States Competing for Investment

The second-generation reforms in India are ones where the focus shifts to a large extent from the Centre to the States. All big infrastructural areas and important subjects like land, labour and agriculture are state issues, just as health and education are. It is important indeed to highlight that in the reform process in India, the main protagonist has been the Central Government. However, going forward, apart from issues related to competition, foreign direct investment and the broad functioning of the legal system, almost all other issues that this article discusses fall squarely on the shoulders of state governments. Building constituencies for reform in states, with entrenched interest groups and smaller constituencies, is certainly going to be more difficult than it has been to push for reform at the centre. However, if inclusive growth is important, rural development critical and agriculture growth crucial, it stands to reason that the unfinished business of India’s reforms must be carried on at state capitals. The process seems to have begun, as states compete increasingly for investments and not any longer for central subsidies and grants.