Competitive Federalism

Definition: Competitive federalism is a concept where centre competes with states and vice-versa, and states compete with each other. It refers to relations between regional governments (horizontal competition) and between central and regional governments (vertical competition).

Competitive federalism in India

    • The concept of competitive federalism is driving the Indian states to rush in for reforms to make an easy way for doing business in their state and expediting the pending project clearances. Ex: Vibrant summits conducted by various states, easing of compliance related laws in states to attract FDI etc
    • In this scenario, Centre government is only responsible to frame rules in this kind of free market as generally states compete with each other to attract funds
    • Union government devolves funds to the states on the basis of usage of previously allocated funds. Thus, funds and investments flow in greater amount (both from central government and private investors) to those states which have shown optimum use of previously allocated funds.
    • This system ensures minimum wastage and maximum use of resources as it strives for Healthy competition to improve physical and social infrastructure within the state.
    • Competitive federalism is also welcomed by industry because healthy competition among states will pave the way towards more investment destinations in future. In turn it should lead to significant job creation and economic development.
    • Some of the steps taken in India in recent times to give effect to this form of federalism are:
    • Greater allocation of funds or favorable terms to states that perform better on certain indices. Ex: Implementation of ‘One Nation, One Ration card scheme’
    • Ranking states based on development parameters. Ex: Swachh Bharat rankings, Ease of doing business ratings for states, selection of cities to be included under smart city programme etc
    • Andhra Pradesh has come up with their own brand name at Davos integrated and emulated the same elements of the nation brand India campaign with Make Andhra Pradesh Your Business
    • States have been given more freedom to plan their expenditure

Figure: Some measures undertaken by states to attract funds in recent times

  • Though the general atmosphere in recent times in instituting competitive federalism is positive, there are still some hindrances which prevents from realizing true success of competitive federalism. Some of these hindrances include:
  • Some states have better infrastructure and expertise. This could further add fuel to the inequality that exists between the regions
  • A race towards motivated by competition might not be in the best interests of the states vis-à-vis 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.
  • an institutional mechanism must be evolved where important decisions are appropriately discussed with states.


What is needed?

  • Competition alone cannot give the best results it is competition with cooperation that will drive the real change. There has to be a balance between cooperative and competitive federalism.
  • In this regard an institutional mechanism must be evolved where important decisions are appropriately discussed with states to ensure no states is left behind in the development paradigm.