Foreign investors have learned to rely on state leaders such as N. Chandrababu Naidu in Andhra Pradesh or the late Jayaram Jayalalithaa in Tamil Nadu, who were experts at getting environmental clearances from the central government, assembling large parcels of land, organizing electricity, brokering deals with trade unions, and eliminating regulatory and judicial roadblocks within the state.
While India is just beginning to confront the full economic impact of the Covid-19 pandemic, optimists see reasons to hope. Global manufacturers are looking to diversify supply chains and Indian leaders seem to be trying to attract their business. The recent decision by Uttar Pradesh — India’s biggest state, with a population the size of Brazil’s — and a few others to relax stifling labor regulations has revived hope that other states will soon follow, competing to draw investment and jobs regardless of what the central government does or doesn’t do.
This has been a longstanding hope of Indian reformers — that rivalries between states will drive deregulation when politics prevent action in New Delhi. Unfortunately, it’s not how India works.
India’s heavy-handed labor laws aren’t entirely the product of decades of socialist central governments; states themselves write many of those rules. Even on issues other than labor, state-level regulations in India are remarkably similar and uncompetitive. The real problem is that Indian federalism is centripetal: State leaders have historically looked to the national government for policy direction.
Source: Financial Express
