The Srikrishna Report on Telangana is to be made public soon and according to media reports it is unlikely that there will be a clear cut recommendation for or against the division of the state; a nuanced, elaborate discussion of the pros and cons of various options is more likely to be presented. There are, of course, many angles?social, political, economic?to be considered while forming new states, and at Indicus Analytics we looked at income data to understand whether there is an economic or objective case for smaller states. While smaller states in India, in general, perform better than the larger ones, it is instructive to see whether re-organisation into smaller units has given the required results of better growth and development.

Our exercise, with available data, found broad evidence that the reorganisation of states in the past has been followed by higher economic growth; there are, of course, a few exceptions. Punjab, Haryana and Himachal Pradesh did better after the reorganisation than before, while Assam faltered. In the former, the Green Revolution played a significant part in better growth, while in Assam, law and order was a negative factor. Of the six states formed in 2000, except for Madhya Pradesh, all the others performed much better in the seven-year period post-reorganisation than the seven preceding years. In the case of Uttarakhand and Chhattisgarh, the annualised growth rates increased by about 6 percentage points in both these states in the post-reorganisation years. In Jharkhand as well, there was an improvement, about 4 percentage points, significant but not as large as the other cases. One interesting point to note is that, unlike in the cases of Madhya Pradesh and Uttar Pradesh, Jharkhand was a very large part of the original Bihar, and its separation would have had a significant impact not only on itself but also on the new smaller Bihar. The improved performance of Bihar in recent years has been recognised as a consequence of better governance levels of the new administration. Given that many institutions and administration were not functioning as desired earlier, a smaller state, with a narrower ambit, would have made it easier for the new administration. Bihar, therefore, also gives credence to the argument that smaller states are easier to govern well.

What is even more interesting, in the case of Madhya Pradesh and Chhattisgarh, we found that the districts on the border began with similar levels of per capita income in 2000 but those in Chhattisgarh soared higher post-reorganisation. Why did this happen? Clearly reforms and good governance in Chhattisgarh worked to its advantage, pulling it away from its parent state. The exercise did help us conclude that there is an economic case for smaller states. What is important, however, is the ability of the new states to ensure that democratic and governance institutions withstand disruptive forces.

The Telangana dispute is different from the reorganisations that took place in 2000?there are historical and political dimensions that are unique to this region since the formation of the state of Andhra Pradesh in the 1950s. Here the dispute is critical over Hyderabad. Economic activity is concentrated in the district of Hyderabad and looking at per capita income, the disparity is huge?Hyderabad stands at almost double the levels of the next richest city, Vishakhapatnam, in Andhra. However, Hyderabad accounts for a smaller share of the state income than the capitals of Maharashtra, Tamil Nadu and Karnataka do in their states?so, income generation is more dispersed across Andhra. If we look at the growth in districts that are to form the state of Telangana, over the period 2000-08, excluding Hyderabad, these districts grew at an average annual rate of 8.5%, with the districts in Andhra growing at 7.4% on an average. While there is little difference in growth across the two regions, Andhra has more inter-district disparity than Telangana.

Andhra Pradesh was the first state to be created on linguistic grounds in 1953; even then the issue was contentious. As the Andhra Pradesh government Website states, ?The States Reorganisation Commission, with Syed Fazl Ali as the Chairman, set up by the Government of India in December 1953, who heard the views of different organisations and individuals, was though convinced of the advantages of Visalandhra, however, favoured the formation of separate State for Telangana. This report of the S.R.C. led to an intensive lobbying both by the advocates of Telangana and Visalandhra ? The Congress High Command favoured Visalandhra and prevailed upon the leaders of the Andhra State and Telangana to sort out their differences, who, thereupon, entered into a ?Gentlemen?s Agreement?.? In the 1960s, the breaking down of this Gentlemen?s Agreement that had provided for greater autonomy to the regions of Telangana spurred protests and renewed demand for division; the matter has remained unresolved since.

Our exercise at Indicus Analytics showed that smaller states do have the potential for better growth performance. But can the creation of new states depend solely on economic reasons? Given the pluralism of our society, this is neither feasible nor desirable. As Ambedkar concluded in his note on linguistic states, one-language one-state should be the rule, but people with the same language can divide themselves into many states?this promotes more uniform balance of power within the country, satisfies social needs and most importantly, as our exercise shows, creates units that can be administered with ease. While we wait for the Srikrishna Report and hope for a resolution of the long-standing dispute, in the end, it is for the people to forge their future, the best they can.

The author is chief economist, Indicus Analytics