“She was unhappy, pulling up her entire team working on electricity, saying, ‘We’ve got to solve this,’ ” said Ajay Shah of the National Institute of Public Finance and Policy. “If politicians feel this kind of pressure, it’s very good.”
Columbia University professor Arvind Panagariya said the economic reforms of 1991, which unleashed two decades of rapid growth, also were based on the principle of decentralization, with the government relaxing central planning and investment licensing rules and allowing states to compete for investments.
It was Manmohan Singh who announced those reforms as finance minister 21 years ago. But with Singh as prime minister since 2004, his government seems to have forgotten those lessons, rolling out centralization policies regarding state subjects such as education, employment and health care, Panagariya said.
“Ultimately, everything from water to electricity has to be provided at the level of the state,” Panagariya said, adding that states will sabotage central government policies they do not agree with. “But if you do enabling policies, I think things will move more smoothly.”
Last month, Indian Power Minister Veerappa Moily unveiled a multibillion-dollar debt-restructuring package for state electricity companies, with relief conditional on the states improving their performance in delivering power. Using the new buzzword, he talked of “enabling legislation” to give states incentives to reform.
“If such reforms are framed in this way, state governments and the people will always appreciate it,” he said. “Initially they will resist, but in the course of time, they will definitely improve. That is the history of reforms in this country.”
A complex marketplace
Shah, the public policy expert, said he is disappointed that few ideas about governance and reform flow from one state to another. Nevertheless, he said, “we are starting to see ‘best practices’ emerge in India.”
Rather than less democracy and a stronger central government, Shah said, India needs more decentralization and democracy, with more power devolved to city governments in particular.
More devolution and complexity might seem daunting to outsiders, especially investors who have had success in China and want to try to apply lessons learned there to India. The Indian market can be just as fractured and complex as the European market, its states as different as Germany and Greece.
“I still hear people talk about India or Indians as if it is one monolithic decision-making entity, either on the political side at one end or consumer side at the other,” said Gunjan Bagla, managing director of California-based Amritt Ventures, which advises American investors on how to do business in India.
“Neither approach works very well. Understanding the differences between the states can make the difference between a grand success and a challenging time.”