India:Make the States Engines of Growth

Perspectives

A bottom-up approach will better realise their growth potential and enrich the nation as a whole

There is a strong case for a collective initiative by India's states to sustain a high level of overall growth. This collective initiative cannot be superimposed from the top, but has to be spontaneous independent efforts by the state governments, supported, where necessary, by the Centre. This is well borne out by the example of China, where the provincial governments took the real initiatives, almost independently, but within the broad policy strategy provided by Beijing. 
This is one of the several factors behind China's sustained high growth for over three decades. The process was further helped by healthy financial and fiscal relationship between the central government in Beijing and the provincial governments. Also, there was no visible dependency syndrome on the part of the provinces. Within the framework of broad national policies, there were policies at the provincial levels of government. To do business with China, you don't need to parley with the government in Beijing, but must understand the business environment and policies of the province. 
Without going further on the Chinese example, I come to the Indian situation and raise this question: how can we make our states independent growth machines lubricated with supporting state-level environment for business and growth? In my view, at this moment of economic slowdown, this question deserves serious attention. It is important to emphasise that in this, we need not follow the Chinese model in totality, but certainly we can get inspiration from its positive experiences. Similarly, we need not adopt the Chinese type of fiscal relations between the centre and the provinces. There, the resource transfer actually takes place from the provinces to the centre: this is just the opposite in India. It is possible to adapt Chinese experience to suit Indian situation. 
For India to truly achieve and sustain high growth and remain relatively immune to external shocks, states have to be motivated to share a national vision and participate fully in the growth process. One imperative for this is to make the states less dependent on the Centre, a highly debilitating feature that has evolved out of the planning process, though unintentionally. 
We still have the planning-era mentality that encouraged the states to look up to the central government for solution to their economic problems and fulfilling their needs such as investments. It is often forgotten that developmental initiatives are primarily within the domain of the state governments. With respect to planning for the country as a whole, we need to follow a bottom-up approach, starting from the district level of planning. A bottom-up approach to economic planning will involve active participation of people at lower levels of administration. More importantly, it amounts to giving respect and recognition to the ideas the people nurture about their own development. 
However, somehow, we still have not fully realised the relevance and imperative of bottom-up approach. Planning in India is still largely centralised. Many states have developed symptoms of indifference on growth matters of the national economy and blame the Centre for their problems and poor performance. 
For instance, is not the existing Centre-state fiscal relationship, as embodied in the Constitution, at the root of the problem of growing conflicts between the Centre and the states? This question needs to be looked at seriously. Currently, one of the biggest hurdles to introduction of the goods and services tax (GST) is the growing concern, among the states, about the prospect of losing revenue, and the central government's inability to allay the concerns to the satisfaction of the states. Is it possible to have a system whereby the states collect most of the taxes and share a pre-determined percentage of the revenue with the Centre? 
There is a larger issue so far as the state economies are concerned and that has to be addressed. There is a wide growth divergence across the states. It is imperative that some innovative steps are taken to bring about some kind of convergence in the intra-regional growth paradigm. 
It is impractical to think that every state will grow at a very high rate. There will always be laggards, and some states will always be moving faster than the others. But it is possible to think of a scenario where economic performances of the states are within, say, ± 3% range of the national average. 
Also, while it is difficult for individual states to replicate entirely models adopted by others, each state can learn useful lessons from others' experience in terms of providing good infrastructure, skilled and talented workforce as also regarding flexible usage of labour. These are basic ingredients of success in accelerating growth. 
In this context, it is important that we classify the state economies into categories such as high, medium and low performers. We can make separate action plan especially for the states in the last category since they need special focus. Taking cue from the EU, we could call them Special Development Regions that require financial as well as technical assistance. 
A development bank may be created to look after the interest of growth and development for economically-poor and special-category states such as those in the north-east, and other economically-backward states. Taking this idea further, it is not a bad idea to create regional development banks on the lines of ADB, LADB, AfDB, etc, for four regions of the country that should be able to access multilateral capital for development purposes. 
The point is this: so far, we have focused largely on vertical growth and our concern has been to achieve higher overall GDP growth, but time has come for us to think in terms of right policies and growth strategy for different regions and, where possible, at district levels. 
The idea is simple, and all that we need to do is to reorient the approach to planning and economic policies that should eventually lead to inclusive and more horizontal elements in growth, giving more autonomy to the states in the process and making them aware of their duties and responsibilities. 
(The author is president of JK Organisation. Views are personal)

HARI SHANKAR SINGHANIA