In India, supplementing competitive politics with collaborative economics
Cooperative federalism acquired currency since Narendra Modi became the Prime Minister (PM). But it is also a fact that an adversarial relationship developed between the non-National Democratic Alliance (NDA)-ruled states and the Centre post-2014. While this was on the political plane, an inadvertent casualty of the heightened tension has been the spirit of healthy competition that used to exist between states in the economic sphere.
Narendra Modi may be credited with setting the trend with his “Vibrant Gujarat” jamborees, though opinion is divided about the actual outcome of these investor meets. But much before that, states would vie with each other in wooing industries with a range of incentives ranging from investment subsidies to tax exemptions for the development of backward regions. Every state formed its own industrial development corporations as nodal agencies for administering schemes, or setting up special industrial and export processing zones. A few states such as Gujarat, Maharashtra and Tamil Nadu had a natural lead due to legacy factors while others tried to play catch up. Thus, in a way, there was a “bottom-up” approach to industrialisation in which the Union Government largely confined its role to policy-setting.
There is a discernible shift in approach under the Modi regime. There is a visible increase in the engagement of the Prime Minister’s Office (PMO) with global investors. Contrary to what sceptics may suggest, not all of it is limited to photo opportunities. The Niti Aayog has been trying to play a role in attracting investments and increasing the competitiveness of Indian industry globally, but also making the economy future-ready for international trends and opportunities. It can claim credit for developing the start-up ecosystem, which has resulted in over 50 unicorns and the Production Linked Incentive (PLI) scheme taking off. But there are doubts about how far the states are in sync with the Centre’s thought process.
While investor meets still happen in a ritualistic manner, there appears to be a loss in traction, barring in a few states. This could be, at least to some extent, due to the non-Bharatiya Janata Party (BJP) chief ministers taking their eye off the ball in their preoccupation to combat the Modi government or insecurity about being dislodged by the Goliath breathing down their necks from Delhi. With states refusing to tango, many reforms conceived by the Centre are either frustrated (such as land acquisition) or remain on paper such as labour or farm laws.
Meanwhile, economic paradigms have changed. The next phase of industrial growth cannot be propelled by sops alone. It is a common misconception that China’s economic development was driven top-down. It is true that not a leaf moves in that country without the nod of the Chinese Communist Party. But growth engines were decentralised with provinces competing with each other. This was built on the twin platform of creating infrastructure ahead of investment (sometimes keeping it idle) and skills training.
Undeniably, there is a thrust on developing infrastructure and connectivity (road, rail, air and waterways) by the government, though the pace is often stymied by lack of cooperation by states – especially when it comes to land procurement. States must be agile in capitalising these assets to their advantage by developing local linkages aligned to national priorities.
The real challenge, however, is going to be capacity-building in terms of skilled manpower and industrial ecosystems. This requires a change in mindset from frittering away doles to vote banks. Those states paying attention to this key differentiator will steal a lead over others and win in the long run.
The issue is no longer as much of bureaucracy, red tape or corruption at the lower levels. These factors will get taken care of once there is real value creation. Some states seem to get it. They are putting the building blocks in place, ignoring the surround sound of national politics. Winning the next decade is more important than who wins 2024. Populism may have got us thus far. But neither investors nor India’s youth have the patience or luxury of time. Practise competitive politics, but embrace collaborative economics.