[Answered] Examine the role of inter-State rivalry in accelerating India’s growth. Critically analyze how State-led investor campaigns are altering the traditional dynamics of Centre-State relations.

Introduction

According to NITI Aayog’s India Competitiveness Report (2023), the rise of competitive federalism—where States rival each other to attract investment—has emerged as a key driver of India’s post-liberalization economic dynamism and policy innovation.

From Centralised Planning to Competitive Federalism

1. Historically, India’s growth trajectory was shaped by cooperative federalism—a Centre-led, plan-based system under the Planning Commission.
2. Post-1991 reforms dismantled the “license-permit raj,” devolving economic decision-making and unleashing market-based competition among States.
3. Pre-1991: States sought Delhi’s patronage for industrial licenses.
4. Post-1991: States began competing for investors through infrastructure, governance, and policy credibility. Example: The transition from centrally allocated steel plants to State-driven industrial corridors like DMIC and Chennai–Bengaluru Industrial Corridor reflects this transformation.

Inter-State Rivalry as a Growth Accelerator

1. Investment and Industrialization: Andhra Pradesh–Tamil Nadu–Karnataka competition over Google’s AI Data Centre and Foxconn’s facility demonstrates healthy industrial rivalry. Gujarat’s semiconductor win over Maharashtra (Vedanta-Foxconn JV) showcases policy agility and investor confidence.
2. Policy Innovation and Governance Reforms: States emulate best practices—Telangana’s TS-iPASS, Tamil Nadu’s EV policy, and Uttar Pradesh’s Defence Corridor—creating a virtuous cycle of reform diffusion.
   This fosters policy benchmarking and inter-State learning, hallmarks of a dynamic federation.
3. Regional Economic Convergence: World Bank’s Ease of Doing Business (EoDB) rankings and Export Preparedness Index (2022) have pushed lagging States (Odisha, Jharkhand) to adopt reforms, narrowing regional disparities.
4. Global Integration: With China+1 diversification, global firms now evaluate Indian States individually, “Invest in Bengaluru, not India in abstract.” States thus act as subnational diplomatic actors, marketing themselves globally.

How State-led Investor Campaigns Are Redefining Centre-State Relations

Examples:

1. Vibrant Gujarat, Magnetic Maharashtra, Happening Haryana, Global Investors Summit (UP)—reflect the decentralization of investor diplomacy.
2. Chief Ministers as “CEOs” of States — e.g., CM’s of Tamil Nadu, Andhra Pradesh, Uttar Pradesh leading international roadshows.

Critical Concerns and Cautions

1. Risk of “Race to the Bottom”: Excessive tax breaks, land subsidies, or environmental leniency may hurt fiscal health and sustainability. Example: Amazon HQ2 bidding war in the US triggered debates on subsidy overreach.
2. Fiscal Federalism Strain: States demanding greater fiscal autonomy under GST compensation lapses may cause vertical imbalances.
3. Inequality and Regional Disparity: High-performing States attract more capital, while poorer States struggle despite reforms—risking “club convergence.”
4. Need for Regulatory Coherence: Investor competition must not lead to fragmented standards; NITI Aayog, GST Council, and Inter-State Council should harmonize policies.

Way Forward: Towards “Collaborative Competition”

1. Balanced Federalism: Combine cooperative and competitive fedralism principles — “Team India” approach.
2. Institutional Reforms: Strengthen Finance Commission, NITI Aayog’s ranking mechanisms, and fiscal performance indicators.
3. Knowledge Sharing Platforms: Encourage cross-State learning through best-practice summits.
4. Inclusive Growth Focus: Promote capacity building for eastern and northeastern States.
5. Green Competitiveness: Align investment races with SDG-linked development indicators.

Conclusion

As Raghuram Rajan’s “Federalism and India’s Growth” argues, balanced competition among States catalyzes innovation. Inter-State rivalry, when guided by fairness and sustainability, transforms India’s diversity into a collective economic strength.