Memo To Lutyens Elite: Time To Move To States If You Want To Stay Relevant 

The US gets it, but India’s media and intelligentsia don’t. Under Narendra Modi, India is beginning to become a true federation, but our media is still focused on Delhi. We still expect Delhi to do things and offer answers that only states can deliver.

A Times of India report yesterday (8 May) said that the US wants to hold a “chief ministers’ conclave” to promote commerce and investment between Indian states and US businesses. The report says “the conclave is aimed at offering a platform for ‘leading Indian states to showcase the advantages of doing business in their states and highlight recent business environment reforms.’”

Way to go. After the 14th finance commission ensured that 62 percent of total resources accrue to states, and especially after Modi took over, the emphasis is on passing on more powers – fiscal and regulatory - to the states. The reason why foreign investment has been less forthcoming in the past is because the Centre has stood in the way, or vice-versa - whenever the centre pushed investments, projects got embroiled in state politics and red tape. Barring basic nods for an investment, the bulk of the clearances are today decided by states – land, power supply, labour laws, etc.

A few hurdles still remain. For one, the Foreign Investment Promotion Board (FIPB), originally created for facilitating inward investments, no longer serves any purpose. Once basic rules – who can invest, where they can invest and how much – are clear, it is states that have to do the heavy lifting.

The Reserve Bank, which is directly under central jurisdiction, needs to reduce the paperwork involved in inward and outward remittances, since India still does not have capital convertibility.

Once investment and capital movements are regulated by transparent rules and regulations, there is no need for the centre to be an intermediary in the process.

The only area the centre needs to stand guard on is fund flows and partnerships that can have an impact on national security. This is not a job that can be delegated to states. But this is something to be monitored covertly and through a watch on money directions. Cyber security also needs very strong central investments.

India’s growth has to be driven by states, and the centre’s role will increasingly reduce to defence, foreign affairs, fiscal and monetary policy, and communications.

While the process of true federalisation is far from complete, the direction is clear. Delhi will increasingly be less relevant to the country’s progress.

This process will make the Lutyens elite redundant, unless they want to pontificate to empty benches.

Whether it is growth or law and order, investment or poverty, the place to monitor these developments is at the state level. We produce thousands of economists, but few real experts at the level of states, both in macroeconomics and microeconomics. Who, for example, can give us a study on what a given change in taxes will do to employment in Odisha?

It is time to dismantle Delhi’s ministerial bhavans and move them to the states, with only a small secretariat relevant to coordination and dissemination of information being retained in the national capital.

The White House seems to have got the general idea. Wonder when the rest of the international media and our own Lutyens mafia will realise where the real action is. On television shows, questions on jobs, law and order, and growth are still being asked of the centre. The answers will come less from Delhi and more from the states in future. It is also important to ensure that state parties are questioned more closely. They have gotten away with murder because of the media’s Delhi obsession.

The Sonia-Manmohan Singh regime was probably the last one to rule India from imperial Delhi. Narendra Modi and economic realities are forcing a devolution of power to states. It is time we acknowledged this reality and dethrone Delhi’s commentariat from its pedestal. They know zilch about the real India.

Hopefully, the shift of power away from Delhi will spare us growth-destroying laws like the Land Acquisition Act or one-cap-fits-all social legislation like the Right to Food and the Right to Education. They have caused more damage than anything else.