Inter-State Rivalry That Is Fuelling India’s Growth

The Hindu

1. Introduction and Context

This editorial by former RBI Governor D. Subbarao examines how competitive federalism has emerged as one of India’s most transformative economic drivers over the last decade.
States are increasingly competing for global investment in sectors such as AI parks, semiconductors, EVs, electronics, green hydrogen, logistics, and manufacturing clusters.

The article argues that India’s federal system has evolved from a Delhi-centric, centrally planned model to a state-led, market-driven growth architecture, where states act as independent economic strategists shaping India’s industrial landscape.

2. Key Arguments Presented

a. Competitive Federalism: India’s Silent Growth Engine

The author highlights that states are now competing to attract industries by improving:

• Ease of doing business
• Infrastructure
• Sectoral policies
• Investment facilitation
• Industrial clusters

Leading states such as Tamil Nadu, Gujarat, Karnataka, Telangana, Maharashtra, Andhra Pradesh dominate this new competitive space.

b. Competition Among States Is Healthy for the Economy

Subbarao argues that rivalry among states:

• encourages innovation
• induces policy experimentation
• enhances accountability
• accelerates infrastructure and job creation

He highlights examples like semiconductor fabs, AI parks, EV manufacturing, and electronics clusters to show how competition boosts dynamism.

c. States Now Compete Globally, Not Just Seek Delhi’s Patronage

The article notes a behavioural shift: states are no longer dependent solely on central funding.

They now:

• conduct global roadshows
• negotiate directly with MNCs
• design investor-friendly incentives
• build strong governance systems

This reflects economic maturity and decentralization of power.

d. Competition Across Multiple Sectors

The editorial maps how different states have developed niche specializations:

• Automobiles: Tamil Nadu, Maharashtra
• Semiconductors: Gujarat, Karnataka
• EVs: Tamil Nadu, Telangana
• Green Hydrogen: Gujarat, Rajasthan
• Logistics: Haryana
• FinTech: Karnataka

States now function as mini economies, collectively shaping India’s growth trajectory.

e. Warning: Competition Should Not Become a “Race to the Bottom”

The author cautions against harmful practices:

• excessive tax breaks
• opaque deal-making
• unsustainable subsidies
• erosion of fiscal stability

He argues for rules-based and transparent competition.

3. Author’s Stance

D. Subbarao strongly supports competitive federalism as a catalyst for:

• productivity
• investment
• decentralized governance
• regional growth
• economic transformation

However, he also offers a cautionary and balanced tone, urging states to avoid reckless bidding wars and maintain fiscal prudence.
His stance is pro-reform, pro-market, and cooperative-but-competitive.

4. Bias and Limitations

Bias

• Pro-investment, pro-liberalization bias.
• Favors economic efficiency over social equity.
• Focuses on success stories of rich states.

Limitations

• Little discussion of laggard states (Bihar, UP, Odisha, Jharkhand, NE).
• Limited attention to social/environmental costs of competition.
• Does not explore labour rights, land conflicts, or displacement issues.
• Underplays cooperative federal mechanisms like GST Council, NITI Aayog.

5. Pros and Cons of the Argument

Pros

• Provides strong economic rationale for state-level competition.
• Uses real-world investment examples.
• Offers valuable insight into India’s shifting federal architecture.
• Highlights emerging industrial clusters shaping India's growth.

Cons

• Ignores risks like inequality and environmental degradation.
• No roadmap for underdeveloped states to join the race.
• Downplays cooperative federalism’s role.
• Overlooks socio-political complexities of industrialization.

6. Policy Implications

Balanced Federal Competition

• Introduce performance-based fiscal transfers.

Strengthen Lagging States

• Invest in infrastructure, logistics, skill development.
• Create SEZ-like zones for backward regions.

Encourage Responsible Competition

• Cap harmful incentives.
• Mandate transparent evaluation of industrial bids.

Strengthen Cooperative Federalism

• Empower GST Council and NITI Aayog for coordinated reforms.

Adopt Regional Clustering Models

• Encourage China-style and US-style industrial corridor clusters.

7. Alignment with UPSC GS Papers

GS Paper II — Federalism & Governance

• Competitive & cooperative federalism
• Centre–State dynamics
• Decentralized development planning

GS Paper III — Economy

• Industrial policy
• Regional growth
• Investment climate reform
• Infrastructure expansion

GS Paper IV — Ethics

• Transparency in incentives
• Fair competition
• Avoiding corruption/crony capitalism

8. Real-World Impact

India’s growth map is becoming multi-polar:

• States compete directly for MNCs.
• Investors compare states rather than entire countries.
• Industrial corridors are emerging across India.

However, risks include:

• widening inequality
• fiscal stress
• environmental degradation
• politically motivated subsidies
• crony incentives

Sustainable, transparent competition is essential for balanced growth.

9. Conclusion and Future Perspective

The article presents competitive federalism as a transformational force shaping India’s economic geography.
States are emerging as vibrant economic actors driving innovation, investment, and structural growth.

But this transformation must be:

• inclusive (support weaker states),
• transparent (avoid cronyism),
• sustainable (protect environment and people), and
• cooperative (align with national objectives).

The future lies in “cooperative competition” — where states compete vigorously for growth yet collaborate to ensure equitable national development.