On August 21, Andhra Pradesh's chief minister, Chandrababu Naidu, led seven other chief ministers and officials of rich states to New Delhi to protest at the decision of a nonpartisan government commission to reduce their shares of the federal tax pie. Opposition from rich states is not the only problem. Uttar Pradesh and Bihar have benefited little from reform. We have to go forward, not backward. Dramatic changes in the economic and political landscape over the past decade make New Delhi's task even more difficult.
States have more economic decision-making power than ever before.
And regional political parties have grown more assertive as their voters become more demanding. States that have seized on the end of licensing and the advent of more liberal rules on investment have profited. And as these states grow, so will lagging states find it increasingly difficult to find investors. While the invisible hand of the market has rewarded better-governed states, the strong hand of government has begun to wither. Wrestling with a runaway fiscal deficit, New Delhi has been forced to cut back its commitment to the public sector.