Context

• The establishment of Google’s largest Artificial Intelligence data centre in Andhra Pradesh marked a defining moment in India’s evolving economic landscape.
• The celebrations in Visakhapatnam and the envy in neighbouring States such as Tamil Nadu and Karnataka reflected more than regional rivalry, they revealed the emergence of a new kind of federalism.
• Across India, Chief Ministers are no longer queuing in Delhi for patronage; they are now in boardrooms and global summits, competing for investments through performance, efficiency, and policy innovation.
• This shift from central dependence to State-level competition represents a profound transformation in India’s governance and growth model.

From Central Patronage to State Initiative and The Emergence of Competitive Federalism

• From Central Patronage to State Initiative
  • For decades after Independence, New Delhi controlled the economic destiny of the nation.
  • The system of licences, permits, and quotas ensured that decisions about what industries could operate, and where, were made by central bureaucrats. States competed not for entrepreneurs but for the goodwill of Ministers in the capital.
  • The 1991 liberalisation reforms fundamentally altered this equation.
  • The dismantling of industrial licensing and the opening of the economy to global trade shifted power from the Centre to the States.
  • Economic decision-making became more decentralised, and States began to realise that attracting investment depended on infrastructure, governance, and stability, not political connections.
  • This shift laid the groundwork for competitive federalism, where success arises from competence rather than patronage.
• The Emergence of Competitive Federalism
  • Andhra Pradesh, Tamil Nadu, and Karnataka now compete vigorously for global technology projects such as those from Google, Micron, and Foxconn.
  • Gujarat’s victory in securing semiconductor investments and Telangana’s push for electric vehicle manufacturing show how regional economies have become strategic players in global value chains.
  • This is no longer a competition for subsidies but a contest for credibility and reliability.
  • States attract investors by offering policy predictability, efficient administration, and a skilled workforce.
  • The race for development has thus turned into a race for good governance, where performance is the true measure of power.

Lessons from Global Federations

• This evolution is not unique to India. In the United States, over two hundred cities competed to host Amazon’s second headquarters, offering infrastructure, incentives, and workforce plans.
• Though some saw it as a subsidy race, it led many cities to upgrade governance and urban planning.
• In Germany, Bavaria’s transformation into an innovation hub, home to BMW, Siemens, and clusters of Mittelstand firms, demonstrates how dynamic State-level policy can reshape an economy.
• Australia and Canada too have witnessed similar trends, with regional governments competing for mining, clean energy, and education investments.

The Centre’s Role and the Risks of Rivalry

• The Central government has supported this transformation by introducing national rankings on ease of doing business, startup promotion, and export readiness.
• These benchmarks have pushed States to innovate and to refine their investment strategies.
• Investors now see India not as a single entity, but as a federation of opportunities, each with its own strengths, Andhra Pradesh’s business climate, Tamil Nadu’s skilled workforce, Gujarat’s infrastructure, Punjab’s entrepreneurial energy, and Jharkhand’s natural resources.
• Yet, competition must be managed carefully. There is a danger of a race to the bottom, where States offer excessive subsidies or indiscriminate land concessions to attract industries.
• The smarter path lies in competing through competence, not concessions. Sustainable competition depends on transparency, fiscal prudence, and institutional strength.

A New Federal Compact

• India’s new economic order is defined by a striking shift, Chief Ministers now pitch to CEOs, not Cabinet Ministers.
• The transformation from a permission-based economy to a persuasion-based one reflects a change in mindset as much as in policy. States no longer rely on central handouts; they campaign for investments with confidence, data, and strategy.
• Every success achieved by a State, whether it is Andhra Pradesh securing a tech data centre, Gujarat winning a semiconductor plant, or Uttar Pradesh expanding its electronics manufacturing base, strengthens national supply chains and skill ecosystems.
• As multinational firms diversify beyond China, they find in India not a single destination but a federation of competitive, complementary regions. In this way, India competes globally through its States.

Conclusion

• The rivalry between Andhra Pradesh, Tamil Nadu, and Karnataka over Google’s data centre signifies a maturing of India’s federal spirit.
• What once appeared as political one-upmanship now represents economic dynamism and policy innovation.
• The era of central patronage has given way to an age of collaborative competition, where each State strives to outdo others through better governance, smarter policies, and stronger institutions.
• India’s transformation from control to competition, from licences to leadership, embodies the essence of modern federalism.