Center-state relations in India and Brazil: Privatization of electricity and banking

Abstract

This article asks: “When and why do state governments oppose (or support) privatization programs initiated by the central government?” We examined national privatization initiatives in the 1990s in India and Brazil in the areas of electricity and banking and the different responses from state governments in each of the largest financial and industrial centers in their countries, the states of Maharastra and São Paulo. Possible explanations for states’ opposition to federal government initiatives such as Enron and Banespa include: (1) ideological commitments by state leaders, (2) political or political coalition differences between state and federal governments, and (3) an uneven distribution of costs and benefits from privatization between the state and federal governments. This article suggests that explanation (3), conflict of interest, is the best explanation, although the nature of political alliances (2) and political values may have an influence. This article concludes that seemingly irreconcilable political spheres can often be improved and some distribution of benefits can make the package more attractive to state leaders.