As Indian economy grows, Centre and states must work together

Ongoing disputes between the Center and the states on issues ranging from the allocation of financial resources to setting GST rates have brought to the fore once again issues related to our federal structure, the resolution of which is essential to the country’s growth.

The traditional approach of federalism that sees competition and cooperation as opposing sides is no longer appropriate in a post-1990s scenario. Today, the Indian federation enables the center and the states to operate exclusively and equally. The new approach demonstrated that a combination of a spirit of cooperation and competition ensures the economic prosperity and well-being of the nation in an equal and equitable manner. It is undeniable that collaboration is key to the smooth running of federal design. However, if combined with positive competition between the states, the overall result will be widespread economic development throughout the country.

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Cooperation between the center and the states is required on the vertical (between the center and states) and horizontal (between states) levels and on different fronts. This includes adjusting development measures to desired outcomes, policy decisions relating to development, welfare measures, management reforms, strategic decisions, etc. Frequent meetings of the Prime Minister with Chief Ministers as well as with Senior Secretaries and District Judges, periodic meetings of the President of India with Governors and Pragati’s work to review progress in development efforts have created the required synergy between the Center and the States. The Covid-19 pandemic has served as a vital reminder that individual efforts are not sufficient to deal with national emergencies and there is a constant need to strengthen and renew the spirit of cooperation in the Indian Federation.

On the other hand, the competitive aspect of federalism can be harnessed positively by encouraging states to adopt each other’s best practices. This positive competition can be ensured vertically as well as horizontally. Positive efforts by countries to attract investment can create a favorable environment for economic activities in both urban and underdeveloped areas. Healthy competition combined with a transparent rating system would ensure that the huge and underutilized potential of the federal framework is fully realized. In this direction, NITI Aayog initiatives can be such as launching sector-specific indicators such as school education quality index, sustainable development goals index, government health index, India innovation index, composite water management index, export competitiveness index, etc. Great contribution.

A healthy competition between countries would also help them innovate and generate the synergies needed for local businesses. The adoption of best practices as well as the implementation of reforms at the ground level would positively impact the ease of doing business for MSMEs. This will take India’s manufacturing capacity to the next level and radically transform India’s growth story. The rise in economic activities will increase the collection of GST and thus enhance government welfare measures. Competition between nations combined with hand-to-hand acquisition by the center has the potential to enable the achievement of the five trillion economy target by 2024.

The central efforts towards synchronization of cooperation and competition can be seen in the implementation of the fourteenth and fifteenth Reports of the Finance Committee, which contributed significantly to the transfer of resources. This trend is also demonstrated by recent reform measures in the form of the new labor law and other amendments/legislation by the legislature. The rising position of the Indian economy on the world stage can only be enhanced through a dedicated approach to cooperation and competition. Authorizing the marriage of the two will inevitably be the collective responsibility of the Center and the States. Any ideological differences between them must inevitably be put on the back side for the great Indian federal structure to succeed and prosper.

This column first appeared in print on May 21, 2022, under the headline “Acts of Federalism.” The writer is the general manager of FICCI

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