Strengthening the people-centric US-India economic relationship

The economic relationship between the world's two most populous democracies in India and the US is quite appropriately perhaps the most people-centric between any two major nations. Indian nationals have in recent years accounted for roughly half of all employment-based US green cards and 40-50 per cent of high-skilled temporary L-1 andH-1B work visas. The depth of this relationship origins with very large gross domestic product/capita differentials and India's large globally competitive, English-speaking and geographically mobile services sector workforce. It, and potentially similar future links to other large economies, represents India's probably biggest opportunity to benefit from globalisation. Labour mobility and exchange of people will invariably be the key part of any future US-India economic relationship.

Regretfully, the economic importance of bilateral India-US labour flows is generally underappreciated by policymakers often unaware of its true magnitude. At least partly, this is due to the lack of data, and the inability of traditional trade and balance of payment methodologies to adequately capture the significance of these very 21st century economic linkages. Forthcoming research results to be published shortly by the Peterson Institute provide a fuller picture. A novel estimation methodology based on mandatory and thus comprehensive US work visa data, as opposed to often spotty services trade survey results, suggests that the true economic value of temporary bilateral labour migration by Indians working in the US already exceeds that of comparable goods and services exports from India to the US.

The estimated total Indian H-1B and L-1 high-skilled temporary work visa population employed in the US rose from about 400,000 in 2002 to about 600,000 by 2012. Using conservative assumptions concerning the prevailing US wages that these temporary Indian workers must be paid and sectoral company profit margins, my results show that the total economic value of this relationship rose from $25-30 billion annually from 2002-05 to $45-50 billion by 2008-12. In comparison, recorded US cross-border imports of private services from India, despite rising rapidly over the period, amounted to just $19 billion in 2012. And recorded US goods imports from India were at $41 billion in 2012, also lower than the estimate for the economic value of the temporary worker relationship from Indian workers in the US that year.

When properly measured, the exchange of people between India and the US, therefore, already matters more than traditional trade. And this is despite ongoing legal obstructionism and politically motivated barriers to temporary workflows in the US. Imagine what the temporary high-skilled labour flows could become, if the two governments could negotiate a new economic governance framework for temporary migration and the establishment of genuine brain chains. The potential gains would, with certainty, exceed those from any conceivable traditional bilateral free trade agreement.

An important implication of the much higher true scope of the existing economic importance of temporary high-skilled Indian migration to the US is that it forces the issue of an India-US so-called totalisation agreement on to the political agenda.

A totalisation agreement generally serves two purposes. First, it eliminates dual social contributions/taxation, a situation that occurs when a worker from one country works temporarily in another country and is on the same earnings required to pay contributions to social security systems in two countries. Second, a totalisation agreement protects individual workers against pension benefit losses incurred from having divided their careers between two countries. Workers who have split their professional working life between two countries may fail to fully vest (for example, qualify for) their retirement, survivors or disability insurance benefits from one or both countries, as they may not have worked long enough to meet minimum eligibility requirements.

This unfortunate and unfair outcome is currently a certainty for Indians working on high-skilled visas in the US, as generally available US old-age pension benefits require 10 years of contributions for individuals to qualify. In other words, Indians temporarily working in the US on H-1B or L-1 visas, which have a maximum duration of six and seven years respectively, are today legally prevented from residing lawfully in the US for long enough to become eligible for the US social benefits they have contributed to.

Indian temporary high-skilled workers in the US pay a total of 7.65 per cent of their wages in old-age and health care taxes. Relying again on comprehensive US immigration data, this implies an approximate $3 billion in ultimately forfeited contributions paid annually by Indian workers to American social insurance in recent years. Compared to the roughly $150 million in corresponding annual social insurance contributions by temporary US workers in India, this yields an approximately $1-to-$20 mismatch.

Viewed in light of ongoing imbalances of this magnitude, and recalling that hundreds of thousands of individual high-skilled Indians working in the US are affected, the current lack of an India-US totalisation agreement becomes a policy emergency. Concluding an agreement will for sure be fraught with political obstacles, not least in the US, but its conclusion could be a cornerstone in a new and even deeper people-centric relationship between India and the US.

India’s Quest to Seek Synergy in Energy on The Heels Of Low Crude Prices

The dramatic plunge in the global crude oil price from a high of 111 dollars a barrel in June 2014 to its lowest level of 45 dollars on January 13 awhile, registering nearly 60 per cent tumble in a shot span of a few months was unprecedented in the more than half a century annals of the world’s much-feared commodity cartel, the Organization of Petroleum Exporting Countries (OPEC). With global economic recovery not gaining substantial momentum across the continents to ensure higher energy consumption even at reduced growth prospects, no one is sure as to how far the crude oil price will go down or how long it will take to balance demand-supply mismatch so that prices can regain lost or losing ground.

Energy experts recall that the diminution in OPEC’s omnipotence could be traced to 1985 when Britain’s North Sea and the US Alaskan oil flooded the global oil market, resulting in a shift from monopolistic to competitive pricing. But that period petered out in 2005 when escalating Chinese energy demand triggered off a temporary global oil paucity, letting OPEC’s price ‘discipline’ weapon to get redeployed to the detriment of oil-importing emerging economies such as ours. But in recent years particularly after the financial crisis of 2008 when the global economy in general and the advanced countries in particular suffered low or no growth, the world’s fossil fuel energy demand fell woefully short of supply. Add to that, the United States was able to succeed in the production of shale oil which has begun to play a key role when small and medium-sized producers in the US successfully thrashed out in 2009-10 as to how to apply to oil production the techniques of horizontal drilling and hydraulic fracturing that had already been spectacularly successful for natural gas. As a result, US oil production soared from about five million barrels a day (mb/d) in 2008 to 9.1 mb/d in December 2014. In sum, the reasons for the steep drop in crude prices owed itself to a host of favorable factors that covered among others, growing supply from non-OPEC countries, particularly the US, a halting recovery in global demand and Saudi Arabia’s resoluteness not to continue acting as OPEC’s and the world’s swing producer, particularly when the US production threatens to outrun the Kingdom’s substantial and substantive share in the global oil market. 

The International Monetary Fund (IMF) is of the view that “overall, lower oil prices due to supply shifts are good news for the global economy, obviously with major distribution effects between oil importers and oil exporters”. But with the share of oil consumption in GDP that determines the energy intensity being high at 7.5 per cent in heavily oil-importing countries such as India and Indonesia, against 5.4 per cent in China and 3.8 per cent in the United States, the authorities may have to keep an unrelenting vigil to avert the painful possibility of how the lower crude prices would work its way into retail inflation if the consumption of oil also goes up on a faster clip. Already, the pump prices of petrol and diesel in the country had fallen sharply.  While petrol prices are now Rs 12.27 per litre lower than August last, diesel prices were down Rs 8.46 a litre since October with another round of cuts expected in mid-January.  Lest the persistent fall would accelerate pent-up demand for non-renewable and import-intensive fuel like crude oil and its derivative products, the authorities are cautious in calibrating the requisite adjustment in whatever feasible manner they can under the new dispensation of decontrol of prices of petrol and diesel. That is partly the reason why the government effected hike in excise duty during November and December in two tranches in 2014 to mop up a huge Rs 10,000 crore in the remaining part of the current fiscal in a bid to shore up its revenue to meet the budget deficit without burdening the consumer but by making the oil marketing companies (OMCs) to take the tab.

 Ever since the decontrol of the prices of petrol first and diesel later, OMCs were given the elbow-room to adjust selling price of petrol and diesel on import parity cost to leave them with some leeway to help upstream (production) companies to invest more in exploration and production so that domestic supply of oil and natural gas could also gather traction. This is particularly important because persistently lower oil prices might reduce exploration and production spending and heighten risk for offshore oil companies. Energy analysts argue that if the government is able to keep in leash any abrupt upsurge in oil consumption close on the heels of its drastic price fall in the global market for the past several months by fostering diversified sources for energy, it can also build a strategic reserve for energy security in the event of future spike in crude prices which are likely given the geopolitical stark realities in West Asia and non-OPEC producers such as Russia. Already, the Government of India, through Indian Strategic Petroleum Reserves Ltd (ISPRL) is setting up strategic crude oil reserves with storage capacity of 5.33 million tonnes at Visakhapatnam, Mangaluru and Padur. In order to bolster the strategic crude oil storage capacity, ISPRL through Engineers India Ltd, has prepared a detailed feasibility study for construction of additional 12.5 million tones of strategic crude oil storage in Phase II at Bikaner, Rajkot, Chandikhol and Padur.  Using the extant soft global crude prices, the construction of oil storage caverns need to be fast-tracked so that storage capacity is suffice for securing energy security. As they say the best time to fix the roof is when sun shines and so is the best time to build supply stocks is now and here when imported crude price is cruising downhill for a few more months.

Since the country had been spending precious foreign exchange of the massive order of 160 billion dollars annually on oil imports, the soft crude price now prevailing in the global market would enable India to save at least 50 billion dollars in a year, provided there is no massive import volume to cater to the insatiable appetite for oil by domestic users, individuals as well as industry. Alternatively, the authorities could broad-base recovery techniques in the existing oil wells of national oil companies such as ONGC, OIL and GAIL, both onshore and offshore, making ample use of the slack in the oilfield service companies (OFS) which must perforce have to renew contracts on their existing rigs at markedly lower rates.   This is also an opportune time for upstream oil companies to aggressively step up production of oil and gas. It is no wonder that Secretary, Ministry of Petroleum and Natural Gas, Mr. Saurabh Chandra told a partnership summit under the umbrella of CII and the Ministry of External Affairs recently that the government is working on a renewed bid to promote exploration activities in the country’s oil and gas sector. He said in the last couple of months, the government has taken several steps to augment “activities in exploration including a reassessment of the hydrocarbon potentials in the country, putting in place a plan to survey all sedimentary basins at a cost of Rs 6000 crore and framing a transparent extension policy for the pre-NELP (New Exploration Licensing Policy) fields”.

Alongside, using the drastic cut in oil import bill due to the decline in crude oil prices, the country should seize the opportunity to step up generation of renewable energy as this promises to stem, if not stop the massive drain on foreign exchange reserves entailed in the import of oil, gas and coal. The current installed renewable capacity will need to go and grow manifold for the country to move to 15 per cent of energy by 2020. As the initial cost of funding these unconventional sources of energy such as solar, wind, water and biomass are quite expensive with their sale price for users pegged quite high, efforts need to be stepped up by the authorities of the Ministry of Non-Conventional & Renewable Sources of Energy to redouble the gains from this source of unpolluted energy for ecological balance and to keep India’s eco system undefiled by noxious fuels. The Prime Minister Mr. Narendra Modi’s ambition of building 100 smart cities cannot be easy in the absence of due focus on fostering alternative transportation fuel options that range from gas, ethanol, methanol to suitable electric power at a time when crude  oil prices are on the wane and offering immense possibilities to explore and exploit. With over 70 per cent of the consumption being diesel, the highly-polluting and costly fuel, by the transportation sector mostly heavy duty trucks crisscrossing the country, it is time India plumped for introducing more and more flexi-fuel vehicles that are run on a medley of compressed natural gas, diesel, ethanol, petrol and methanol.     

For home consumption of electricity too, the time has come to go in for conserving precious power by opting for LED bulbs with the Prime Minister Mr. Modi recently launching a scheme for LED bulb distribution under Domestic Efficient Lighting Programme (DELP) and a National Programme for LED-based Home and Street Lighting. The country needs more such initiatives to solve Its myriad energy needs capitalizing on the recent bonanza being bestowed upon us by the fortuitous fall in the global crude prices, energy experts assert.  There is synergy in energy if only we use innovation and ingenuity.

IMF expects India to grow faster than China by 2016-17

Pegs India's growth at 6.5% in 2016-17, higher than China's 6.3%

The International Monetary Fund (IMF) has slightly cut projections for India's economic growth to 6.3% for 2015-16 against 6.4% made in October last year, while retaining the forecast for the current financial year at 5.6%.

In its World Economic Outlook Update, IMF pegged the country's growth rate at 6.5% for 2016-17.

On a different growth parameter, it projected India'seconomy to grow faster than China's by 2016-17. This methodology includes indirect taxes in gross domestic product and is called GDP at market prices.

On this methodology, India would grow at 6.5% in 2016-17 and China by 6.3% in 2016. However, time period is not strictly comparable as China's growth is for a calendar year and India's for a financial year (April-March).

Nonetheless, if India's economy does expand this way, it is no less an achievement since India's economy grew 5% (GDP at market prices) in 2013-14 against China's 7.8% during 2013. This gap is projected to narrow as India's economy is expected to expand 5.8% in the current financial year compared to 7.4% for China in 2014. For the next financial year, India is forecast to expand 6.3% against China's 6.8% for 2015.

While India's economy was projected to grow at higher rate each year compared to the previous one, China's economy was forecast to grow at less pace.

China's 2015 growth was projected to grow by 0.3 percentage points, less than what was pegged in October by the IMF. The growth for 2016 was expected to slow by 0.5 percentage points. On the other hand, India's growth was slashed by 0.1 percentage points for 2015-16 and retained for 2016-17.

The fund attributed this to decline in investment growth in China in the third quarter of 2014. 

"... leading indicators point to a further slowdown," it said.

The authorities are now expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth and hence the forecast assumes less of a policy response to the underlying moderation.

However, IMF said the growth forecast is broadly unchanged for India. It said weaker external demand will be offset by lower oil prices and a pickup in industrial and investment activity after policy reforms.

Though the World Bank had also estimated India to grow at 7% by 2017-18 and China by 6.9% in 2017, the two growth rates were not comparable. This was because China's growth was computed on the basis of GDP at market prices and India's at GDP at factor cost (which excludes indirect taxes).

Officially, India estimates its economic growth in terms of GDP at factor cost. Under this methodology, both IMF and the World Bank forecast India's economy to grow by 5.6% in the current financial year. For the next financial year, the World Bank's forecast is 6.4% and that of IMF at 6.3%. For 2016-17, IMF predicted India's growth at 6.5%, 0.5 percentage points lower than the World Bank.

IMF predicted the world economic growth at 3.5% in 2015 and 3.7% the next year. Each of the growth rates was lower by 0.3 percentage points than its October forecast.

US was projected to grow 3.6% in 2015 and 3.3% the next year, higher by 0.5 percentage points and 0.3 percentage points compared to the October projections. The US economy was forecast to grow 2.4% in the just concluded year. US is the largest importers of India's goods.

Eurozone, which is the largest destination of India's merchandise exports, was projected to expand 1.2% in 2015 and 1.4% next year, 0.2 percentage points and 0.3 percentage points slower than what was predicted by the fund in October. It should be noted that the euro zone economy contracted 0.5% in 2013 and was projected to recover to 0.8% growth in 2014.

IMF said lower oil prices due to supply shifts boost global growth, although with important differences between oil importers and exporters. 

"The global economic impact depends crucially on how large and persistent the oil supply shifts are expected to be. The more persistent they are, the more consumers and firms will adjust consumption and production," it said.

MMDR Ordinance will prove to be a milestone in the revolution for transparency

MMDR Ordinance will prove to be a milestone in the revolution for transparency –Shri Narendra Singh Tomar Minister meets states to prepare implementation roadmap

Shri Narendra Singh Tomar, Union Minister of Steel and Mines has  said that the MINES AND MINERALS (DEVELOPMENT AND REGULATION), (MMDR) Ordinance is a revolutionary step in revival of mining sector in the country, hitherto stagnated due to various reasons. Addressing a meeting of mines ministers and secretaries from across the country here today, the minister said that auction will bring in greater transparency and higher revenue for the states.  Simultaneously simplification and transferability will also attract private investment. He added that the classification of minerals will lead to their better scientific exploration and with more power to the states mining process will be expedite. The meeting was organised for preparing a roadmap for implementation of Ordinance was attended by the Minister of State for Mines and Steel, Shri Vishnu Deo Sai, mining ministers from 11 states, Secretary (Mines) Shri Anup K Pujari, Additional Secretary (Mines) Shri R Sridharan, and senior officials from the Ministry of Mines. Pressing upon the need for developing a sound database for minerals in India, Shri Tomar averred that detailed exploration is the first step in mining and to set realistic goals and make workable plans, it is imperative to know the true measure of our resource base. He stated that as per preliminary assessment, 199 cases of various states would be ready for auction with some effort. But such auctions would also depend on the finalisation of modalities for conducting auction and subordinate rules therein. The Minister pointed out other provisions of the Ordinance, such as, stricter penalties for illegal mining, establishment of National Minerals Exploration Trust (NMET) to give impetus to exploration, removal of prior approval of the centre to eliminate delays, and provision for District Mineral Foundation (DMF) to address the concerns of mining-affected people. Citing the example of falling levels of iron ore production in the country, Shri Tomar urged states to revive mining in all earnestness. Acknowledging the uniqueness of different minerals and different regions, Shri Tomar solicited opinions and suggestions of state representatives for firming up a holistic implementation plan to further strengthen the ‘Make in India’ vision of the government. Mining ministers and secretaries from different states expressed optimism over the amendments, and offered constructive suggestions for its implementation on the ground level. It was agreed that delays in environment and forest clearances had to be resolved by MoEF for providing unhindered support in growth of mining. Following are the key features of the Ordinance: ·           Removal of discretion; auction to be sole method of allotment: The amendment seeks to bring in utmost transparency by introducing auction mechanism for the grant of mineral concessions {Section 10 B &11}. The tenure of the mineral concession have been increased from the existing 30 years to 50 years {Section 8 A (1), (2), (3) and (4)}. ·           Impetus to the mining sector: The mining industry has been aggrieved due to the second and subsequent renewals remaining pending. In fact, this has led to closure of a large number of mines. The Ordinance also addresses this issue. Sub-Section 5 and 6 of Section 8(a) of the Ordinance provides that the Mining Leases would be deemed to be extended from the date of their last renewal to 31st March, 2030 (in the captive miners) and till 31st March, 2020 (for the merchant miners) or till the completion of the renewal already granted, if any, whichever is later. ·        Safeguarding interest of affected persons: There is provision to establish District Mineral Foundation (DMF) in the districts affected by mining related activities {Section 9 (B)}. ·        Encouraging exploration and investment: Further, the Ordinance proposes to setup a National Mineral Exploration Trust created out of contribution from the mining lease holders, to have a dedicated fund for encouraging exploration in the country {Section 9 (C)}. ·        Simplification of procedures and removal of delay: The amendment removes the need for “previous approval” from the Central Government for important minerals like iron ore, bauxite, mangese, etc., thereby making the process quicker and simpler. Similarly, under Section 5(2)(b), the State Governments to devise a system for filing of a mining plan obviating need for approval by the Central Government. The Ordinance also provides that the tenure of any Mining Lease would now be 50 years in place of 30 years in the existing Act. ·        Stronger provisions for checking illegal mining: In order to address the escalating problem of illegal mining, the penal provisions have been made further stringent- Higher penalties up to 5 lakh rupees and imprisonment up to 5 years.

PAN IIT - ONGC MoC in Hydrocarbons and Energy Signed

A Memorandum of Collaboration (MoC) was signed in New Delhi today in the presence of the Union Minister of Human Resource Development Smt Smriti Irani and the Minister of State for Petroleum and Natural Gas, Shri Dharmendra Pradhan. Responding to the Prime Minister Shri Narendra Modi’s ‘Make in India’ initiative, the IITs and the ONGC have agreed to work towards a collective R&D Programme for Developing Indigenous Technologies to enhance Exploration and Exploitation of Hydrocarbons and Alternate Sources of Energy. This is a long-term initiative for sustained research, development and capacity building aimed at a multi-pronged approach that will help foster research capability and transform experiential based learning in this core sector. The Programme will be funded by ONGC and shall take advantage of the available infrastructure and manpower of the IITs and ONGC. The Programme has identified seven initial thematic areas namely (i) Geological & Geophysical studies (ii) Reservoir characterization, modeling & simulation (iii) Oil & gas Production & Recovery Enhancement (iv) Software Development (v) Unconventional Energy Resources (vi) Engineering solutions/tools & technology development (vii) Alternate Energy researches. Sub-topics have also been identified in each of these areas. The Minister of Human Resource Development, Smt Smriti Irani, while congratulating ONGC and IITs for deciding to join hands to bring major push for ‘Make in India’ campaign in energy sector said, that such initiatives further demonstrate India’s collective determination to realize full potential of our inherent strengths for making the country a true global leader. The Ministry of Human Resource Development will promote similar industry – academia linkages on a large scale and will also facilitate engagement of Adjunct Faculty. Terming the new initiative as quite exciting for the entire hydrocarbon industry of the country, MoS Shri Dharmenra Pradhan said knowledge of theoretical aspects is available with IITs while the knowledge of practical aspects of energy business resides with ONGC. He welcomed the partnership for excellence through research and development.

paradigm shift in global attitudes towards climate change, from "carbon credit", towards "green credit"

PM chairs meeting of the Council on Climate Change

• PM calls for a paradigm shift in global attitudes towards climate change, from "carbon credit", towards "green credit" • PM: Global awareness on climate change is an opportunity to improve quality of life of citizens • PM calls for consortium of nations with greatest solar energy potential The Prime Minister, Shri Narendra Modi today called for a paradigm shift in global attitudes towards climate change, from "carbon credit", towards "green credit." Chairing a meeting of the Prime Minister`s Council on Climate Change, Shri Narendra Modi said that instead of focusing on emissions and cuts alone, focus should shift on what we have done for clean energy generation, energy conservation and energy efficiency, and what more can be done in these areas. Shri Narendra Modi called for a careful evaluation of all the initiatives that have been taken by India in this regard. These include, to mention some: initiatives in solar energy, wind energy, biomass energy, and transportation projects that have reduced distances or travel times. The Prime Minister said India looks at the global concern and awareness on Climate Change, as a great opportunity for working towards improving the quality of life of its citizens, and making a positive contribution for mankind. The Prime Minister emphasized India`s "sanskar" (traditions) and "soch" (thinking), where "prakriti prem" (love of nature) was imbibed among people from childhood. The Prime Minister recalled his meeting with leaders of Pacific island nations in Fiji in November 2014, and the apprehension they had over the issue of climate change. The Prime Minister called for a consortium of all nations who have the greatest solar energy potential. He called upon them to join hands with India for innovation and cutting-edge research that would reduce the cost of solar energy, making it more accessible to people. The Prime Minister called for a review of curricula in architecture and civil engineering colleges, to include energy efficient design in a big way.

States of the Union

Cooperative federalism was a prominent theme on Narendra Modi’s agenda even before he became prime minister. As chief minister, he often accused the UPA of “coercive federalism”, violating the federal spirit and reducing the states to a “subservient” position. His position was that India required a “vibrant and functional federal structure” where states are given their due. However, the question worth asking is whether the government will walk the talk, given that party incentives often change with location.

Barring the institutionalisation of local self-government, Indian federalism has rarely seen any deliberate redesign in terms of its structure or in the arrangements with regard to power and resource distribution. Even a cursory reading of the reports of the commissions set up to examine Centre-state relations in India reveals a conservative streak rather than innovative zeal. Further, governments have also acted according to their convenience. The tragedy of the Inter-State Council says it all.

Most changes in Indian federalism have been evolutionary and have come in the form of tweaks and adjustments. Consequently, the structure remains the same but new processes are worked into it. Much of the federalisation of the Indian polity in the 1990s that we often refer to was in the form of new practices and patterns of interaction. Given their informal status, they are contingent on the existing power relations. More importantly, the changes are largely unintended and have been brought about by social, political and economic currents affecting the political system as a whole.

For instance, the emergence of a competitive multi-party system and the institutionalisation of a coalitional system not only made it tough for the Centre to play hardball with the states but also fulfilled some of their longstanding demands. The participation of state-based parties in Central governments fulfilled their desire to have a greater say in national-level decision-making. The Supreme Court, in the Bommai judgment of 1994, made Article 356, often used to dismiss state governments controlled by political parties opposed to the ruling party at the Centre, judicially reviewable. The court’s observations, and the fact that Central governments depended on state-based parties for survival, made Article 356 extremely tough to use, thus removing a major irritant in Centre-state relations.

Similarly, the embrace of economic reforms helped transform financial dynamics between the Centre and the states. With greater discretionary powers, states competed for market-based investment and this marginally reduced the Central government’s influence over a state’s development trajectory. This access to new revenue sources fulfilled the persistent demand for more financial resources and autonomy. If states today have greater political and economic autonomy than the period before the 1990s, it is probably an incidental benefit rather than the result of concerted efforts.

In this context, NDA 2’s decision to do away with the Planning Commission and scrap policy planning from “top to bottom” — probably the biggest sore point in Centre-state relations — will go down as a major reform in India’s federal history. By recognising states as stakeholders while reimagining the commission and pushing the idea that strong

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states do not weaken the Union, the government appears to be making the right noises. At the same time, since May 2014 several irritants have emerged as well. The removal and appointment of governors, the home ministry’s instructions to Haryana on the Haryana Sikh Gurdwara (Management) Act, 2014, to Telangana to hand over law and order powers to the governor of Hyderabad and to the National Investigation Agency on the Burdwan blasts probe are instances that remind us that cooperative federalism remains on the horizon of our expectations. They also indicate the four challenges that the BJP will have to override to institutionalise harmonious Centre-state relations. First, the BJP was only responding to its own political incentives when pushing the cooperative federalism rhetoric. Speaking against the Centre, especially when the Congress is in power has always been an attractive position, as it has often acted as a glue to bring non-Congress parties together. Now that the BJP has a comfortable majority of its own and appears to be riding the crest in the state elections as well, how much of the rhetoric will the party want to take forward. In the past, parties have changed positions when the opportunity structure changed. 

The DMK is one of the few parties that have articulated a position on various dimensions of Centre-state relations, a position crafted when it was primarily active only at the state level. However, when it was in power at the Centre for nearly 14 years and could have pushed its Centre-state reform agenda, it chose to press mute. New institutionalism literature tells us that when actors are integrated with the system, they see only “what they like” and when they are alienated, they begin to see “what they dislike”. The fracas over governors is a good example of the BJP seeing the virtues of the same system they were critical of when in opposition. Second, party organisation matters. As the BJP expands its territorial reach, the need for centralised coordination will increase. Polity-wide parties like the BJP and the Congress use an integrationist and aggregative strategy to appear as cohesive units. Polity decentralisation and party centralisation are unlikely to go together. Third, all federations are dynamic and there is a continual pressure to renegotiate the balance of power and resources between levels of government. The challenge is to constantly innovate and balance different demands. Is the party willing to invest in this exercise? Finally, in parliamentary systems, government-opposition relations could also change the existing incentive structure. The pressure to focus on short-term electoral victories rather than long-term intergovernmental engagement, especially when challenged by the Opposition, will pose the real challenge. The Congress short-circuited federal relations to maintain its dominance. The question is, will the BJP travel the same path? -