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Ajit Ranade: Small is manageable

Smaller states facilitate better governance and, strangely, help strengthen federalism

Ajit Ranade 

Small is manageable

accounts for one sixth of India’s If it were a country, it would be among the eight most populous nations in the world. This fact alone justifies at least an exploration of the question of reorganising the state into smaller, more manageable units. But it is not administrative or managerial convenience alone that calls for such a split. As (Mint, November 17) and others have pointed out, it was B R Ambedkar who had laid out the case for in a book published in 1955. The book was a response to the increasing, and strident, demand to carve out states along linguistic lines across the country. It was written before Maharashtra, and were even born. Dr Ambedkar was the original proponent of the idea of breaking up the various Hindi-speaking provinces or states in the north. Linguistic reorganisation, he argued, would lead to the creation of disproportionately large behemoths in the north and Balkanisation of the south. His proposal aimed to prevent such a situation.

Of course Dr Ambedkar did not anticipate the additional demographic skew that the country is witnessing now, with southern states having reached replacement fertility equilibrium and northern states providing higher growth in  This situation is further distorted because northern states have lower per capita human capital. It is not clear which is the cause and which is the consequence: higher female literacy or lower fertility? Given the higher numbers in the north, sooner or later electoral constituencies will have to be redrawn. Untying that political Gordian knot, which was postponed in 1971, remains a problem. The proposed break-up of is not about the demographic question of north versus south; it is about reduction to manageable size.

Dr Ambedkar had proposed that a state should have a of 20 million. By that standard, 17 of India’s 28 states would need to be broken up. An international comparison may be useful. The United States has 50 states for its 300 million people — about six million in every state. Germany has 16 federal states for its 86 million, thus averaging to less than the US. South Africa has nine provinces for 49 million people, Argentina has 23 provinces for 40 million, Vietnam has 58 provinces for 87 million people, and so on. We don’t need to mention the more intense federal set-ups such as the cantons of Switzerland. The pattern is clear. India is an extreme outlier when it comes to the number of people in each sub-national entity in the democratic world. Just like states, our Parliament is also severely understaffed. It sounds crazy that one member of Parliament (MP) represents two million people. Even the council of states, the Rajya Sabha, has at least two deficiencies. One, it has too few members. Two, the members do not represent each state equally. has far more MPs than Manipur; this violates the principle of the council of “states”.

In the case of Uttar Pradesh, its size and economic record have also led to another anomaly: each successive Finance Commission has recorded an imbalance between what the state gets and what it contributes to the national exchequer. The Commission’s distribution formula is weighted by population and poverty rate, and is, therefore, biased towards larger and backward states. There is increasingly a difference between what a state contributes to total tax collection and what it receives. The states’ own tax effort, through sales tax collection, is also one of the factors. But the difference is acute in the case of Uttar Pradesh, which alone receives almost 20 per cent of all fiscal transfers. Of course the Commission is responsible for addressing both vertical and horizontal imbalances. In this it is aided by transfers through the Planning Commission mechanism (the Gadgil formula). But over the years, a perverse outcome emerged in the Commission grants: the transfers were increasingly skewed towards backward states, implying as if they were rewards for backwardness. Recent Commissions have sought to correct this by introducing incentives for fiscal rectitude and economic performance in the transfers. The 13th Finance Commission has even found an innovative way to bypass the state government and give money directly to lower tiers of government. But unless a full-fledged amendment is made to the Constitution, such direct transfers to the lowest tiers are impossible. If such measures existed, then the problem of size and the imperative to break up big states like Uttar Pradesh would be diluted.

The evolution of a modern democracy like India will inevitably lead to greater centralisation. The rollout of the nationwide Goods and Services Tax (GST) regime illustrates this gravitational pull towards the Centre. A smaller but equally significant example of increasing centralisation is the Universal Identity initiative. Centrally sponsored schemes, which often bypass states’ authority, are also examples of the Centre’s hegemony. But such anti-federalist phenomena are common in most federal societies. In India, the GST involves a voluntary abdication of federal rights by respective states. The grand bargain involves sacrificing autonomy in exchange for a nationwide common economic market. In this context a smaller state can be an effective federal entity, wherein the GST transfers back to the state are more tightly linked to the ultimate beneficiaries. If part of consumption taxes goes back to the locals, it will provide an effective centrifugal antidote to GST. Also, it will become easier to transfer resources directly from GST to lower tiers like a municipality or a panchayat (village government). Smaller-sized states make this more feasible. In the absence of the GST-tied-to-lower tiers mechanism, and with zero constitutional backing, most (big) states of India have been lethargic when it comes to implementing the 73rd and 74th Amendments. Even though every state has a state finance commission, the recommendations regarding devolution of funds, functions and functionaries are mostly observed in the breach. A smaller state makes all this much less likely. Governance is inversely proportional to distance from voters. Therefore, a smaller state increases the likelihood of better governance.

Smaller states, therefore, make more sense on the following grounds: (a) administrative ease and manageability; (b) correcting historic skews in federal finances of India through downsizing the problem; (c) greater possibility of inserting appropriate centrifugal mechanisms to thwart the GST juggernaut; and (d) reduced distance between the governed and government. Many naysayers will cite reasons of history, culture and dislocation. People will also cite how the creation of leads to loss of economies of scale in governance, law and order and “expertise” capital. All this talk is just a proxy for the centralising force. The Uttar Pradesh Cabinet’s decision is bold, whatever its timing and motivation. It should be welcomed and other states should draw inspiration.

The author is chief economist, Aditya Birla Group
Views expressed are personal

First Published: Tue, November 22 2011. 00:00 IST
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