea of
institutionalizing an innovation centre to help states share best practices.
Common Market
One of the major advantages of federalism is that ‘it offers to the constituents to
operate in a large market’. The economic benefits from the competition and a
free flow of goods and factors of production over a large area are so tempting
that many countries, in spite of their reluctant to surrender their sovereignty, have
come forward to create a common market for them, the European Union (EU)
being the classic case in point (Bagchi, 2004). Panchhi Commission on centrestates relations has recommended for the creation of Common market
(government of India 2010, 98). Our founding fathers of the Constitution have
recognised the great potential of a large common market and hence devoted one
full part of the Constitution (Part XIII) to trade and commerce within the country
with a clear mandate in its opening Article (Article 301): “....trade, commerce and
intercourse throughout the territory of India shall be free”. Bagchi (2004) has
argued: “Distrustful of the market, policy makers who guided the destiny of India
after independence proceeded to impose restrictions on trade and commerce in
the ‘country through regulations in various form, invoking ‘public Interest’.” Centre
and states have reached a great deal of understanding over the introduction of
proposed Good and Service Tax (GST) aimed at removing restrictions on trade
and commerce across India. Kapur (2014) has stated that impact of GST can be
social and political also. He argues: “Importantly over the long time its most
beneficial impact will be to leverage the large common market that is India. The
fragmented market leads to fragmented identities. Therefore the impact of GST
13
can be as much social and political as economic” (Kapur, 2014). He further
argued:
…though the Indian Constitution guarantees free mobility across state borders,
numerous Indian states have put in residential and language requirements in matters of
employment and admission to educational institutions. The man who will be chief
minister of India's youngest state, Telangana, openly declares that residents
of Seemandhra will not be eligible for jobs in his state…. Inter-state migration should be
seen as a tool of national integration and not something to be bemoaned, and migrants'
safety and rights need much stronger safeguards.
Value- added Tax (VAT) that finally came into effect in the states on April 1, 2005
can be considered as a major milestone in centre-state relations and towards a
gradual move to forge a common market. Some states had initially held back but
soon all joined in once the advantages of the new system became evident.
Strong-Centre v. Strong-States Framework
Most of the works on federalism focussed on impact of regionalism on
federalism, implication of centralised party system on federalism; centre gaining
at the cost of states; other studies focuses on empowerment of states due to
regionalism and weakening of centre. Scholars have examined federalism from
constitutional, political, social, economic, and multi-cultural perspectives in which
strong centre v. Weak state or weak centre v. strong states framework remained
their central concerns. Under market economy, however, focus has shifted to
rather functional federalism where centre has facilitator of states’ economic
engagement in overseas markets. There are concerns that in market economy
centre will be become weak with strengthening states. Experience however
shows that for a federation to deliver on its promise of providing a large internal
market depends critically on the authority and effectiveness of national
government to police the common market and ensure an unhindered mobility of
goods and factors across subnational jurisdictions (Bagchi, 2004). The notion
that Strong states and strong centre both can coexist has become popular.
Constitutionally speaking, centre remains strong and state weak. Assumption
that strong states mean weak India has been proved wrong as Indian federalism
has become more functional under market economy. Parekh has stated:
14
Since we are long been accustomed to thinking of national unity in terms of
centralisation, the weakening of the centre and emergence of polycentric India fills many
with unease. Some fear that it reduces the country to a sum of its fractious parts, each
pursuing its narrow interests in disregards of those of others and the whole. Others even
think that such a weak India lacking a sense of collective purpose could once again
become a prey to foreign powers be they states or more likely multinationals and lose its
independence for all practical purpose” (Parekh, 2014, p.xi).
There has been a great deal of understanding among Central leadership that
more powerful the states became, the lesser would be the governance problems
for the nation as a whole. As Varshney argued: “This binary—that a strong centre
requires weak states and vice versa—is conceptually flawed” (Varshney 2013:
45). At the same time, while India’s states are becoming more influential and
active, Delhi has held on to its power. What has emerged through this process is
a shared sovereignty between the Centre and the states. Market economy, thus,
requires both strong centre as well as strong state.
Given
the
emerging
challenges
associated
with
resource
federalism
environmental federalism and fiscal federalism discussed elsewhere in the paper,
new independent body more responsive to the need of states is required.
Existing intergovernmental institutions, introduced to serve the so called mixed
economy, have outlived. Market economy needs different institution wellequipped to face new developmental challenges in the realm of centre-states
relations in India. Thus, Saez (2002,129) has rightly argued that Planning
Commission, National Development Council, Interstate Council etc. proved to be
inadequate intergovernmental institutions and they should either replaced or
revamped.
Conclusions
Federalism has come a long way in the last six decades from being dismissed as
full-fledged federal system to widely acclaimed federal system in the world.
Simply put, Indian federalism has become more meaningful and functional post
liberalisation. The paper has examined this turnaround. From a subordinate
15
position till early nineties, states rose to occupy strategic position in India’s move
from command economy to market economy. No wonder therefore, centre
became more interested in involving states in even forbidden area such as
foreign policy matters. Centre is today encouraging states to directly negotiate
with investors abroad. States today are more concerned about the fiscal
prudency because of the realization that market would penalize them if they
remained defaulter. States’ capacity to become developed or undertake
developmental works do not depends upon their relations with central
government but on development of infrastructure, pro-business environment,
forward-looking approach of their leadership as they can directly approach the
market for FDI or borrowing. Thus horizontal competitive federalism in India has
become symmetrical so to speak. There is increasing realisation at central
leadership that trade and investment promotion activities of states and
transnational economic engagement of state-owned/state-based companies
notwithstanding their own economic interest would deepen India’s relations with
foreign nations. Divisive politics in states are being replaced by developmental
politics. States are learning from each other’s often cutting across party line. A
successful programme initiated by a state attracts the attention of other states.
Market economy has also opened several avenues for states and reduced their
fiscal dependency on centre. States are being seen driver of India’s growth. New
challenges emanating from fiscal, environmental federalism and resource
federalism call for new intergovernmental institutions. A great deal of
understanding appears to have developed between centre and states over the
introduction of GST and creation of a common market. Today strong states are
no longer considered antagonistic to the nationalist interest of central leadership
than in the past and this perhaps is great achievement in the realm of centrestate relations.
16
References:
Ahluwalia, M.S. (2000) Economic Performance of States in the Post-Reforms
Period, Economic and Political Weekly, pp. 1637-1648.
Arora, Balveer. (2014) “Autonomy and States’ Rights in the Indian Federal Union:
Original Intent, Contemporary Content”, in Lancy Lobo, Mritunjaya Sahu
and Jayesh Shah, eds., Federalism in India: Towards a Fresh Balance of
Power, Jaipur: Rawat Publication). pp. 45-61.
Bagchi, Amresh. (2004) “Policing the Common Market”, Business Standard,
October 5.
Bhagwati, Jagdish (1999) “Globalization: Who Gains, Who Loses?”, in Siebert
Horst. ed., Globalization and Labor, Tubingen: Mohr Siebeck.
Business Standrad (2014), Gujarat to set up international desks overseas to
attract FDI, July 6.
Chhibber, Pradeep & Ken Kollman (2004). The Formation of National Party
Systems: Federalism and Party Competition in Canada, Great Britain,
India, and the United States. Princeton, Oxford: Princeton University
Press.
Duverger, Maurice (1951) Political Parties (New York: Methuen and Company).
Government of India (2010), Report: Evolution of Centre-State relations in India,
Punchhi Commission, March, Vol.1.
Jha,
Prakash
Chandra
(2014)
“Federalism,
Regionalism
and
States’
Paradiplomacy in India” in Lancy Lobo, Mritunjaya Sahu and Jayesh
Shah, eds., Federalism in India: Towards a Fresh Balance of Power,
Jaipur: Rawat Publication) pp.234-60.
---------------, (2004) “Emerging Issues and Challenges in Brazilian Fiscal
Federalism: Some Lessons for India”, India Quarterly, Vol. LX, No. 1&2,
January-June, pp. 144-170.
Kapur, Devesh (2014), “Building Indianness”, Business Standard, 25 May
Kelkar, Vijay (2010), Address at the International Development Research Centre
(IDRC) on The Recent Evolution of Indian Federalism, organised by
17
Forum of Federations, Ottawa and India Development Foundation, New
Delhi, http://www.forumfed.org/libdocs/Misc/Speech_IDRC-Mar2010.pdf
Khan, Rasheeduddin (1997), ed., Rethinking Indian Federalism, Inter-University
Centre for Humanities and Social Sciences, Indian Institute of Advanced
Study, Shimla.
Khemani, Stuti (2003) Partisan Politics and Intergovernmental Transfers in India,
Policy Research Working Paper 3016, (Washington, D.C.: The World
Bank Development Research Group Public Service).
Kirk, Jason A. (2011). India and the World Bank: The Politics of Aid and
Influence. New York: Anthem Press.
Linga Noronha, Nidhi Srivastava, Divya Datt and P V Sridharan (2014), Resource
Federalism in India, in Lancy Lobo, Mritunjaya Sahu and Jayesh Shah,
eds., Federalism in India: Towards a Fresh Balance of Power, Jaipur:
Rawat Publication, pp..261-288.
Oates, Wallace E. (1999), An Essay on Fiscal Federalism, Journal of Economic
Literature, Vol. 37, No. 3. pp. 1120-1149.
Parekh, Bhikhu (2014), Preface, in Lancy Lobo, Mritunjaya Sahu and Jayesh
Shah, eds., Federalism in India: Towards a Fresh Balance of Power,
Jaipur: Rawat Publication). pp.vii-xi.
Rao, M. Govinda and Tapas K. Sen (1996) Fiscal Federalism in India: Theory
and Practice (Delhi: Macmillan India Ltd.).
Rudolph, Lloyd I., and Susanne Hoeber Rudolph (2001). “The Iconization of
Chandrababu: Sharing Sovereignty in India’s Federal Market Economy”,
Economic and Political Weekly, Vol. 36, No. 18, pp. 1541-52.
Saez, Lawrence (2002) Federalism without a Center: the Impact of Political and
Economic Reform on India’s Federal System (New Delhi: Sage
Publication).
Singh, Mahendra P. and Douglas V. Verney (2003), “Challenges to India's
Centralized
Parliamentary
Federalism”,
Publius:
The
Journal
of
Federalism, vol. 33, no. 4, pp. 1-20.
18
Sinha, Aseema (2010). “Business and Politics” in Niraja Gopal Jayal and Pratap
Bhanu Mehta, eds., The Oxford Companion to Politics in India, (New
Delhi: Oxford University Press), pp. 459-76.
Sinha, Aseema (2004). The Changing Political Economy of Federalism in India:
A Historical Institutionalist Approach, India Review, Vol. 3, No. 1, pp. 25–
63.
Sridharan, Kripa (2003). “Federalism and Foreign Relations: The Nascent Role of
the Indian States", Asian Studies Review, Vol. 27, No.4, pp. 463-489.
Tocqueville, Alexis de. 1966. Democracy in America. Chapter 8, Translated by
George Lawrence, Edited by J. P. Mayer. New York: Harper and Row.
Vaishnav, Milan (2013). “A More Equal Union: An argument for a more
competitive
federalism”,
Caravan, 1
March
2013http://www.caravanmagazine.in/perspectives/more-equalunion#sthash.hoNdNzFG.dpuf
Vadlamannati, Krishna Chaitanya, (2011), “A Race to Compete for Investment
among Indian States?– An Empirical Investigation”, Alfred-Weber-Institute
for Economics, University of Heidelberg, Germany.
19