The states are too heavily dependent on PM Modi’s brand image support to boost their own local prospects.
New Delhi: India’s $5 trillion economy dream has hit a major hurdle as top financial institutions have put a spoke in the growth rate projection wheel, describing the economic progress as “negative”.
Investors are a bit worried with economic forecasts not projecting a positive future for markets and investments. Indian economy fast slipping in the “negative slab” from the “stable tag” it enjoyed in the global markets.
Moody’s Investors Service on Thursday slashed India’s economic growth forecast to 5.6% for 2019, calling “India’s economic slowdown lasting longer than previously expected”. Moody’s had on 10 October slashed India’s economic growth forecast for 2019-20 fiscal to 5.8% from an earlier estimate of 6.2%. Close to that, the International Monetary Fund recently slashed India’s expected economic growth rate for the year down to 6.1%.
Amidst the “negative economic air enveloping” New Delhi’s top government offices on the Raisina Hills, which to many is even worse and threatens to lasts longer than the deadly polluting smog the capital is currently battling, the key to fight this slowdown rests with the states.
Sounds absurd? In fact, it is not.
Just give a thought to our Constitution’s thrust—India is a Union of States. A perfect partnership between the states and the Centre was envisaged by the makers of the Indian Constitution. But is that partnership working as desired and in true spirit when it comes to achieving the new development targets and not to miss achieving a $5 trillion economy?
At least not in the eyes of Washington DC-based top think tank, Center for Strategic and International Studies (CSIS), which recently published a report titled, “US-India Insight: Twenty-Nine Solutions to India’s Slowdown”. While the 29 solutions point to many Indian states, the report authored by CSIS expert on India affairs, Richard M. Rossow, puts the “responsibility on the states to shoulder burden of meeting economic targets, open opportunities for investments, boost agricultural and industrial productivity; generate resources to build most of the infrastructure to clear land and ease out regulations for big ticket industrial projects…”
It’s no coincidence that at a recent investors’ summit organised by the Himachal Pradesh government, Prime Minister Narendra Modi sought the states’ “support and partnership in the nation’s economic growth”.
Perhaps the Centre is feeling the load of going it alone. The CSIS report says, “While FDI remains solid, domestic growth is fading fast. Beyond the depressed growth predictions, consumer sentiments are dampened, and major industrial groups have announced reduced production targets.” But is a “return to growth” Modi’s puzzle to solve? “Definitely not, at least not alone.”
It says further, “More than five months into its second term, the Modi government has not offered much insight on its reform priorities to ensure long-term growth, beyond a helpful corporate tax rate cut and some other small steps. But India’s growth rate is more a product of India’s 29 chief ministers and too few are asking about their plans to get India back on a high-growth trajectory.”
Talking to The Sunday Guardian, Rossow, the Wadhwani Chair in US-India Policy Studies at the CSIS, said: “While India as a whole is going through a slowdown, some states will likely continue to grow at well over 10%. So the ‘slowdown’ will not be uniform. Those states that are experiencing the biggest economic slowdowns have the biggest responsibility in working to bring growth back to higher levels. It is not simply a matter of economic pride; India still has critical challenges in ending abject poverty, so high growth is not a luxury—it is a necessity.”
True. In realistic terms, all cannot be on Prime Minister Narendra Modi’s shoulders and on New Delhi alone to work on behalf of the entire nation, which in human population size is four times that of the United States. Where are the plans by states and which state Chief Ministers, who, if boasting of reviving their state’s fortunes in their electoral debates, have contributed what and how much in nation building? Time to rise above the local mindset of development to nation building targets. Like a multi-disciplinary approach brings out a much interesting reading account, the states too must give and take with the resources available as in India, every state has something to boast of—from natural resources to natural landscapes to energy and agricultural output to business opportunities and industrial production.
Rossow’s report argues the point that PM Modi’s Central government has moved with its development targets in the last 12-month comparison. It achieved 11% growth in Indo-US goods trade, where the Central government is directly involved; so is the 24% growth in foreign direct investments as per RBI’s own figures and the country has also witnessed a near $11 billion FII assets net flow over the same comparison period.
Rossow told The Sunday Guardian: “Most of the areas where economic reforms are most pressing are primarily controlled by India’s state leaders. So instead of focusing solely on a ‘Modi Plan’ for growth, we should also be pressing for the ‘Fadnavis Plan’, the ‘Yeddyurappa Plan’, the ‘Nath Plan’, and the ‘Adityanath Plan’ for an economic resurgence.”
Unfortunately, that is not the case. Instead, the states are too heavily dependent on PM Modi’s brand image support to boost their own local prospects and not many, including the one from the BJP-ruled states, are working to stand out with their own respective development agenda and growth image.
The investors overseas first see India as one and not through the eyes of many compartments as states. Then they start evaluating the states’ growth prospects and in that brand imaging, much rests on the states as their leaders can be key in spurring growth indices, as by easing regulations and bureaucratic red-tape to encourage investments and also through innovative thinking, can cut unnecessary licences, make land acquisition a transparent and straightforward process, and more. As Rossow adds, “But states clearly do not feel the pressure or urgency to take important steps to revive the economy, and often lack the will and administrative capacity to ensure effective regulations—even when enacted on paper—are carried out in practice.”
Pity this trait of the states and the leadership. For Fiscal Year 2018 (FY18), the states’ growth rates varied between 4.65% in Jharkhand to 11.3% in Bihar. Andhra Pradesh, Telangana, and Gujarat all ranked near the top and were among the four fastest-growing states in FY18.
But the CSIS report points out something crucial. “The link between reform-oriented states and growth appears strong. Similarly, states that create discord among investors can delay projects and investments. Andhra Pradesh has India’s seventh-largest state economy and is going through such a cycle after a change in government in May. In the last five months the new government has threatened to revoke recent power purchase agreements, pulled back from ongoing investments in the new capital of Amaravati, and de-facto nationalised the alcohol sales industry.”
Summing the argument, Rossow’s says: “During a period of global economic disarray, investors seek safe havens with stable, pro-growth policies. When thinking of India, most of the world focuses exclusively on the Central government. But that is only a part of the Indian economic landscape. Collectively, India’s state leaders have a much more profound influence on the practicalities of doing business in the country.”
Truly said, states hold the key for the new reform ideas to spark growth in India. Centre can’t do it alone and shouldn’t do it alone. Let India’s growth story be a team game. At least the Constitution desires so to achieve the true federal aspiration.