Handholding for laggard States, but strong Centre vital: Sitharaman

Finance Minister Nirmala Sitharaman on Thursday said India needs every State to be strong and prosperous, while also requiring a robust Centre to manage national priorities such as defence, exports, and manufacturing. Speaking at the India Policy Forum 2026, organised by the National Council of Applied Economic Research (NCAER), she articulated a vision of cooperative federalism that balances State empowerment with central oversight.

Responding to a question on Centre-State relations, Ms. Sitharaman asserted the need to address regional disparities head-on. "I strongly believe States have to be strong. I strongly believe States have to be helped. I also strongly believe laggards among States will have to be told that you cannot be a laggard," she said. She acknowledged that while such directness may be uncomfortable, it is essential for progress. "Many times, we hesitate to say the fact, but they have to be pulled up," she added, pledging "every handholding" to assist underperforming States in improving their economic and social indicators.

The term "laggard", while direct, underscores the wide variations in economic performance among Indian States. Some States have emerged as growth engines, while others have struggled to keep pace, leading to a persistent divide in development indicators. The Finance Minister's remarks suggest that the Centre is willing to identify these disparities and provide support to bridge them.

At the same time, the Finance Minister cautioned that strong States alone are not sufficient for national progress. "You also need a Centre which has the resources to take care of the defence of this country, which takes care of having a policy which will enable exports, which will enable manufacturing," she explained. She warned against a "beggar thy neighbour" approach, where States compete to attract industries and investments by undercutting each other, which could harm the collective national interest.

According to Ms. Sitharaman, the Centre plays an indispensable role in setting "all the clear tones" for investment and policy, and in ensuring that historically underdeveloped regions are supported to catch up with the rest of the country. "It cannot be left to the States," she said, adding that this role cannot be fulfilled by one or two States alone. The Centre, she noted, must provide direction and resources while ensuring that no region is left behind.

She also underscored the importance of empowering all States. "Unless the States, and I mean each one of them, is empowered and given the resources and also given thoughts about how capacity can be built, the aspirations of India cannot be met," she said. Her remarks reflect a broader policy debate on fiscal federalism, particularly in light of demands from several States for a larger share of central tax revenues and greater financial autonomy.

Ms. Sitharaman's remarks also carry implications for the ongoing discourse on the vertical division of resources between the Centre and States. Over the years, States have argued that the Union's dominance in resource collection has left them with insufficient funds to meet their development needs. The Finance Minister's emphasis on handholding and capacity building can be seen as an attempt to address those concerns while reaffirming the Union's role in steering national priorities.

The India Policy Forum is an annual event that brings together economists, policymakers, and experts to deliberate on key economic issues. Ms. Sitharaman's speech comes at a time when the federal structure is under scrutiny, with discussions on how to balance regional development with national objectives. Her statement underscores the government's stance that both the Centre and States have distinct yet complementary roles to play in India's growth story.