States also responsible for economic growth

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States also responsible for economic growth

Saturday, 18 January 2020 | Shshank Saurav

If we take stock of all the major areas which need improvement for attracting investment then, barring fiscal and monetary policies, almost all the key items are either in the State List or the Concurrent List of the Constitution

Finance Minister Nirmala Sitharaman will present her first full Union Budget on February 1 and people are expecting some out of the box initiatives to stimulate the economic growth of the country. Some of the key macroeconomic indicators like the Gross Domestic Product (GDP) growth, tax collection, credit growth and so on, indicate that the economy is grappling with a slowdown which is largely due to a decline in demand.

Global trade protectionism, a looming oil crisis and a rise in retail inflation are further aggravating the situation. Given the current economic scenario, it would be too optimistic to believe that growth will jump and the private sector will start investing all of a sudden in the coming fiscal.

India has a federal structure where sufficient autonomy has been given to State Governments. This autonomy is not just for making legislations and administration over the territory but it extends to the fiscal arena also. The States are getting their fair share of revenue after the implementation of the recommendations of the Fourteenth Finance Commission.

Our constitutional mechanism empowers the State Governments to deal with the matters which come under the State List, as per the Seventh Schedule of the Constitution, and they have joint control over the matters coming under the Concurrent List.

Despite the enormous powers given to States and the responsibility entrusted upon the State Legislature, it is a fact that whenever the question of economic growth arises, people always look to the Union Government. The fact that the union is nothing but a sum of all States should be appreciated and, therefore, the journey towards economic prosperity is the equal responsibility of both the Centre and the States. A common man doesn’t want to be entangled in a tug of war between warring politicians but unfortunately, gaining and retaining  power is more important for people who are sitting at the helm of affairs than the welfare of the people who put them there.

There is a general perception that a State which is ruled by the same political faction for a relatively longer period offers far more policy certainty and enhances its ability to attract investors. It is also perceived that having a Government of the same party/coalition at both the Centre and State helps in the unimpeded growth of the State.

However, if we see the data for the two most populous States of the country viz. Uttar Pradesh (UP) and Bihar, then these notions will prove to be a myth.

Bihar has been continuously ruled by Nitish Kumar for the last 15 years (except for a short while when  Jitan Ram Manjhi was at the helm).

In the case of UP, most of the time the State was ruled by Governments which had allies at the Centre.

However, despite this favourable political environment, these States are not doing well economically and are called the BIMARU States. This means that the State-level politicians are not doing good enough work for their development. This lackadaisical attitude of State Governments stems from the fact that economic growth and job creation are considered the sole responsibility of the Union Government, which it is not.

For Chief Ministers it is easy to pass the buck on to the Centre in case questions regarding the economy and development are asked.

The persona-centric politics of the major parties like the BJP and the Congress is also to be blamed for not grooming the State leadership and not pushing regional leaders to present a development role model for others.

The people of the country all want jobs and a higher income  and a better quality of life. For this, we have to start making State-level leaders accountable and question their inability to deliver on their promises made during the election campaigns.

Economic reforms are an ongoing process and investors continuously evaluate various investment options before committing their resources. Land and labour reforms are the most critical of all the structural changes which this country needs. Land comes under the State List and matters related to labour are part of the Concurrent List. Among various things, an investor looks for infrastructure and the law and order situation. These two vital prerequisites for development also fall under the domain of States. If we take stock of all the major areas which need improvement for attracting investment then, barring fiscal and monetary policies, almost all the key items are either in the State List or the Concurrent List of the Constitution.

The rural economy and the Micro, Small and Medium Enterprises (MSME) sector are facing severe distress. The rural economy is largely driven by agricultural activities and as a matter of fact, the farm sector accounts for almost half of the workforce employed in our country and contributes 18 per cent to the GDP. Similarly, the MSME sector contributes almost 29 per cent to the GDP and more than 45 per cent of product exports come from this sector. State Governments are uniquely positioned to understand local needs and tailor schemes as per those requirements, including tax concessions by reducing State Goods and Services Tax rates. Central schemes are applied across the country and “one size fits all” may not be true in every situation.

If India has to grow, then State Governments should take ownership for development and people should also ask regional leaders to deliver on their promises. This nation belongs to all and therefore development is the collective responsibility of all of us, particularly those who have been given the mandate to rule.

(The writer is a Chartered Accountant)

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