Column: Smaller states work better

Written by Sumita Kale | Updated: Jul 31 2013, 11:04am hrs
The clamour for smaller states will start to intensify as the creation of Telangana appears to be on the cards. While the history of state reorganisation in India has led to states with rather disparate sizes and population, over the last 60 years, strident local voices have been raised across the country in support of their own state. Generally speaking, there are many factors in favour of smaller states. For instance, smaller states can have a more responsive administration; regional differences in India are significant leading to greater homogeneity in smaller units. There is the flip side, of course, that smaller states may be prone to greater disruptive forces or may not be able to handle their financial and other resources effectively. Making for the balance between these two is not an easy task. Small and big are relative terms, and there is therefore really no answer to the academic question, how many states should India have ideally

Meanwhile, governments have to react to volatile situations when the calls become deafening, today this is Telangana, tomorrow it could be Gorkhaland or Vidarbha. While the creation of a new state is in effect a political issue, with significant electoral ramifications, there are of course many other parameters that should be taken into account while deciding each specific case of divisionthe ability of the new state to access resources, ensure governance etc. However, purely on considerations of economic growth, the experiences in India so far have in fact favoured the breakup of big states.

Going back to 1966, when Punjab, Haryana and Himachal Pradesh saw reorganisation, all three together did much better in the decade after the changes than before. This did coincide with the Green Revolution, making for a big boost to agricultural productivity in this region, yet it can be argued that at the same time, larger Uttar Pradesh did not see such overwhelming success compared to the smaller states. It is possible that the local administration was more responsive to getting the best out of the new technology.

Coming closer in time, the most recent case of division in 2000, creating Chhattisgarh, Jharkhand and Uttarakhand, again shows that the new states have performed extremely well on the growth parameter. The accompanying table shows the relative growth performance using the two periods for which data on the new states were available from the CSOeight years before and after reorganisation. The results show that all the smaller states did much better post-reorganisation, giving credence to the clamour in certain regions for division. These states did better than the national average post-reorganisation, apart from doing better than their parent states. The evidence, therefore, does suggest that smaller states have the ability to focus on their strengths, and fix their problems in a more efficient and cohesive manner towards higher growth. It is true, as with all economic analysis, that the data used here is for a limited time period, and it is quite possible that, over time, a smaller state may not be able to withstand forces that can cause systemic disruptions. Yet, overall, the economic case for smaller states has sufficient support.

In fact, BR Ambedkar had argued for smaller states rather than larger ones. He had also set out a criterion of two crore population as a viable size for administration. In a critique of the States Reorganisation Commission, his point was that smaller states made for more uniform balance of power within the country, satisfied social needs and, most importantly, created units that can be administered with ease, leading to better growth performance in the country as a whole. He was, in fact, quite aghast at the disparity in population sizes across states, calling it a fantastic result bound to cost the nation dearly.

Ironically, the case for merging Telangana with then Andhra was also made on economic grounds, rather than linguistic. The State Reorganisation Commission set out the advantages of this move as the creation of a state with more human resources, vast hinterland, large water and power resources, mineral wealth and, most importantly, the vexing problem of finding a permanent capital for Andhra would be resolved by the twin cities of Hyderabad and Secunderabad, which lay in Hyderabad state. At the crux of the issue then and now lies Hyderabad. So what will the divisions look like with and without Hyderabad

In the absence of official district level income series for India, the Indicus district GDP database that has estimated a consistent time series of district level GDP for all states reveals that without Hyderabad, the two states of Telangana (with nine districts) and Seemandhra (with the remaining 13 districts) are quite comparable on growth, with Telangana just a little ahead on growth performance over the period 2004-05 to 2012-13 for which estimates are available. Hyderabad is the one with the double-digit growth, showing its importance.

This is, of course, not unique to the state of Andhra. Typical of the trend across the country, whether Mumbai, Bangalore or Kolkata, the states derive a large share of their revenues and state income from these centres. Unfortunately, rather than develop infrastructure for other existing townships, the concentration in these centres continues, putting immense pressures on the resources and population here. There is talk of Union Territory status for Hyderabad; it is quite possible that granting this will lead to demands in other states as well, which in the long run may not be a bad thing at all. India has been around for centuries; in its present administrative avatar, India is after all only 65 years old, some amount of adjustments and readjustments are only to be expected.

The author is chief economist at Indicus Analytics and can be contacted at