Cooperative Federalism Is the Way Forward

Economic success of India as a nation largely depends on economic success of 29 Indian states. PM Modi destroyed Planning Commission to create NITI Aayog which aimed to redefine Centre-state relations. Are we achieving it?

Cooperative Federalism Is the Way Forward

Makers of Indian Constitution realized the role of states in national building. As a result of which the Constitution of India gave Centre and states almost equal rights in economic planning and policy making. While we have crossed over six decades since Independence, the country is still struggling to build an institutional framework to deal with cooperative federalism.

Well, things are improving gradually for better. For the first time, Centre and states are working closely together on Ease of Doing Business (EoDB)! Moreover, there is healthy competition amongst states to improve in all parameters of promoting industrialization, bringing FDIs and improving infrastructure.

Ease of Doing Business (DB)

The Ease of Doing Business report has its origins in a paper first published in the Quarterly Journal of Economics by Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer called “The Regulation of Entry” in 2002. The paper presented data on the regulation of entry of start-up firms in 85 countries covering the number of procedures, official time and official cost that a start-up must bear before it could operate legally. The main findings of the paper were that: “Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but no better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry.” The paper became widely known because it provided quantitative evidence that entry regulation benefits politicians and bureaucrats without adding value to the private sector, or granting any additional protection.

The World Bank Group has advised over 80 countries on reforms to regulations measured in the DB, providing technical assistance and guidance. Reform advice and DB report production are organizationally separate to avoid conflicts of interest.

In 2013, Doing Business covered regulations measured from June 2011 through May 2012. Over the previous decade, the reports recorded nearly 2,000 regulatory reforms implemented by 180 economies.

India – Working on EoDB for Investments

India has taken a range of policy measures and non-policy steps to improve its ranking in the ease of doing business and rightly so. It is the fastest growing large economy and second-most populous  country in the world. It has the world’s largest youth – 65% of its population is under-35. If a country wants to achieve higher economic growth, it should focus on its youth.

Moreover, India is promoting a healthy competition amongst its states on improving doing business. India has 29 states and these states have their own economic policies for development. The ease of doing business index is an index created by the World Bank Group. It indicates higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

There are several ways through which a country can achieve higher growth and promote economic activities. One of the ways is to empower states towards optimum utilization of its resources such as infrastructure, buildings, transportation and the most importantly its human resource. India’s 486.6-million people in the labour force is the world’s second-largest. This reminds me the famous quote by the renowned industrialist Henry Ford – You can take my factories, burn up my buildings, but give me my people and I’ll build the business right back again”.

As we are aware that majority population of India is youth. So, all states should focus on its youth and impart them with skilled trainings. The basic criteria are their education which should be more practical rather than theoretical. There should be more industrial visits and industrial trainings while pursuing their academics.

  1. The states has been given the power to develop it independently through the system of ease of doing business. The economic policies of the states should be in such a ways that attract more foreign companies to invest in that states through FDI.
  2. All states should compete with each either to bring more investment and investors in their states by providing securities and economic policies.
  3. In the current situation of the world, main threat to the investors is security especially in Asian countries. So, India should ensure best security and investment protection.
  4. All states are organizing global summits to attract FDI and MNCs i.e. Gujarat organises Vibrant Gujarat, West Bengal organizes Bengal Global Summit. And this is followed by Momentum Jharkhand, Sunrise Andhra, etc. Earlier Gujarat was at top but currently Andhra and Telangana have replaced Gujarat and ranked on top positions on Ease of Doing Business ranking.
  5. Central government especially Ministry of External Affairs has opened doors to states to have states offices in Indian embassies abroad in order to promote Indians states abroad and coordinate with foreign governments and private investors independently on economic matters.