Small states creation not necessarily catalyse eco growth: Ind-Ra

Rating agency's analysis shows that only 11 states grew faster than the country on the whole over FY06-FY13

Creation of small states is not the solution to improve economic performance, social indicators and other infrastructure statistics, India Ratings & Research (Ind-Ra) has said.

Even though growth performance of small states are commendable, the belief that they necessarily grow faster than large states is flawed, it said.

The rating agency's analysis of the growth performance of Indian states shows that only 11 states grew faster than the country on the whole over FY06-FY13.

Of these 11 states, only five were small states - Uttarakhand, Kerala, Haryana, Goa and Himachal Pradesh.

The mixed growth performance of the states formed in 2000 (Uttarakhand, Chhattisgarh and Jharkhand) also reinforces that carving out a small state does not assure strong growth performance, it said.

"Growth performances of these new states were largely driven by specifics of the state and the policies framework," an India Ratings report said.

Although, the newly formed states have reasonably healthy and improving social indicators, parent states have also managed to prudently improve their social indicators after the split, India Ratings noted.

The three new states upgraded their infrastructure after formation and addressed deficiencies in power, roads and access to drinking water. But their parent states also did not lag behind in addressing infrastructure issues, it said.

Nevertheless, these infrastructure changes could have been delayed in these regions if there had been no division.

The rating agency said it does not believe division alone is the reason for these improvements.

The study highlighted that fiscal performance of small states were diverse during FY06-FY13, with a few states being disciplined and following tight fiscal policies and the rest embracing expansive policies.

"As the performance of small states differs across various economic parameters, carving out a new state is not a remedy," it said.

Concurrently, formation of new state would not simply assure robust governance and higher economic growth. On the contrary, it is essential to develop a comprehensive administrative and governance framework and ascertain the economic sense before splitting rather than announce the separation first and then sort out the differences and issues on an ad-hoc basis, the study added.