Indian Federalism: How does the policy of liberalization affect centre-state economic relations

Seminar paper from the year 2003 in the subject Politics - International Politics - Region: South Asia, grade: 1.0 (A), University of Heidelberg (South Asian Institute for Political Science), course: State and Economy in South Asia, with the example of India, language: English, abstract: Many scholars expected India to drag her feet in the liberalization process, due to the opposition of economically weak groups, negatively affected by a globalized market economy, but politically empowered through institutions created by India's long democratic tradition (Lanyi 2000). The missing of this resistance was one of the most puzzling experiences of the last ten years. Supplementing Rob Jenkins' popular thesis that India is going through a 'reform by stealth' (Jenkins 1999) led by witty politicians, perfectly able to play the tunes of these various institutions, this article will provide a neo-institutionalist position with emphasize on the impact of the IMF's structural adjustments programme on the federal and local level, which led to a change in the formal as well as in the informal institutions themselves. There are four points in Jenkins' approach open to criticism and able to undermine the achievements of his research: a) the reductionist and static understanding of institutions b) the neglect of international entrepreneurs and structure influencing institutional policy c) the neglect of specific Indian 'realities', forcing institutions to adapt in the face of liberalization d) the overemphasizing on the relevance of informal institutions and corruption as a means to achieve desired political outcomes. The thesis provided in this essay will be that the observed shift towards an increased directive ability of the central government is only a short-term phenomenon masking a steadily accelerating devolution of power that capacitates state- and local authorities to autonomously negotiate their self-interest in a globalized world over the long run. This process not only leads to an obvious need to redesign fiscal federalism, but will also call for an abolition of several centre-favouring precautions of Indian federalism.