Have Modi’s Chief Ministers Been Executing His Reforms?

Collectively, Indian states have a much larger impact on India’s development trajectory than the central government. As a former state leader, Prime Minister Narendra Modi made “cooperative federalism” and “competitive federalism” important pillars of his government in 2014. This will remain a key element during the Modi government’s new term. However, with limited tools to persuade state governments to move in a given direction, this policy program relies on a mix of sticks, carrots, and compelling ideas. Logically, states controlled by Modi’s Bharatiya Janata Party would quickly submit themselves to related initiatives. But this is only half-true.

Upon taking office in May 2014, Prime Minister Modi announced the twin concept of “cooperative/competitive federalism.” The desire to get states to compete is not terribly new. It was perhaps most evident among southern states in the early days of India’s information technology revolution as cities like Bangalore, Hyderabad, and Chennai became known around the world. But the central government has relatively few ways to force or cajole states to make certain policy choices. And, during the 1989-2014 period of coalition governments, regional parties had more power over Delhi than vice-versa.

Looking at some of the Modi government’s main initiatives that require state government implementation, some programs see the BJP states leading, such as adopting more flexible labor policies. In others such as the ‘Business Reform Action Plan’ to rank states business environments and the 175-gigawatt renewable target, BJP states, actually, lag non-BJP states in showing improvement.

Renewable Energy Commitment

Prime Minister Modi’s audacious goal for India to have 175 GW of renewable power by 2022 was perhaps his most politically courageous move of the last five years. India’s state power utilities are in financial shambles and solar and wind power remain relatively expensive. Of course, a national goal cannot be met without actions by India’s state governments, and the central government has few sticks and carrots to press for specific actions.

In the chart below, we review the eight states that had BJP governments in place for nearly all of the last five years and compare the implementation of their respective renewable energy targets to the national average.

Financial Viability Of State Power Grids

Another central government program that requires state execution is the Ujwal Discom Assurance Yojana, the centre’s project to revitalise India’s broke power distribution utilities. States were asked to sign agreements with the central government, where the centre offered a range of fiscal and financial incentives to states that agreed to implement much-needed power reforms. One important tool to measure the impact of UDAY is the difference between the average cost of supply per unit of power and per unit average revenue realised. This ACS minus ARR calculation is one basic tool to indicate whether the state power utility is financially sustainable.

The Ministry of Power has current data on the ACS-ARR gap for 29 states and territories. A few large states like West Bengal and Odisha are not included. Among the set of eight states listed earlier BJP-led states, the average ACS-ARR gap is Rs 0.42 per kilowatt hour. For non-BJP states, the ACS-ARR gap averages Rs 1.2 per kilowatt hour.

State Business Reforms And Business Reform Action Plan

In 2014, the Ministry of Commerce and Industry, in conjunction with the World Bank, established a series of business practices benchmarks that states should adopt to become more competitive. States self-report progress in meeting these benchmarks. Three iterations were released- 2015, 2016, and 2017. During this period, BJP states tended to rank higher than non-BJP states. But most BJP-led states fell in the rankings during this period.

BJP-led states did well in the rankings. Of the eight states noted above, all but Maharashtra (14th) and Goa (20th) were in the top-10 in the 2017 rankings.

Labour Reforms

Early in his tenure, Prime Minister Modi attempted to introduce critical legislative to relax India’s onerous labour regulations. Notably, he wanted to amend the Industrial Disputes Act, which caps the number of employees a firm can employ before requiring government assent to staff reductions. While this legislation was blocked by the opposition in Parliament, labour regulation is a concurrent subject -- meaning states can legislate with the central government's assent.

So far, a handful of states have made changes to their labour laws, typically amending the Industrial Disputes Act to increase the “trigger number” of staff before government intervention from 100 to 300. This list was dominated by BJP-led states with IDA changes made in Rajasthan, Madhya Pradesh, and Assam.

Maharashtra also made important amendments to the Factories Act and the Contract Act to add flexibility in the application of these important labour regulations.

Alignment Has Its Limits

The Modi government has created a solid set of tools to stoke competition and cooperation among states. States’ autonomy in many areas of policymaking has limited the state-level implementation of the Modi government’s initiatives. This is even true of states controlled by the BJP. In some areas such as the Business Reform Action Plan and labour regulations, BJP-led states have tended to lead. In others, like meeting the government’s audacious target for renewable power, BJP states actually lag the national average. So there is some truth to the concept that center-state political alignment is meaningful, but the link is weaker than generally perceived.

Richard Rossow is the Wadhwani Chair in U.S. India Policy Studies at The Center for Strategic and International Studies in Washington D.C.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.