Center-State Relations in India and Brazil : Privatization of Electricity and Banking

This paper questions when and why state governments oppose (or support) privatization programs initiated by the central government. It examines national privatization initiatives in the 1990s in India and Brazil in the fields of electricity and banking looking at the varying responses of the state governments in each country's major industrial and financial capital, the states of Maharastra and Sao Paulo, respectively. Possible explanations for state-level opposition to federal initiatives--as occurred in the cases of Enron and Banespa--include: (1) ideological commitments of state leaders, (2) differences of political party or coalition between the center and state government, and (3) an unequal distribution of costs and benefits from privatization between the two levels of government. We find that reason #3, real conflict of interests, best explains serious opposition, although the nature of political party alliances (#2) and politicians' values (#1) can play a supporting role. Our conclusions suggest that seemingly irreconcilable policy stances often may be ameliorated by further center-state negotiations and some redistribution of benefits to make the package more attractive to state leaders