The 10th Vibrant Gujarat Summit concluded on Friday with investment pledges of Rs 26.3 trillion, a little more than the gross domestic product (GDP) of the coastal state. Earlier in the month, Tamil Nadu’s Global Investor Meet (GIM) yielded commitments of Rs 6.6 trillion. Last February, Uttar Pradesh flaunted investment promises to the tune of Rs 33.5 trillion, or 1.6 times the size of its economy, after a similar meet. States organising such summits to lure domestic and foreign investors has been the norm for the last two decades, though the origin of these now-regular events is traceable to the economic liberalisation of the 1990s. These summits are exemplars of competitive federalism in a diverse country. Though only a fraction of the promised investments eventually materialise, beckoning investors in this manner has acknowledged utility in a world where supply chains are being overhauled. Moreover, the recent summits are marked for investments in frontier areas—solar modules, wind turbines, hydrogen electrolysers, lithium ion storage, semiconductor wafers, etc. This is unlike the past, when assimilation of new technologies in the country was inordinately delayed.
As centralised planning is replaced by a largely market-driven development model, states and city governments have to compete to spur economic growth and development. States like Maharashtra, Karnataka and Gujarat lead in investments, but Telangana and tiny Chandigarh too punch above their weight, while more populated ones like Bihar lag. In these times, therefore, states have a compelling reason to guard against scarce allocation of (national) resources, given that non-government actors have a rapidly increasing role not only in the markets of manufactured products and services, but also in the deployment of finance capital, creation of fixed assets, and even in appropriation and utilisation of natural resources.
This inevitably means each state or urban body is free to offer fiscal and other incentives to attract investors, including easier approvals and a cordial front-line bureaucracy. However, the spirit of competitive federalism would have the desired wholesome outcome only if the state governments are duly empowered. Regional disparities cannot be addressed without the Centre being a neutral arbiter. To be sure, the Narendra Modi government has created a comprehensive template for gauging the states, on various parameters. But the development polices and resource allocations are yet to be fully in consonance with what these objective assessments bring to the fore. Policies and programmes must be tailored to address regional deprivations, while retaining incentives for performance, and being mindful of the differences in needs.
The scope of private investors bridging the country’s infrastructure deficit is limited. While the `111 trillion National Infra Pipeline (FY20-FY25) was envisaged with a 6:4 investment ratio between the government and the private sector, it is now clear that the target would be missed by a wide margin, mainly because private investors looked the other way. The Goods and Services Tax has created a pan-India market, and reduced the scope for tax arbitrage as a tool to promote regional investments. Natural resources—the sun, land, water, wind, coastline, soil fertility, minerals—vary across states, and so does labour productivity. So, to provide a level playing field to states for industrial investments, public funds need to be more judiciously invested to build physical infrastructure, and ensure harmonious social development.