Competitive Federalism in India

Key facts regarding competitive federalism in India.

 Competitive federalism is not a part of the basic structure of the

Constitution of India. However, it had gained prominence in the recent
times in the overall government functioning.
 As per the concept of competitive federalism, the states compete with
each other for funds and investments from external sources and the centre
for the individual economic growth and development. They are funded by
the central government based on their performance with the previous
funds.
 When India opened its doors for globalization, there was the increasing
competition between the states for the limited resources. This resulted in
the imbalance and inequalities between the states. However, in recent
times, competitive federalism has become an efficient tool to enhance the
economic development of the individual states.
 To ensure the decentralised economic development of the country, the
state governments are encouraged to not look towards the Central
Government for policy guidelines and fiscal assistance by increasing the
share of States’ central tax revenue from 32% to 42 % based on the
recommendation by the Finance Commission.
 The states are given freedom to strategize their expenditure based on their
own individual interests.
 Ease of Doing Business Ranking of states of India has called for the states to
ensure a politically and economically stable environment to attract
businesses and investments. This, in short, creates a competitive
environment.
 Swachh Bharat Ranking System is another such tool to increase the
competitiveness among the states.
 The Centre sponsored schemes are reformed to enhance the competition
between states.
 Ever since the Modi government assumed office, the chant of
‘cooperative federalism’ has grown louder. The sudden entry of
competitive federalism in the government document seems like a crucial
afterthought.
 The Modi government has been talking about competitive federalism,
but without saying so in as many words. The NITI Aayog e-book talks of
competitive federalism as a force multiplier to achieve the objective of
cooperative federalism.

 It explains that competitive federalism will manifest in the Centre

competing with the States and vice-versa, and the States competing with
each other in the joint pursuit of national development.

 It serves as a barrier to centralisation and requires States to reform their

programmes and provide goods and services that they can self-fund.

 Judge Carlos Bea of the United States Court of Appeals feels competitive
federalism indeed disciplines the States. The Modi government seems to
be conveying the same thing. In fact, two lines in the Prime Minister’s
letter to State chief ministers after accepting the recommendations of
the 14th Finance Commission puts it all in perspective: “…we also
believe that States should be allowed to chalk out their programmes and
schemes with greater financial strength and autonomy, while observing
financial prudence and discipline”.

 The wholehearted acceptance of the recommendation of the 14th

Finance Commission made it possible for the Prime Minister to say so
with authority.

 According to the recommendations, the Centre will now devolve 42 per

cent from the divisible pool to States — a jump of 10 percentage points.
The bargain seems set with the Prime Minister seeking competitive
federalism in lieu of cooperative federalism.

 The demand for increased devolution and freedom to modify centrally

sponsored schemes according to the needs of individual States is
something States have been emphasising for some time now.
 Whereas more funds are likely to make States happier, it will be far from
true to assume that the ball is entirely in the court of States to exercise
competitive federalism. This is because there are varied economic
patterns in different States.

 In recent years, there has been an emphasis on promoting “competitive

federalism”, or greater competition between India’s various states,
especially in attracting Foreign Direct Investment (FDI). This trend began
after the economic reforms of the 1990s and was also evident during the
Information Technology (IT) boom when South Indian states, like the
then-undivided Andhra Pradesh and Karnataka, competed with each
other to woo IT giants like Microsoft.

 In other words, it means that while some States may have specialised
factor conditions such as skilled labour, capital and infrastructure, others
may not. Moreover, there is disparity within each category that the
States need to address before they can aim to climb up to the next level.

 Therefore, to expect all States to catch up uniformly in the process of

growth and development would be a fallacy. Many States still need the
help of the Centre and it is not clear how much extra funding they may
need before they can imagine competing.

 Speaking to a television channel recently, the Uttarakhand Chief Minister

indicated this quite clearly. Assam too shared this view in the recently
held NITI Aayog meeting.

 Bihar has already decided to lodge a protest fearing that it will lose due
to the decision to withdraw funds for existing centrally-sponsored
schemes as well as the Backward Region Grant Fund (BRGF) from the
next financial year.
  West Bengal too has expressed concern on implementing railway
projects through joint ventures between the Centre and the State, as
being a debt-ridden State it is not sure if it can pay afford to fund a joint
venture.

 The proposed GST law may help some of the less productive States raise
the revenue as the tax will be a destination-based levy. But the task cut
out for the NITI Aayog will remain onerous — to balance cooperative
and competitive federalism.

 And to make matters difficult, the Constitution provides for a more

cooperative than a competitive framework — the distribution of powers
is evidence of that.

Competitive Federalism in India during Covid-19.

The first wave of the pandemic was about unilateralism and overtly
centralised response by the Union. The opposite has been the case during
the second wave. Louise Tillin, a known scholar on federalism captures
this trend when she says:  “India has moved from unilateral centralized
decision-making in the first wave to something that approximates
unilateral decentralized decision-making—by default—in the second
wave”. For one, the Centre during the first wave acted swiftly and
decisively as federal governments ought to do during national
emergencies. While many state governments imposed localised
lockdowns and physical-distancing protocols, it was the Centre which
announced a national lockdown, and issued real-time alerts and
guidelines and protocols to state authorities to stem the virus spread. A
proactive federal leadership was able to coordinate with states and other
constituencies to quickly procure and produce medical equipment and
PPE kits, and create emergency health infrastructure in record
time. However, most of these Central initiatives were found wanting
when the more infectious second wave began overwhelming states and
the country’s health systems.
Despite credible early projections in February 2021 from health experts —
and subsequently from the government’s own scientific advisory body—
about the spread of a new and deadlier variant, the Central government
and its designated institutions failed to act on those warnings. In early
March, the Union Health Minister announced that India was seeing the
“dead end” of the pandemic. Despite warnings from health experts,
authorities allowed organisers of the major religious pilgrimage and
festival, Kumbh Mela to proceed, and the central leadership occupied
itself with election campaigns in five states, holding massive rallies
without pandemic-appropriate restrictions.

The Centre would start taking note of the crisis when many states started
experiencing rapid surges in infections and health systems began
collapsing, triggering mass panic and  public outcry including amongst the
core support base of the ruling party. Launching the nationwide federal
response, the prime minister on April 20 addressed the nation and
appealed for Covid-appropriate behaviour; he also asked authorities to
quickly ramp up responses. By then, however, the infections had rapidly
spread across the country, and there were already signs of a virtual ‘state
collapse’. This became visible when a number of state governments
openly fought with each other over essential medicines and oxygen
cylinders, some blocking others’ supplies. The breakdown of inter-state
coordination became so acute and as the Centre faltered and lost its
initiative, the Supreme Court intervened to resolve the deadlock between
the battling states.

While one would have expected the federal government to lead the states
in a time of grave national crisis, it instead blamed them, stating that
health was a state subject and sub-national governments should not have
lowered their guard to the pandemic. Not only did the Centre express
reluctance to take bold measures such as a national lockdown, it was not
quick enough in alerting the states about the nature of the new variant; it
also did not issue protocols and guidelines on treatment and logistics.
Instead, it left the states to take localised measures to contain the spread
—a step which it allowed grudgingly in the first wave. Thus, the pendulum
moved from outright centralisation to unilateral decentralisation.
The decentralisation logic became more visible in the case of the
vaccination policy. As the country faced acute vaccine shortages (partly
attributed to the Central government’s sudden decision to expand the
vaccine rollout to the 18-44 age group) many state governments called for
autonomy to procure vaccines from international markets. The Centre
acceded, as analysts found it impractical given the demand-supply
mismatch and the cutthroat competition for vaccines. Several states
which went ahead with tenders for procuring vaccines found no
prospective bidders. This, along with deferential pricing of vaccines
created a chaotic situation and became a contentious aspect of India ’s
federal structure as the Centre and the states blamed each other for the
confusion. It required the intervention of the Supreme Court to end the
Centre-state deadlock.

It is important to note that right from the beginning of the pandemic in

2020, the Central government had taken the sole responsibility of
coordinating the entire process of vaccination in India; and rightly so. Like
all federal governments, the Union government is undoubtedly endowed
with greater resources and technical knowhow for approaching the
international vaccine manufacturers, conducting trials, giving clearances,
providing logistical and financial incentives to the manufacturers, and
subsequently, procuring the vaccines. Accordingly, the federal
government steered the vaccination drive in 2020 when it facilitated two
vaccines.

While many opposition-ruled states cannot escape the blame for making
unreasonable demands on vaccine procurement and some of them
politicised Centre’s vacillation on vaccination to hide their ineptitude in
managing the  pandemic, the primary responsibility rests with the Union
government. The ensuing bitter blame game between the Centre and
opposition-ruled states, finally ended after the former in early June
reversed its decision to take control of the vaccination drive. While the
Centre-state deadlock on vaccination was resolved, the country lost the
initial advantage of procuring vaccines and ramping up the rollout —key to
finally ending the pandemic.
With or without the pandemic, what is required is the existence of both
cooperative federalism and healthy competitive federalism with
cooperation.

Challenges

 Despite the increase in the States’ Central Tax revenue, the states are
getting lesser revenue than anticipated. Thus the funds for welfare
schemes have come down.
 The competition between the States is increasing the gap between the
developed and under-developed states.
 The States like West Bengal, Assam, Bihar, and Orissa are against the
unvarying method of funding because they are economically weaker
compared to that of the other states and they now call for special funds to
boost their economic growth and investors’ inflow. These states require
assistance from the Centre for their increased participation in the
competitive federalism.
 The economic growth and development of India is no uniform in nature.
They differ from state to state. The economically weaker states must not
be treated as equals to that of the rich states. There must be equity rather
than equality. They must be given special attention by the Central
government so that they can cooperate with those state governments for
the overall development of the nation.
 One cannot assume that all states will perform uniformly by giving them
financial independence. Some may lack progress with regards to the
literacy levels, employment rate, etc., while the others may make use of
their already well-developed skilled labour force, capital, infrastructure,
etc., to woo the investors into their jurisdiction. This create an uneven
economic growth and development of the nation. Those states that lack
economic development are not able to participate in the competitive
federalism.