Model Question and Answers for APSC | Discuss whether the formation of new states in recent times is beneficial or not for the economy of India.

Ans: The first round of reorganization of states was often driven by Andhra Pradesh in 1952 to the decision to carve Haryana out of Punjab in 1966. Economic reasons have become more important since then. The decision to split large states such as Uttar Pradesh, Madhya Pradesh and Bihar in 2000 was taken despite the fact that the same language was spoken in the newly created states as well.

Positive Impact on the Economy:

A paper by Oxford had provided the first systematic evidence of the impact of redrawing boundaries of these states.

• Examining outcomes 12 years after the formation of the new states, we find a marked increase in economic activity immediately across the border in the new states.
• School enrolment also increases, suggesting greater investment in human capital.
• Durable goods remain 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.
• It is often seen that the new states tend to achieve a higher pace of economic development. This seems to hold true for the states of Jharkhand, Chattisgarh, Telangana etc.
• It is also argued that small states are able to use funds efficiently and focus on those regions which have been neglected by the erstwhile bigger states
• A slew of new infrastructure needs to be created which propels growth. For instance, the separation of Jharkhand from Bihar implied that Secretariat, Legislative Assembly, High Court etc. needed to be created in the new capital.
• These new cities need to have good roads, flyovers, sanitation facilities etc, which brings government spending which in turn attracts private investment. It also creates several new employment opportunities.

Negative impact on the Economy:

• In an emergency situation, the reduced financial pool poses a problem. The recent floods in Uttarakhand showed the inability of the state in the face of a natural disaster.
• With the government of the state in a position to begin new projects and allocate resources, the graph of corruption tends to go up.
• Small states do not generate enough revenue for the state, and thus are heavily dependent on the centre’s assistance.
• States like Jharkhand and Chattisgarh with considerable tribal populations have been witnessing large-scale tribal displacement. Also, there is the discontent that ‘outsiders’ are taking up most of the job opportunities.

New states in the country are often seen more as the outcome of political compulsion and less as drivers of institutional change. If there are lessons to be learnt from the reorganization of 2000, it is that the new states, as the preliminary evidence suggests, did as well or no worse than their parent states.