Discuss whether the formation of new states in recent times is beneficial or not for the economy of India UPSC 2018
The reorganization of states has for long been a contentious issue in India. The first round of reorganization of states was often driven by linguistic politics. However 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.
Studies find a marked increase in economic activity immediately across the border in the new states. The newly created states witness approximately 25% more economic activity.
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 labor and capital can mitigate differences in economic opportunities across proximate geographies.
Institutions matter for development and local control of institutions can have large economic impacts. Besides local expertise and technology can be harnessed better through local government.
When the resources are distributed unevenly and some regions are neglected for a long period of time, there can be gains from dividing the state into smaller ones.
Uttarakhand, Jharkhand, and Chhattisgarh all three states belong to what was historically called the BIMARU zone. Since their creation, all the three states have maintained an average growth rate of around 10% and have now emerged as highly dynamic states.
The country is more likely to benefit from a greater number of smaller States, than the status quo. Therefore the above discussion suggests a strong political and economic imperative for a greater number of States in the Indian Union.