Even as Modi shakes things up on the federal lever, India’s 29 states are reforming themselves, in a trend dubbed “competitive federalism.” The FT has the story:
The idea is simple. Nearly 1.3bn people live in the world’s third-largest economy and several of India’s 29 states are more populous than nation states elsewhere. Instead of struggling to impose sometimes contentious reforms from the centre, why not have each state make its own reforms to lure investors and set an example to the others?
Gujarat made a start in attracting manufacturers when Mr Modi was chief minister there for more than a decade, before he was elected prime minister last year. Now it is neighbouring Rajasthan, also governed by his Bharatiya Janata party, that is taking the lead, according to investors and officials.“The challenge for us now is really to create competition among states as far as reform is concerned,” Amitabh Kant, the senior government official and confidant of Mr Modi who has championed the “Make in India” campaign to turn the country into an industrial power, told a business conference in Jaipur, Rajasthan’s capital.“If there is one state which has taken the lead in reforms, in delivering on its commitments, it is the state of Rajasthan,” he said. “The action is in the states, not the centre.”
This is a hugely important trend for India’s reform agenda. Indian federal politics are paralyzed at the center even with the strong Modi majority. But giving states the freedom to go ahead on their own will allow faster change.It’s a tall order for large countries to make changes when everything has to be decided at the center. And remember, India is almost four times as populous as the U.S. Even China started with local reforms—testing grounds where new ideas could be tried.The federal structure, giving substantial tax and policy flexibility to states, is one of the reasons the U.S. has prospered. It’s good to see India moving in this direction. And as growth accelerates in some states and not others, voters and ultimately politicians will take note.