[Answered]Discuss whether formation of new states in recent times is beneficial or not for the economy ofIndia.

Demand of the question

Introduction. Contextual Introduction.

Body. Discuss arguments in favour of newer states as boon for economic development. Mention various issues and concerns.

Conclusion. Way forward.

Reorganisation of states has been one of the most contentious issues since the Independence of India. Besides political bargains, creation of new states has attracted the attention of policy makers and intellectuals who hold divergent views regarding the formation of smaller states. The best way to analyse whether the new states have ushered in economic growth and development of the country would be through underscoring the performance of recently created states of Jharkhand, Uttarakhand and Chhattisgarh carved out of Bihar, UP and Madhya Pradesh respectively on the basis of economic development and good governance.

Arguments in favour of newer states as boon for economic development:

  1. The Economic Survey 2016-17 stated that smaller states in India trade more than the rest. New states offered better and efficient administration which leads to creation of infrastructure strengthening the connectivity in the area, expand its access to market and boost trade for the overall economy of the country.
  2. People of the region gain control over its resources and an organic model of growth can emerge to address their economic aspirations.
  3. Political stability that arises from better representation of people creates conducive environment for investment in the region. Thereby encouraging regional economic development.
  4. After the creation of new states- there is marked increase in economic activity immediately across the border in the new states as per their findings. School enrolment also increased suggesting greater investment in human capital.
  5. Durable goods remained comparable across the two sides of the state border, suggesting that free movement of labour and capital can mitigate differences in economic opportunities across proximate geographies. The results provide new evidence that institutions matter for development, and local control of institutions can have large economic impacts.
  6. The findings underlined that the new states are growing faster than the old states; by 2008 the difference between economic activity in old and new states is no longer statistically significant, and the gap continues to close until the end of the data in 2013. The findings suggest that new state borders have 25% more economic activity than the parent state.
  7. Given the greater social heterogeneity of India, there should be higher number of states. When there are too many diverse groups in a large state, conflict emerge. And instead of public-good provisioning, redistribution of resources among regions becomes the central political issue. In other words when the diversity effects becomes greater than the scale effect, there is an economic case for a new state.
  8. In the case of the three new states mentioned above culture or ethnic factors were added as instrumental factors for mobilisation but arguably, decades of underdevelopment was the driving force behind the movement.

Some issues and concerns:

  1. While analysing the socio-economic development of the new states of Jharkhand, Chhattisgarh and Uttarakhand, there is a contrary opinion as well. Uttarakhand continues to be at the end in the Human Development Index. The recent floods showed the inability of the state to deal with rehabilitation of the displaced residents.
  2. Chhattisgarh has witnessed largest tribal displacement in the recent times. The inclusive economic development is far from the reach of the state giving the increased miserable conditions of the tribal and their forceful displacement.
  3. Jharkhand has failed from the governance and administrative perspective and became state of coal scams and corrupt practices.
  4. Telangana recently carved out from the state of Andhra Pradesh is heavily relying on the central grants to pay for its newly created administrative and institutional machineries.
  5. To catch up with the growth trajectory of the other states, the above mentioned states started unmindful exploitation of resources such as mining of the minerals, converting agricultural land into real-estate which is not sustainable as far the economy of the country is concerned in the long run.
  6. Small states do not generate enough revenue for the state, thus are heavily dependent on the central assistance. Creation of new states means establishing new administrative machineries and new institutions which leads to increased revenue expenditure in turn puts pressure on fiscal pressures for the government.

Evidence shows that both large and small states have fared well and that poor performance is not necessarily linked to size. In fact, today, technology can help make governing larger territories easier and bring even far- flung areas closer.Recently formed state Telangana has continuously been among the top ranks in the list of ease of doing business in the country, since its formation. Creation of new states offer possibilities of having better governance structure, greater participation for people, administrative convenience for the State and equitable distribution of resources. Regional development strengthens the equitable and symmetric growth of India.

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