Competitive Federalism

Competitive federalism is a concept where centre competes with states and vice-versa, and states compete with each other in their joint efforts to develop India and over a broad range issues to provide citizens various services in a hassle-free manner.

In Competitive federalism the relationship between the Central and state governments is vertical and between state governments is horizontal.

A type of Competitive federalism is seen in India where states want more funds and perks from the state government for growth. Also states can be involved in International treaties and business deals. They are also trying to woo MNCs to get more FDI.

Benefits of Competitive Federalism

• Competitive federalism follows the concept bottom-up approach as it will bring the change from the states. It ensures inclusive development in the country.
• It instills a spirit of positive competition and helps utilization of successful models of development across many states.
• It helps in reducing inter-states and intra-states inequalities through development.
• The policy of one-size-fits-all is replaced with different policies of various states based on their own priorities within the state. Each state will design their own policies for the development of the cities with self-fund. The concept also promotes discipline among the states.

Criticism of Competitive Federalism

• The competition among states is widening the gap between developed and developing states. States like West Bengal, Assam, Bihar, and Orissa are opposed to a uniform financing mechanism because their economies are weaker than those of other states, and they are now requesting specific monies to enhance their economic growth and attract investors. These states need help from the federal government to improve their engagement in competitive federalism.
• India’s economic growth and development are not evenly distributed. They vary from one state to the next.
  Giving states financial freedom does not guarantee that they would perform as well. Some may be lagging behind in terms of literacy, employment rate, and so on, while others may be able to attract investors into their jurisdiction by using their existing well-developed skilled labour force, capital, infrastructure, and so on.
• A race towards motivated by competition might not be in the best interests of the states. It would incentivize to achieve growth at all costs as a result some negative externalities can be generated. e.g. Tribal displacement, greater level of pollution etc.
• The ranking framework of the central government has also been put to question by some over the alleged bias towards some states.