Policy Watch No.5

The ‘One Nation’ Fallacy in a ‘New’ India

The early years of the Indian republic saw an emphasis on nation building, accomplished through a top-down policy paradigm driven by the Centre and flowing down to the States. This was appropriate then and helped establish the ‘Idea of India’, a unified and stable political union.There is now a new ‘Idea of India’. An India that is marked by large and widening divergence amongst major States, in terms of income per person as well as in social indicators. An India that is growing further apart economically, socially and demographically. Our research establishes that the divergence among India’s large States skyrocketed after the period 1990/1, suggesting a link with the liberal economic reforms initiated at that time. We also posit that the nature of contemporary economic development driven by agglomeration benefits is a better explanation for India’s divergence than quality of governance and political leadership. Policy makers must strive to strike a balance between efficiency of governance through a ‘one nation’ policy framework and the growing disparities among India’s large States.Embedded in these policies are features that redefine the nature of India’s federal framework, as fashioned by its founders. This Policy Watch argues that this ‘new’ India demands a drastic shift towards maximum regional autonomy. Policies such as the Goods and Services Tax (GST), which further integrate the market while removing policy levers from States, can only exacerbate regional inequality. A ‘one nation one policy’ paradigm can fan fissiparous tendencies in a diverse polity and create sub-nationalism fault lines. Our policy prescription is to adopt "place-based" policies, which maximise policy and fiscal autonomy for the States.

The early years of the Indian republic saw an emphasis on nation building, accomplished through a top-down policy paradigm driven by the centre and flowing down to the States. This was appropriate then and helped establish the ‘Idea of India’, a unified and stable political union.

There is now a new ‘Idea of India’. An India that is marked by large and widening divergence amongst major States, in terms of income per person as well as in social indicators. An India that is growing further apart economically, socially and demographically. Our research establishes that the divergence among India’s large States skyrocketed after the period 1990/1, suggesting a link with the liberal economic reforms initiated at that time. We also posit that the nature of contemporary economic development driven by agglomeration benefits is a better explanation for India’s divergence than quality of governance and political leadership. Policy makers must strive to strike a balance between efficiency of governance through a ‘one nation’ policy framework and the growing disparities among India’s large States.

Embedded in these policies are features that redefine the nature of India’s federal framework, as fashioned by its founders. This Policy Watch argues that this ‘new’ India demands a drastic shift towards maximum regional autonomy. Policies such as the Goods and Services Tax (GST), which further integrate the market while removing policy levers from States, can only exacerbate regional inequality.

A ‘one nation one policy’ paradigm can fan fissiparous tendencies in a diverse polity and create sub-nationalism fault lines. Our policy prescription is directional in nature: The Union government should avoid unitarism and adopt “place-based” policies, which maximise policy and fiscal autonomy for the States.

Praveen Chakravarty can be contacted at praveen.chakravarty@idfcinstitute.org



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