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

This article asks: “When and why do state governments oppose (or support)privatization programs initiated by the central government?” We examined national privatizationinitiatives in the 1990s in India and Brazil in the areas of electricity and banking andthe different responses from state governments in each of the largest financial and industrialcenters in their countries, the states of Maharastra and São Paulo. Possible explanationsfor states’ opposition to federal government initiatives such as Enron and Banespa include:(1) ideological commitments by state leaders, (2) political or political coalition differencesbetween 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 politicalalliances (2) and political values may have an influence. This article concludes that seeminglyirreconcilable political spheres can often be improved and some distribution of benefits canmake the package more attractive to state leaders. JEL Classification: H77; L33.