Question: Discuss whether formation of new states in recent times is beneficial or not for the economy of India.
Answer: In recent times there has been demand for creation of new states from the existing large ones. The supporters cite various benefits of the step including economic growth but this argument has been widely contested.
How creation of new states benefit the economy?
- Better management of economic resources
It has been observed that smaller states have better management practices and this has crept into economic front too. These practices combined with smaller chain of command is likely to help in better management of economy leading to its prosperity.
- More investment opportunities
Past data have shown that smaller states have been successful in attracting more investment compared to larger states. Investors feel that new states have better economic policies that benefit them.
Ex: Chhattisgarh getting more investment than Madhya Pradesh.
- Faster economic growth
Previous data has indicated that smaller states grow at a better rate than the parent state. This has been attributed to better economic policies.
Ex: Growth rate of Uttrakhand has been 9.4% compared to 4.5% of Uttar Pradesh.
How new States creation negatively affect economy?
Reduction in tax revenue
If the new state is the more prosperous part of the state then it is going to benefit but if the new part is lacking the economic infrastructure to grow then there will be reduction in tax revenue.
Ex: Vidharbha does not have required economic infrastructure to get more economic revenue since western Maharashtra was the more prosperous part of the State, which majorly contributed to the state’s growth.
If only economic criteria is concerned then there is not much to choose between advantage and disadvantage but other criteria like political, social, cultural hold equal importance for forming new States.
Thus, the economic benefits of new states is not conclusive enough to demand creation of new States. Instead in such cases greater autonomy can be extended to those areas in order to have better administration.