Inter-State rivalry that is fuelling India’s growth, Pg8

Key Highlights:

• Google is setting up its largest Artificial Intelligence (AI) data center outside California in Andhra Pradesh, sparking competition among states.
• States are now actively competing for investment by engaging with multinationals, a shift from relying on Central patronage pre-1991.
• Competitive federalism has emerged, with states focusing on policy, infrastructure, and governance to attract investors.
• States like Tamil Nadu, Karnataka, Maharashtra, and Gujarat are vying for investments in sectors like electronics and electric vehicles (EV).

Detailed Insights:

• Pre-1991, investment decisions were centralized in New Delhi, with states vying for political favors to secure projects.
• The 1991 reforms aimed to shift power to states, fostering competition through improved infrastructure and policy stability.
• States now compete by offering predictable policies, faster clearances, skilled labor, and good governance, moving beyond just land and tax breaks.
• Examples from the U.S., Germany, Australia, and Canada show that healthy subnational competition drives innovation and efficiency.
• The Central government encourages competition through rankings on ease of doing business, startup promotion, and export readiness.
• States must avoid reckless subsidies and focus on competence and credibility to maintain fiscal stability.
• Cross-state learning, where successful policies are imitated, is driving policy diffusion across India, enhancing vibrant federalism.
• As companies diversify from China, states must compete to attract investment by offering scale, predictability, and credible governance.
• States now campaign with CEOs and investors, marking a shift from a permission-based to a persuasion-based economy.
• Investment wins by states strengthen supply chains, build skills, and deepen India’s industrial fabric, benefiting the entire nation.

Key Concepts Involved:

• Competitive Federalism: Competition among states to attract investment through better governance and policies.
• Liberalization: Dismantling industrial licensing and opening India to trade and investment, shifting power to the states.
• China+1: A strategy for companies to diversify their supply chains beyond China, requiring states to compete for these investments.