Globalization, the State, and India's Halting March to Common Market: The Political Economy of Tax Reform Under Federalism

As a social phenomenon, globalization has been the target of much criticism. One particular line of attack holds that it will lead to the segmentation and disintegration of the national economy. However, an examination of the long process of reform of the indirect tax system in India underlines, paradoxically, the significant role of globalization precisely in fostering domestic economic integration in the form of a common market, which would overcome the economic segmentation existing prior to globalization. Interestingly, such tax reform has, in considerable part, been driven by the need to meet globalization's challenge that India's economy be efficient and internationally competitive. At the same time, one should not underestimate the critically important role of the state as an institutional variable—which critics tend often to ignore—in carrying through the goal of establishing a common market, presently a work still in progress.