Special status for states can open can of worms: Arvind Subramanian

If the central government accords special status to any state, it will end up opening a can of worms, former chief economic advisor Arvind Subramanian has said.

Speaking to The Federal on the sidelines of an event in Chennai, he also voiced concerns that such a move could intensify economic disparities and provoke questions from poorer states.

“Special status for rich states would exacerbate the redistributive aspects of our economy and poorer states might question the logic of it,” he said.

“This could open up a can of worms and the government should not do so," he added.

Subramanian’s comments come amid demands from chief ministers Nitish Kumar of Bihar and N Chandrababu Naidu of Andhra Pradesh seeking a special financial package for their states.

Prime Minister Narendra Modi has not commented on the demand from the two leaders who provide crucial legislative support to his government.

Subramanian made the comments while delivering the Founder's Day Lecture at the Madras Institute of Development Studies in Chennai, focusing on the Goods and Services Tax (GST).

Bats for GST

Referring to GST as “Arun Jaitley’s bequest”, he emphasised its impact on efficiency and cooperative federalism despite concerns over revenue losses.

India’s FY24 GDP growth stood at 8.2 per cent as the country braces to reach its ambitious goal of becoming a $5 trillion economy.

Prime Minister Modi had called the GDP numbers “a trailer of a bigger picture.” But Subramanian refuted the Union government’s narrative of a “surging economy”.

"India's economic performance is average," he countered. "Investment and FDI are declining; employment remains stagnant. It's a middling economy, not a surging one."

Subramanian said that the risks of doing business in India were high and the situation has been aggravated by the Modi government as he spoke of plummeting private investments in India.

More investments needed

New investment plans in the country slumped to a 20-year low in the first quarter of this fiscal year, with just ₹44,300 crore of fresh outlays announced by corporates.

Regarding India's appeal under the "China Plus One" strategy, Subramanian called for urgent government action to attract investments, emphasising the need to reduce risk in the policy ecosystem.

“I think the government needs to go on a war footing to see how it can best attract all these investments. Somehow, the government seems to understand that it needs to increase the returns to investors, but it is just failing to address the risk environment. The policy ecosystem should reduce the risk but we’re increasing the risk and I think that’s the big challenge. We have to make a concerted effort trying to see how to maximise the ‘China Plus One’ investment opportunity,” he said.