That Delhi cannot and should not dictate India's destiny-because the states are now the drivers (or draggers) of the country's fortune-has rarely been as decisively demonstrated as it was on August 5. The third annual India Today Chief Ministers' Conclave brought together 11 chief ministers ranging from Gujarat in the west to Sikkim in the east; four representatives of state governments spread from Tamil Nadu in the south to Jammu & Kashmir in the north; Vice-President of India Bhairon Singh Shekhawat, Union ministers; members of Parliament and senior bureaucrats all under one roof. The purpose: to release the annual ranking of India's best states and, more importantly, to discuss pressing issues concerning the states.

PICTURE SPEAK

DEBATING A COMMON MAXIMUM PROGRAMME: (From left) Balasaheb Thorat, Pawan Chamling, Raman Singh, N.D. Tiwari, Virbhadra Singh, Mulayam Yadav, Narendra Modi, Jairam Ramesh, Aroon Purie, Prabhu Chawla, Sheila Dikshit, Amarinder Singh, Vasundhara Raje, Babulal Gaur, B.S. Hooda, Muzaffar Hussain Baig and A.U. Singh Deo

Cutting across party and regional lines, the consensus was that the price of non-performance was increasing by the day as states raise the bar for each other. That, incidentally, is one of the core purposes of India Today's annual ranking of states: to try and identify the leaders and laggards on different parameters of state performance. But no state can perform to it best in isolation. The two-hour discussion among chief ministers brought out issues on which states must cooperate, even as they compete. More significantly, the debate also proved why and how the Centre must become a partner-rather than a principal-of states. Excerpts from a discussion chaired by India Today Editor-in-Chief Aroon Purie and moderated by Jairam Ramesh, a Congress MP, and India Today Editor Prabhu Chawla:

DOES INDIA NEED MORE STATES?

Narain Dutt Tiwari, chief minister, Uttaranchal: We have discussed this issue at length since Independence. Even today there are demands to create Vidarbha, Telangana and other new states. What we need is another States Reorganisation Commission, not just to create new states but also to rationalise the boundaries of states.

Mulayam Singh Yadav, chief minister, Uttar Pradesh: I am not in favour of reorganisation of states. There are more pressing problems to solve-inter-state disputes of water, borders and properties. Commissions can be formed to resolve these specific issues, but not for reorganisation of states. Smaller states will weaken the country because they are less powerful. The support for creation of new states is usually garnered by whipping up emotions and making promises that are not possible to fulfil. Therefore, to start a new problem in the name of creating smaller states isn't correct.

Tiwari: The political power of all states-small or big-is determined by the Constitution, not their size.

THE WINNERS

THE BEST STATE TO LIVE IN: Punjab CM Amarinder Singh gets award for best overall state. Punjab got four more awards. CAPITAL DELIGHT: CM Dikshit receives one of the four awards bagged by Delhi BEST IN EDUCATION: Himachal Pradesh CM Singh receives one of the two awards INVESTMENT SCENARIO: Sikkim CM Chamling also got award for best in education ECONOMIC FREEDOM: Gujarat CM Narendra Modi gets award for economically most free state BEST FACILITATOR: The award for best state goes to Chhattisgarh CM Raman Singh IMPROVED INVESTMENT: UP CM Mulayam gets award for second best state PRO-POOR GROWTH: Jammu & Kashmir receives the top honour EDUCATION: Orissa bags the award for biggest bang for buck BEST REGULATOR: Maharashtra gets the award for the best state The other states awarded for best performance across different categories at the India Today Chief Ministers' Conclave are: Kerala (4) Pondicherry (3) Goa (1) Mizoram (1) West Bengal (1)

Narendra Modi, chief minister, Gujarat: In principle, the BJP is in favour of small states. That's to ensure that development opportunities are made available to every person in a state at the earliest possible time. Therefore, administratively everybody will agree that small states will be more effective. But we have to understand the ground realities too. This country has lost the power to resolve inter-state water disputes, the power of delimitation of parliamentary constituencies or of giving reservation to women. In such a situation, as Shri Mulayam Singh said, if we open this Pandora's box, where will the country go?

Amarinder Singh, chief minister, Punjab: At any time, on any issue, the Centre has the powers to interact with the states and try and solve their problems. Yes, we have problems which linger. But, I agree with Mr Modi that the overall management and implementation of programmes is much better in small states. For any state to really take off, you have to run a tight ship. Whatever decision I take, I take it at the secretariat level but eventually it is the deputy commissioner or the SSP and officials in the districts who have to implement it. You must know who your deputy commissioners are. You must understand their capabilities. In Punjab at least, we run a tight ship. In large states it is impossible to do so. Shri Mulayam Singhji's state has 84 districts. I don't know if he even knows the names of every district magistrate.

Babulal Gaur, chief minister, Madhya Pradesh: Creation of small states increases the establishment expenditure. Chhattisgarh was carved out of our state. But there are problems. Because it is a small state, Naxalites have increased. Some large state like ours are not being compensated adequately for the natural resources we provide. Whatever the size of the state, there should be good governance. The benefit of a big state is that the political establishment is very strong. See what is happening in Goa. The state government changes every time one or two MLAs change loyalty.

Vasundhara Raje, chief minister, Rajasthan: If you look at our history, we merged small states to make a strong Union of India. I don't say that small states do not have their advantages. But as we heard from chief ministers, large states do have advantages too-basically the economies of scales. But there are difficulties which we cannot run away from. Running a state as large as Rajasthan will certainly take more efforts than, maybe, Chhattisgarh.

Bhupinder Singh Hooda, chief minister, Haryana: When we were one state with Punjab, Haryana was backward. Now we have developed. But to create very small states would be counterproductive too.

Raman Singh, chief minister, Chhattisgarh: Within four years of Chhattisgarh's creation, the state GDP has grown from Rs 24,000 crore to Rs 42,000 crore. Per capita income has risen from Rs 9,900 to Rs 15,000. Chhattisgarh is now standing on its own legs. There are some shortcomings. As Shri Gaur has said, we should get the royalty. The royalty we get on iron ore is less than that on sand. How long will this discrimination go on? It is against the interest of the states of Chhattisgarh, Bihar and Orissa.

Pawan Chamling, chief minister, Sikkim: If it is good for the country, good for the region, then what is the objection in making small states? An issue raised is that small states may not be politically stable. I am running Sikkim for the past 12 years and much development has taken place in the state. On one side we have China, on the other side Bhutan and Nepal on the third side. But still, Sikkim is peaceful.

GOVERNANCE, NOT SIZE, IS THE KEY

Jairam Ramesh: Mr Gaur, when we talk of good governance, whatever statistics you see of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh-even today it clearly shows backwardness. Why is it so? Is it that you are unable to get interim relief from the Government of India? Is it that your own problems are so challenging that you are not able to go forward?

Gaur: Good governance means good plans and good systems. Madhya Pradesh has good coal mines. But we don't get market-based royalty on our coal. Market-based royalty of coal alone will get us Rs 1,000 crore of additional income every year. There should be a national policy in this regard. Then, the Central Government unilaterally sets up a pay commission and increases salaries of its employees. When that is done, our employees go on strike demanding pay parity. A national wage policy should also be prepared.

Jairam: Orissa is one of India's richest states in terms of natural resources. Why is it then so backward?

A.U. Singh Deo, minister of public work and housing, Orissa: The idiom that Orissa is a rich state with poor people is fast changing. We have signed 37 MoUs worth Rs 1,18,000 crore. The biggest FDI in India-Posco-has come to Orissa. We are reducing the fiscal deficit and revenue deficit. In the past our iron ore and alumina was sent to other states or exported. We have put a blanket stop to it. We are prepared to give our resources as long as the industry is set up in the state.

Muzaffar Hussain Baig, finance minister, J&K: Bad economics and bad governance have contributed to the recurring crisis in our state. When governments were picked and removed at the behest of the Centre, there was no accountability. Today we are accountable and we are happy to say that the Centre, whether it was the NDA government or the present UPA Government, has been generous in extending moral and material support to Jammu and Kashmir. Good governance and development will limit the space in which violence and militants can operate.

Jairam: Can we bring good governance with the help of panchayati raj?

Raman Singh: In Chhattisgarh we have given powers to the panchayats after holding elections. They have been given power to take up work of up to Rs 5 lakh. Some 28,000 teachers have been recruited directly through the panchayats. I want to go still further.

Prabhu Chawla: Delhi is the smallest of states. In two hours you can travel the entire city. Mrs Sheila Dikshit, please tell what are your experiences?

Sheila Dikshit, chief minister, Delhi: Good governance emanates from a responsive government. And that involves interaction and participation of the people in governance, in taking decisions. Smaller states are better equipped to provide such governance. We are hampered since many areas of governance-land and law and order-are not within our purview.

Virbhadra Singh, chief minister, Himachal Pradesh: There is no issue of small or big state-they are all equal under the Constitution. We can learn something from the US. In the Senate, all states, big or small, have equal representatives. In India the states' representation even in the Rajya Sabha is on the basis of population. I think, there should be equal representation to all the states in the Upper House to ensure equality in status and decision-making.

THE CENTRE AS A PARTNER

Modi: Some problems of states are directly linked to the acts of the Central government. Many a times, for political or other compulsions the Centre starts a scheme with much pomp and show only to withdraw it in 3-4 years or stop funding it. States have to run those schemes. There are hundreds of such schemes. Then there are other forms of discrimination. Gas is available in Gujarat and is sold in Delhi at the same price as it is sold in Gujarat. But coal which comes from Jharkhand or Bihar become costly by the time it reaches Gujarat. This is injustice.

Raje: The Sarkaria Commission was set up a long time ago. Since then we haven't revisited the issue of Centre-state relations. It is very important. Good governance is possible if there is fairness with states. Take the instance of the cash transaction tax. Every time we withdraw a certain amount from the bank we will be taxed-even if we are withdrawing it to carry out relief work, or for payment of wages to daily casual labour. Before introducing such a tax, shouldn't the states have been talked to? It is mandatory for us to take a loan at 9 per cent from small savings. Why can't I go to the market and borrow at 7 per cent?

IS VAT A BLESSING FOR THE STATES?

Jairam: Many people feel that VAT is one of the most important tax reforms in 30-40 years. Do you agree that VAT has improved the economic condition of states?

Raje: It would be one of the most important tax reforms if it went hand in hand with the removal of Central Sales Tax (CST). If it is a unifying tax, it cannot co-exist with CST. In states like ours which are importing states, manufacturers are put at a disadvantage and they cannot compete with their counterparts in producing states. I understand Maharashtra and West Bengal earn a lot from CST. Therefore, a discussion is needed to sort out the issues. There is also an issue of state autonomy. I may want to exempt a few things from VAT because of their local significance, say mehndi or lac. But I can't.

Dikshit: There was scepticism about whether the country was prepared for VAT. But to a large extent the states that adopted VAT have seen a buoyancy in revenues. In Delhi, tax collections in the last quarter have jumped 30 per cent over the same period of previous year. VAT is needed to bring about uniformity, reduce corruption and increase openness.

Modi: Now that it has been three months since some states implemented VAT the Centre should come out with a White Paper on the impact of VAT. Tax collection is not the only point. How does it impact the common man, especially the consumer?

Yadav: Uttar Pradesh stood alone against VAT for a long time. Other states, including Tamil Nadu, opposed it later. If the intention of VAT is to have uniform tax system, that has not been fulfilled. Same products are being taxed at different rates in different states.

Tiwari: I would like to see a White Paper that Mr Modi mentioned. Let us not forget that even after Britain joined the European Union, it did not accept the Euro as common currency. So, every state doesn't have to fall in line 100 per cent.

PERFORMANCE VS POTENTIAL

Ravi Parthasarathy, Chairman IL&FS: I will talk about performance and potential in the context of globalisation. What are the implications of India integrating with the global economy? Today, it is not just states competing with each other. Competition is also between states and the countries where Indian industry is setting up ventures. States have comparative advantages. Jharkhand has iron ore, Orissa has steel and so on. But every state has small and medium enterprises (SMEs). India has 388 SME clusters. They have grown almost on their own, with little or no government support. When large buyers like Wal-Mart come here they would want a million units of a product and not just 10,000 pieces. We need to make the clusters competitive in scale and quality. SMEs have huge employment potential. One unit of investment in it generates 10 jobs; but the same investment in SME clusters could generate up to 100 jobs. Without support, SMEs cannot survive the scale required by globalisation.

Another issue of performance versus potential relates to districts. Many government schemes work in silos-build rural roads in one district, water supply in another, power in yet another. Yet no substantive progress is made in any district. We are trying to look at integrated development of one district which could be a regional engine of growth.

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