Starting from very different initial conditions in
terms of political institutions, and pursuing a
very different set of policies, India has followed
China in being an economic reformer as well as a
star economic performer. The dimension of reform
that has received the most attention in India is that
of redrawing the boundaries of authority and action
between government and market, including liberalizing
government restrictions on international trade
and domestic corporate investment, and changing
the nature of government regulation of the private
sector.What has received less attention in this context
is the ongoing transformation of India’s federal
system of governance, through deliberate
reforms and through unintended consequences of
other policy changes. This transformation has the
potential to sustain and accelerate economic
growth in India. Specific reforms, with respect to
decentralization to local governments, taxes and
intergovernmental transfers have all previously
been considered in detail, and continue to be discussed.
The contribution of this piece is to put these
individual changes into the context of the overall
dynamics of India’s federal system, so that the
process can be understood from a positive perspective.
1 Thus, we go beyond description (which
reforms have occurred) and prescription (which
reforms are best?) to analysis of the process (why
have these reforms happened?