"All states generating revenue and managing their finances prudently are currently being accorded little weightage while transferring funds from the divisible pool. It is desirable to give importance to the developmental effort and efficiency in use in resource transfers", according to Mr. Murasoli Maran, union minister for commerce and industry.

Speaking at a seminar on 'States in India: Progress of Tamil Nadu', Mr. Maran suggested setting up of a revolving fund – a mix of grant and soft loan. This, he said, could augment the resources of some of the performing states who get adversely affected during the current dispensation of resource transfer from the centre.

Referring to the reform process initiated a decade ago, he said it was now the states' responsibility not only to conceptualise a project but also to see that a right investment climate actualised it. While there will be only two kinds of states – well managed and mismanaged ones – he said, care should be taken for special category states like those in the north east and Jammu & Kashmir and also to bring about balanced regional growth without penalising the performing states.

Dr. Montek Singh Ahluwalia, member of the planning commission, said, "While the ninth five-year plan mentions about co-operative federalism, the tenth plan may state competitive federalism. "Liberalisation of the economy has made states to compete with each other to attract investments," he said.

Warning that one should not be misled by the averaged national growth, Dr. Ahluwalia said the performance of each state should be studied in detail and success stories to be replicated in other states. "We, in the planning commission, never used to report state-level performances. Growth and performance are aggregated to arrive at a national average, which is misleading," he remarked.

On one hand, we have fast-growing states like Maharashtra, Gujarat and Tamil Nadu and on the other there are states registering a paltry growth rate of 2-3 per cent.

Earlier, releasing the 12 study reports prepared by the Harvard Centre for International Development, USA, for Tamil Nadu to achieve rapid economic growth, Dr. M. Karunanidhi, the state's chief minister, claimed that Tamil Nadu had been the most preferred investment destination in India. From fifth place in 1995 in attracting investments, the state had moved to the first place last year, he added.

According to him, the state government was investing a lot on the development of infrastructure like roads, power and water. He said Tamil Nadu was the first state to formulate an information technology policy, bio-tech policy and a bio-tech board in the country. The software exports from the state had grown manifold from Rs. 37 crore during 1995-96 to Rs. 1,960 crore last fiscal.

In a pre-recorded video speech, Prof. Jeffrey Sachs, director of the Harvard Centre, remarked, "Economic development rests on two pillars, viz social and industrial welfare. The social agenda should be combined with economic agenda to achieve all round growth." He expects Tamil Nadu to register 11 per cent growth rate at the existing levels and the growth rate could touch 20 per cent if investments on infrastructure are made.

Speaking at the technical session later, Dr. Amit Mitra, secretary general of Ficci, said the responsibility of economic development entirely rested on state governments. He said the government had taken various measures for this, including amending the Industrial Development and Regulation Act (IDRA), MRTP Act, relaxing foreign direct investment norms, getting into World Trade Organization (WTO), financial sector reforms, export policy, etc since 1991.

He said the focus had now shifted on to the states as infrastructure sectors like ports, power and other segments like logistics, labour relations etc., were in their hands. Further, only the states can design policies to grow the services sector like tourism to attract the 'invisibles', he added.

Dr. Raja J Chelliah, chairman of the Madras School of Economics, Mr. P. V. Rajaraman, development commissioner with the government of Tamil Nadu, Prof. S. Swaminathan, business editor with The Hindu also stressed the need of states' active participation in economic growth.