Indian Prime Minister Narendra Modi in his 3 years in office has repeatedly urged the Indian states to contribute to the country’s growth story, and to also play their rightful role in strengthening ties with the outside world. The PM’s has argued that India’s growth is not possible without “Cooperative Federalism” and “Competitive Federalism.” While “Cooperative Federalism” refers to a purposeful relationship between the Central and State governments on issues pertaining to key economic and external policies, Competitive Federalism can be defined as the “competitive spirit” between states, whereby they vie with each other for greater foreign direct investment.





Modi’s emphasis on a more substantial role for states, stems from his personal experience as Chief Minister, when he reached out to investors outside India, especially in East Asia and Southeast Asia. Modi also found that on economic issues, the states did not have enough of a say and the relationship between the Center and States needed to adapt to the changing economic and political situation in the country.





One of the first steps the PM took was to dismantle the Planning Commission, dubbed as a relic of the planning era, and replace it with the Niti Aayog, which was designated as a think-tank which would advise states on key issues. Amongst the key functions of the Niti Aayog are:





1. To evolve a shared vision of national development priorities, sectors, and strategies, with the active involvement of States in the light of national objectives.





2. To foster cooperative federalism through structured support initiatives and mechanisms with the States on a continuous basis, recognizing that strong States make a strong nation.





To be fair, even erstwhile PM Dr Manmohan Singh and former Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, had pitched for the reform of the organization and agreed that it was out of sync with the political and economic landscape which has emerged in India in the past two decades.





In the first meeting of the Niti Aayog, the PM categorically stated: “State CMs gave many insightful views during the meeting. This spirit of cooperative federalism will enhance India's progress and prosperity. Emphasised on the need to expedite growth, investment, job creation, elimination of poverty and moving away from ‘one size fits all’ approach.”





There have been some positive results. The Goods and Services Tax (GST), which the BJP including the PM opposed, managed to overcome resistance from sections of the opposition. In April 2017, Parliament gave its assent to four important legislations, which outline key issues and provisions pertaining to the single tax regime. The GST will replace a myriad of state and central taxes, and help create a single national market.





The PM praised the Chief Ministers for “keeping aside ideological and political differences” to arrive at a common ground, and he said that the consensus on the GST would “go down in history as a great illustration of cooperative federalism.”





Interestingly, the meeting of the GST Council chaired by Union finance minister Arun Jaitley with representatives from states and union territories was held at a time when tensions were high in Srinagar to send a message that New Delhi looked at key states as stakeholders, and also to send a message that New Delhi wanted to change the conversation on Kashmir.





Apart from the setting up of the Niti Aayog and the successful passage of the GST, another important step towards promoting greater cooperation between states is the Ease of Doing Business Rankings jointly brought out by the World Bank and Department of Industrial Policy and Promotion (DIPP), which have helped to enhance the competitive spirit amongst state governments.





The main criterion on which these rankings are based is a 340-point business reform action plan, and the degree of implementation by the states. If one were to look at the rankings for 2016 (for the period from July 1, 2015 to June 30, 2016), a number of low income states have improved their ranks in the index. Four of these states were ranked in the top 10: Chhattisgarh (which had 97.32 percent: 4th rank), Madhya Pradesh (97.01 percent: 5th), Jharkhand (96.57 percent: 7th), Rajasthan (96.43 percent: 8th), Odisha (92.73 percent: 11th), Uttar Pradesh (84.52 percent: 14th), and Bihar (75.82 percent: 16th).





Even functions related to “Make in India,” one of the PM’s flagship schemes, are held jointly with state governments.





The PM has also tried to build cordial relationships with the Chief Ministers, especially Bihar CM Nitish Kumar (JDU) and Punjab CM Captain Amarinder Singh (Congress). His relationships with CMs in Eastern India, especially Mamata Banerjee (West Bengal) and Naveen Pattanaik (Orissa), have been strained. The BJP is trying to increase its presence in these states, and this has resulted in aggressive, at times unnecessary statements, from BJP leaders as well as the two Chief Ministers.





Recently (May 25, 2017), the West Bengal Chief Minister, Mamata Banerjee did meet with the PM and Banerjee categorically said that only development related issues were discussed during the meeting.





"This was not a political meeting, (but an) absolutely development-oriented meeting. I have taken up several issues with the Prime Minister,"Before the 2019 general elections, there are a number of state elections in 2017 and 2018, apart from the Presidential Election in July 2017. It remains to be seen how non-Congress opposition parties will approach the second event, and whether the BJP will work towards a consensus candidate (as suggested by the CM of West Bengal). If this does happen, we could witness a more fractured opposition, and the PM may seek to keep channels open with regional parties in West Bengal and Bihar.





Foreign Policy





In the domain of foreign policy, a states division has been established in the Ministry of External Affairs (MEA), and provincial dialogue was initiated with China in 2015.





The foundations for state participation were laid through economic reforms in 1991, as well as the rise of strong regional leaders as a consequence of coalition politics. Erstwhile PM, Dr Manmohan Singh understood the need for state participation in foreign policy, especially in the context of ties with neighbouring countries. A strong reiteration of this point was the support the initiatives of Tripura CM Manik Sarkar received vis-à-vis Bangladesh. Similarly, a non-Congress government in Punjab, led by the Shiromani Akali Dal (an ally of the BJP) was never stopped from reaching out to Pakistan and promoting economic and people-to-people ties.





Apart from PM Modi’s personal efforts, the role of scholars too needs to be credited. There is an increasing literature, not just on state participation in the Indian context, but also on comparisons with China on how it has successfully utilized its states for fostering stronger economic ties. Jabin Jacob’s working paper, ‘China’s Provinces and Foreign Policy: Lessons and Implications for India and its States’ (October 2014) published by the Institute of Chinese Studies is one example. Another important work in this context is ‘Inside Out India and China: Local Politics Go Global’ (2014) by William Antholis.





Like his predecessor, PM Modi has understood the relevance of state participation in ties with neighbors like Bangladesh. In the land boundary agreement signed with Bangladesh, PM Modi thanked the CMs of the North Eastern states: “My thanks to all the political parties for their cooperation, as also to the states of Assam, Meghalaya, Mizoram, Tripura and West Bengal. This reflects the collective will of the nation to build constructive relations with our neighbor.”





Foreign dignitaries are encouraged to visit cities outside New Delhi, with overseas leaders wanting to visit IT hubs like Bangalore and Hyderabad, and later on to engage with strong regional leaders.





The state of Tripura has played a key role in furthering power ties and enhancing connectivity with Bangladesh. Power is being supplied from Palatana (Tripura) to Bangladesh. Bangladesh is supplying 10 Gbps bandwidth from Cox’s Bazar (Bangladesh) to Agartala. Both these projects were inaugurated by teleconference by PM Modi and his Bangladeshi counterpart, Sheikh Hasina, in March 2016. The CM of Tripura was also present.





In the context of the India-China relationship, there has been an emphasis on enhancing sub-regional interactions. One good example is the State/Provincial Leaders’ Forum which PM Modi inaugurated during his visit to China in 2015. There has also been an increasing emphasis on sister city and sister province agreements. Amongst the agreements signed, sister city arrangements were institutionalized between three cities: Chennai-Chongqing, Hyderabad-Qingdao, and Aurangabad-Dunhuang. A sister province agreement was also signed between Karnataka and Sichuan. During the PM’s visit to Japan, another sister city agreement was signed between Kyoto and Varanasi.





PM Modi has also sought to make the North Eastern states key stakeholders in India’s outreach towards Bangladesh and Southeast Asia. Key infrastructural projects aimed at enhancing connectivity with Bangladesh and Myanmar have been expedited, including the BBIN (Bangladesh, Bhutan, India, Nepal) Corridor and the three nation India-Myanmar-Thailand trilateral highway.





While speaking at the inauguration of the Dhola-Sadiya bridge, the longest bridge across the River Brahmaputra, PM Modi reiterated the importance to which he attaches to the North East in India’s ties with South East Asia: “Electricity, optical fibre, railways, roadways, we will ensure each part of India is connected with rest of India. Our spending on these infrastructure is several times more than what was spend in last 15 to 20 years. Northeast India will be hub of economic activity of our engagement with Southeast Asian countries. We have this vision.”





A number of symbolic steps have also been taken to give greater importance to state governments. Foreign dignitaries are encouraged to visit cities outside New Delhi. The trend had begun in the past two decades, with overseas leaders wanting to visit IT hubs like Bangalore and Hyderabad, and later on to engage with strong regional leaders. During her visit to India in 2011, former US Secretary of State Hillary Clinton visited Chennai and met with the late CM J. Jayalalithaa. In 2012, Clinton landed in Kolkata and met with CM Mamata Banerjee. Chinese President Xi Jinping during his visit to India landed in Ahmedabad, while Japanese PM Shinzo Abe visited the PM Modi’s parliamentary constituency, Varanasi.





A number of events such as Pravasi Bharatiya Diwas which seeks to reach out to the Indian diaspora, have been held outside New Delhi. While the 2015 event was held in Gujarat, the 2017 event was held in Bengaluru. Just recently, the 52nd African Development Bank Annual Meetings were held in Ahmedabad.





During his visit to Russia (June 1-3) PM Modi not only attended the 18th India-Russia annual Summit and St Petersburg International Economic Forum, but also met with Governors of 16 Russian Regions. No earlier PM has met collectively with Governors of Russia’s regions.





While all the efforts being made are laudable, there are a number of issues which need to be addressed:





First, Foreign Direct Investment (FDI) is skewed, as only the coastal states and those close to the national capital are able to increase their share of FDI. For the period of April 2016-March 2017, according to figures from DIPP, the top 4 states that received FDI were:





1. Maharashtra (USD 19,654 million)

2. National Capital Region (USD 5,884 million)

3. Tamil Nadu (USD 2,218 million)

4. Karnataka (USD 2,132 million)





These were followed by Gujarat and Andhra Pradesh. The Eastern and North Eastern states still fared poorly. For this, New Delhi needs to work closely with state governments, and it should ensure that politics does not come in the way of important development projects.





Of late, ties between New Delhi and some of the non-BJP ruled states led by regional parties like Orissa and West Bengal have soured, and these links need to be strengthened. West Bengal is important not just in the context of Eastern India’s economic development, but also for strengthening ties with Bangladesh.





Second, the BJP government should also seek to work closely with its ally, the People’s Democratic Party (PDP), and look for pragmatic solutions to reach out to Kashmir. While it is unfair to wholly blame the central government, the security approach needs to be complemented with aggressive political outreach.





Third, states themselves need to have a clearer understanding of their role in key economic and foreign policies, rather than just be reactive. It is important to have a forum, where states can learn from each other’s successful economic and social policies. Some have recommended empowering the Inter State Council, which for too long has been ignored. During the GST council meeting, the need for such a mechanism was discussed.





The next two years will be extremely crucial for the Modi government, and it will need to work closely with state governments for the successful conduct of its economic and foreign policies. Both sides will benefit from giving precedence to development over politics.