In what ways has the post-1991 paradigm of economic liberalisation in India accentuated inter-state developmental asymmetries, and how does this transformation reconfigure the political economy of federalism and spatial justice within the Indian Union?

~ Polity Prober

Interrogating Spatial Justice in Post-Liberalisation India: Inter-State Developmental Asymmetries and the Political Economy of Federalism

Introduction

The economic liberalisation of 1991 marked a paradigmatic shift in India’s developmental model from a state-directed, planned economy to one characterized by market-led growth, deregulation, and globalization. This transformation not only restructured the national economy but also profoundly impacted the spatial distribution of growth and opportunity across Indian states. The erstwhile Nehruvian paradigm, premised on egalitarian redistribution and balanced regional development, gave way to a new federal dynamic, wherein competition among states became the fulcrum of growth. While this market-driven federalism catalyzed economic dynamism in certain regions, it simultaneously accentuated inter-state developmental asymmetries, raising critical questions about the equity, inclusiveness, and distributive justice within India’s federal political economy.

This essay critically examines the post-1991 liberalisation paradigm in India, assessing how it reconfigured the political economy of federalism by deepening regional disparities, fostering uneven development, and challenging the constitutional commitment to spatial justice. It argues that the shift toward competitive federalism and the retreat of the redistributive state have exacerbated developmental asymmetries, reinforcing patterns of spatial inequality that are politically and economically destabilizing.

I. Economic Liberalisation and the New Political Economy of Federalism

The liberalisation reforms of 1991 were initiated in response to a severe balance-of-payments crisis and entailed structural adjustment programs (SAPs) under the aegis of the IMF and World Bank. These reforms included the deregulation of industrial licensing, reduction in public sector investment, liberalisation of foreign capital flows, and a general retreat of the state from welfare provisioning and regional planning.

A key consequence of this shift was the transformation of the federal compact:

  • The Planning Commission, which earlier functioned as a central instrument of inter-state resource equalization, began to lose relevance, culminating in its abolition in 2015 and the establishment of NITI Aayog, which reflects a consultative but non-binding model of cooperative federalism.
  • Centrally Sponsored Schemes (CSS), which earlier had earmarked funds for backward regions, were rationalised or reduced.
  • The federal logic moved from cooperation and equity to competition and efficiency, privileging fiscally and administratively advanced states.

This transition has been widely theorized as a shift from “cooperative federalism” to “competitive federalism”, where states compete for private investment, FDI, and central grants based on performance parameters.

II. Inter-State Developmental Asymmetries: Trends and Patterns

India has historically exhibited regional disparities owing to colonial legacies, uneven infrastructural development, and cultural-linguistic differentiation. However, liberalisation has intensified these asymmetries, particularly along the following axes:

  1. North-South Divide: Southern states such as Tamil Nadu, Kerala, Karnataka, and Andhra Pradesh, owing to early investments in education, health, and infrastructure, have become hubs of high-value service sectors. In contrast, BIMARU states (Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh) have lagged behind in terms of per capita income, industrialization, and social development.
  2. Urban–Rural Gap: The concentration of investment in urban centres has exacerbated the divide between metropolitan regions (Delhi, Mumbai, Bengaluru) and rural hinterlands, creating dual economies within states.
  3. Western–Eastern Gradient: Gujarat and Maharashtra have benefitted disproportionately from industrial policy shifts, while eastern states like Odisha and Jharkhand, despite being resource-rich, remain extraction zones without structural transformation.
  4. FDI Concentration: Liberalisation has led to highly skewed FDI flows, with states like Maharashtra, Karnataka, and Gujarat consistently attracting over 70% of foreign investment, further entrenching spatial inequalities.

Empirical studies (e.g., by the RBI and the Institute of Economic Growth) demonstrate that the Gini coefficient of inter-state inequality in per capita NSDP (Net State Domestic Product) has increased post-liberalisation, with growth disproportionately accruing to already advanced states.

III. Competitive Federalism and the Political Economy of Inequality

The ideological underpinning of post-1991 federalism is the logic of “efficiency-driven competition”, whereby states that offer better infrastructure, labour flexibility, and policy incentives are rewarded with investment and growth. This model assumes a level playing field, which is normatively and empirically flawed:

  • Advanced states begin with structural advantages—human capital, urbanization, governance capacity—that poorer states cannot match.
  • Backward states are forced into race-to-the-bottom dynamics, diluting environmental and labour norms to attract capital, often without developmental returns.
  • The retreat of equalisation grants and the shift to performance-based finance commissions (e.g., 15th FC) have further penalized states with higher population growth and historical backwardness.

This has created a fiscal asymmetry that is politically contentious. Southern states, for example, have argued that using 2011 Census population as a criterion for devolution punishes states with successful population control, fuelling federal tensions.

Moreover, NITI Aayog’s policy framework, while promoting innovation and good governance, lacks coercive authority and redistributive mechanisms, limiting its efficacy in correcting structural imbalances.

IV. Spatial Justice and Constitutional Commitments

The Indian Constitution, while not explicitly using the term “spatial justice,” embeds the principle in its commitment to equality, balanced development, and affirmative state action.

  • Article 38(2) under the Directive Principles mandates the State to minimize inequalities in income and eliminate inequalities in status, facilities, and opportunities not only among individuals but also among groups and regions.
  • Article 275 and Article 280 provide for grants-in-aid to backward regions, reinforcing a redistributive vision.

However, post-liberalisation economic governance has undermined these commitments. The abolition of the Backward Regions Grant Fund (BRGF) and shrinking of centrally sponsored schemes has left underdeveloped states vulnerable to market volatility and policy neglect.

The principle of spatial justice, central to the Nehruvian development strategy, has thus been subordinated to market logic and growth fundamentalism, creating regions of exclusion and developmental dispossession.

V. Implications and Emerging Trends

The political consequences of inter-state developmental asymmetries are profound:

  • Resentment among lagging states has grown, leading to demands for special category status (e.g., Bihar, Andhra Pradesh).
  • The rise of regional parties articulating sub-nationalist and resource-claiming discourses (e.g., Jharkhand Mukti Morcha, DMK) is a reaction to developmental neglect and fiscal centralisation.
  • Migration patterns have intensified regional anxieties, with host states like Maharashtra and Delhi reacting to in-migration from UP and Bihar with nativist politics.

Recent initiatives such as the Aspirational Districts Programme, though well-intentioned, are limited by funding, institutional design, and lack of inter-governmental coordination.

There is also a growing call for reinvigorating inter-governmental platforms like the Inter-State Council and revisiting the role of the Finance Commission to ensure a more equitable federal arrangement.

Conclusion

India’s post-1991 liberalisation has undoubtedly catalyzed growth and opened new economic vistas. However, it has also reconfigured the federal landscape, entrenching spatial inequalities and diluting the redistributive ethos of the Indian state. The emerging paradigm of competitive federalism, while rewarding efficiency, fails to account for historical injustices and structural imbalances, raising ethical and constitutional concerns regarding spatial justice.

For India’s federalism to remain inclusive, equitable, and democratic, there is an urgent need to recalibrate the centre-state compact—strengthening fiscal equalisation, reviving regional planning, and embedding equity as a core norm in inter-governmental relations. Only then can the promise of federal democracy be reconciled with the demands of spatial justice in a liberalising economy.

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