Small states govern better – An established idea or a red herring?
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This article is authored by Achyutam Kallani and Rahul Bajoria.

The demand for smaller states is a complex issue in India. From a historical precedent, India spent considerable amount of resources uniting India into one single polity in its early years, after the British left over 550 Royalties in charge of their own fate. Once their allegiance to the constitution of India was secured, the Congress government under Jawaharlal Nehru ordered a state reorganisation committee, which led to the single largest realignment of states along linguistic lines in 1955.

This idea of splitting states based on a common language / community has stood the test of time, broadly speaking. However, with Telangana being announced, clearly an act of political expediency, the ‘linguistic’ re-organization of states perhaps does not hold water any more.

India has gone through several more independent exercises to carve out smaller states from larger states, and it has also involved conversion of union territories into states. In fact, most of the legacy conversions have involved union territories being given quasi/full statehood.

The latest example is of course Delhi or National capital region, which has benefitted from strong growth under a more de-centralised government, even if its performance on other issues like security is suspect. From 14 in 1956, the numbers of states have risen to 28, and could be 29, if Telangana eventually materialises.

Let us critically analyse the arguments put forth by various commentators and political parties on the benefit of smaller states.

To start with, it has often been pointed out that smaller states are better placed to administer and respond to the needs of the state’s citizens more nimbly. While, indeed a government may be more agile if it has a focussed catchment area. A true measure of delivery of public services would manifest in the social indicators, let us look at the economic growth.

Let us first look at the three states which were created in November, 2000 out of their mother states – Uttarakhand, Jharkhand and Chhattisgarh. We look at the economic growth first for these states and contrast them with that of their mother states for two period- 1994 – 2000 (pre) and then from 2001 to 2012 (post). We have carefully chosen to exclude 2000-01 period for this was the transition year.

In the pre-birth years, Uttarakhand and Chhattisgarh clocked an average growth rate of approximately 3% during the pre-birth periods. In the post- birth period, these states improved their growth rates dramatically too approximately: Uttarakhand 11%, Chhattisgarh: 9% – a good 200% increase in the growth rates. Contrast this with the mother states – UP accelerated 20% from 4.7% to 6%, MP from 6% to 7%.

Clearly these two states – Chhattisgarh and Uttarakhand performed much better than their mother states after their birth. Jharkhand, on the other hand, did shown an increase in growth rate, from 5% to 7%, but not as stellar as its other cousins. Bihar outpaced Jharkhand during this period from roughly 4.7% to 7.2%, being an outlier.

The pertinent question then is – while all new small states accelerated its growth rate a, why is it that Uttarakhand and Chhattisgarh performed better than their mother states but Jharkhand could not mimic the same feature? Is it merely smallness of states that explains this dichotomy?

If small states, as a rule, perform better then why don’t we see Manipur and Punjab also performing better as well? On the contrary, Maharashtra, Gujarat, Tamil Nadu, which can be classified as ‘large’ have also, was performing well in terms of economic growth despite being “large” states. Clearly ‘largeness’ based on size or population alone is not a true deterrent for growth.

In the absence of any coherent measure of “efficiency of delivery of public services” the other measure which could be used to compare small Vs Large states is the Human Development Index. The best comparable pan India level insight can be gauged from the National Human Development Report, 2001 by the Planning Commission.

A priori, it does seem that given the relatively good performance of Kerala, Punjab and Haryana on HDI, small states may perform better when it comes to delivery of services which are necessary, but not sufficient for development. But here again we have mixed results with states like Tamil Nadu, Gujarat and Karnataka also performing relatively well despite being “large”.

Another point which is often adduced to support the case of small states is the quick decision making. Quick decision making must manifest itself the most in how easy it is to start / cease a business based on procedural modalities of the administration. For evaluating this claim , we turn to the “Doing business in India , 2009” report commissioned by the Government of India and prepared by the World Bank which covered select cities to make a comparative evaluation.

Fortunately these 10 cities are from states spanning both – ‘small’ and ‘large’ states. Here also, we find that it is easiest to do business in Ludhiana from Punjab (a ‘small’ state) and Ranchi (from a new born small state) ranks better than Patna (from the ‘mother’ state).

However, presence of cities lie Hyderabad ,Ahmadabad , Jaipur (all from ‘large’ states) among the easiest places to do business shows a mixed result. We also sense that while some large cities which have grown rapidly in recent years might appear high in the list now, but competitiveness is not guaranteed to persist, or they maybe overtaken by other tier 2/3 cities.

Interestingly another argument produced by various commentators on both sides of the divide has been the law and order. While votaries of ‘small ‘ states argue that small state administration are quicker to respond , those against division of current big states argue that small states may pose law and order challenge especially in containing extremism citing the example of North eastern states.

However , truth again lies somewhere in between. That small states may not be very prompt in responding was amply clear in the recent unfortunate floods of Uttaranchal. However, some of the worst terrorist attacks have taken place in ‘large’ states. Naxalism – affected ‘small’, ‘large’, ‘old’, ‘new’ states equally. Hence, this argument is perhaps is not convincing.

What then explains the performance of different states? In our view it is the political stability which lends continuity of policies that matters the most and not ‘largeness’ of states. An efficient and willing administrator can manage even a large state fairly satisfactorily. In our example above, if we compare the growth of Bihar from 2001-2005 and 2005 – 2012 and compare that of Jharkhand, Bihar in 2001-2005 performs worse than Jharkhand.

Post 2005, after Nitish Kumar took over as chief minister of Bihar, it has seen good economic progress. This may well appear as a correlation, but we have sufficient number of studies providing causal evidence between establishing rule of law being a pre-condition to economic growth.

On the contrary, Jharkhand has shown relatively poor progress because of political instability with 12 changes in head of administration (passing into President’s rule often). A similar small state – Sikkim with Pawan Chamling at the helm for almost two decades now has grown spectacularly because of development oriented consistent and stable policies of the administration.

Another example is Uttar Pradesh – with frequent administration changes and with dubious track record in terms of upholding the rule of law, is unstable in terms of policies and hence a laggard. As such, political stability may create conditions which help in encouraging more investment into social sector by the government, which in turn may bring private investment.

This is a very promising trend in India, where pro incumbency is increasingly seen in state election results, and the incentives for politicians or state leaders to adopt a more pro growth stance is politically viable. This trend is present in states of all sizes, and there is no trend that small states see less change of governments, relative to large ones.

Having said that, we do believe that an effective administration can increase its efficiency if it’s focussed on a particular size of population. In our opinion, given the new realities of demographics in India, it is the population size that should matter in carving out new states and not linguistic / cultural homogeneity.

Language or culture based divisions are no less ‘communal’ than religion and a state has no business in dividing on the basis of these attributes of the population. If focus, responsiveness and efficiency is to be optimized it should probably be on the basis of population size.

For a state like UP, with a population of almost 200 million (similar to Brazil in terms of population but similar to Kenya in terms of per capita GDP) and Maharashtra with a population of 100 million (similar to Mexico in terms of population but Sri Lanka in terms of per capita GDP) it almost seems implausible to efficiently govern it.

Even if their per capita income is higher than the national average, a smaller but more focused administration can definitely raise the pace at which nominal incomes can rise in certain parts of these states. As such, the authors strongly believe that states with population of more than 50million people can be divided to efficiently provide for public services.

Another dimension which should be considered is the geography. Locations with strategic importance should probably be administered by the Central Government. Gorkhaland is a classic example to this end. With its tiny size, it would be foolish to grant it state-hood (if not viewed purely on the archaic and myopic ‘linguistic’ lens) but given its strategic importance and geography, it may be better off as a Union territory.

To conclude, we believe there is no perfect correlation of smallness of states and economic/social well being. An efficient and willing administrator can govern a small or a large state well. However, to ensure proper, focussed and efficient delivery of public services, states should be divided based on population size.

This is an idea which was mooted by Dr. Ambedkar even during the first re-organization but priorities of a newly born nation was to strengthen the federal yet unitary form of governance and to keep India united. Linguistic reorganization served the purpose then but it should no longer be the single yard stick of defining state boundaries. This should be based on the basis of the population, geography and economy and the boundaries of the states should be re-drawn.

Given that this is a vexatious and arduous issue, we call for a Second State Re-organization Commission to look into this and carve out provinces in a more objective and scientific manner. Further a large part of the problem or demands for state hood has arisen ostensibly because of development and discrimination. This should be addressed adequately if we truly decentralize our administration in letter and spirit and give a large part of administrative duties to the local self governments.

We are conscious that it is difficult for any political front to devolve power, but it would be far more efficient, healthy and beneficial if the local self governments have a greater hand and say in the local development.

PS: Authors’ views are personal