In some important ways, India’s Central government behaves with states in much the same way that the British Raj did with pre-Independence India. Certain key policies of the Raj decimated the Indian economy by encouraging — even forcing — value-addition activities to shift abroad, relegating India to becoming just an exporter of raw materials. Gandhiji’s boycott of English textiles symbolised our resistance to such policies.

For five decades after Independence, the policies of the Central government did something similar to India’s mineral-bearing states. Policies like freight equalisation — whereby the railways were made to subsidise transport of raw materials — artificially removed the economic advantage of states like Orissa, Bihar and Madhya Pradesh. Thus, while economic logic dictated that large investments in value addition of minerals (steel plants, power plants, etc) should have gone to such states, in fact, they got only a fraction of it.

Instead, political logic ensured that the majority of such investments went, in classic Soviet style, to faraway states that had more clout in Delhi. The country is littered with factories in places that have no economic rationale for their locations, far from mines, ports and markets. Apart from being sub-optimal for the country’s economy, such policies had a devastating effect on mineral-bearing states. With little long-term investment in value-added downstream activities, and a pittance in mineral royalties, these states saw none of the poverty alleviation enjoyed by the newly industrialised states.

The last decade has seen a reversal of such distortions. A major factor has been the emergence of coalition governments, which are far less autocratic, and regional parties, which are far more assertive. This has led to mineral-bearing states implementing policies favouring local value addition — in other words, giving higher priority to those seekers of mining rights who also commit to investing, within the state, in downstream production facilities.

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