It’s official. We now have one more state in the Indian Republic. Telangana makes it as the 29th state, and this latest decision has spurred more ethnic groups to demand their separate state. It is not in my place to venture into the politics of having more states. My concern is the economics of the decision. What does the creation of a new state mean? To understand this we need to ponder on some basic queries:

what is the objective – is it purely political or has any other reason; is the current state too big to manage effectively; is it a socially and economically viable option; how will the wealth of natural resources (water, minerals, etc) be divided; what benefit will it bring to the common man that is not being achieved with the current set-up? To create a new viable and a functional state is not a cheap option. On the contrary it is the most expensive option to improve the ‘life of a common man’.

It should be exercised as a last option when all other alternatives have failed! Secondly, creating a new state is a very complex process. Once the euphoria dies down, one has to handle the basic issues of administration, employment, law and order, revenue generation, and so on. Thus, it means we need to create a whole new set of administrative machinery—the state will have its own government, its own police, its own state departments, and so on. There will be expenditure on setting these up, taking up physical resources, like land, buildings and other infrastructure as well as human resources.

I am no mathematician, but even by layman’s estimates, this means spending a few thousand crores. Who will pay for it? We? But why? What’s the ROI? Do we have any success story? Is there any new state created in the last 15 years that we can call successful? Or are we creating more defunct states that will keep sucking money (aid from the centre or global bodies) and just fulfil the agenda of select few! Is it efficacious to create new states then? Some would argue that it is simpler to administer smaller entities. When a state is small, it is easier to keep its functioning tighter and more efficient.

I concede that point, but in the long run, does the expenditure on creating the state balance out the supposed (because we can’t be entirely sure that will really be the case) savings? I am not convinced. Let me go back to the domain I come from—business. Hiving off new entities or dividing a geographical territory into smaller ones, if it shows enough potential, is not unheard of in the field of business. The reasons may be varied—it could be to raise equity (through IPOs or by selling them to new owners), to concentrate on their core business and let go of non-core functions ; to maximize their revenue from the current geographical territory or increasing market share or to service their customers better.

Whatever may be the reason; there is a sound financial research and analysis done before the step is taken. There are also clear business objectives that they set out to achieve. To top it all you follow a well defined process or in some cases you run a pilot to correlate the realities with the assumptions. If the variations are too big, one goes to the drawing board all over again or in few cases even drops the idea. Do we have any such defined process, when we are thinking of creating a new state?

Why can’t we run a pilot using the current administrative machinery but allocating costs and calculating receipts (as if managing two SBUs) to see what it will take to meet the desired goal and whether it is feasible in the first place or not? What resources would be required; where will they come from; capital cost; revenue sources, and so on? The other point of view is “consolidation”. Companies consolidate their businesses when the time is right. When they are too diversified, they try to streamline their operations by merging related businesses together to avoid redundancies in operations.

The last time our states went through this type of consolidation, on the other hand, was just after independence, when Sardar Patel set about amalgamating princely states into what we now see as administrative states. Why do our political and administrative class do not consider this option? In the new-age world where we are living now, we have the technology to govern and manage large geographical areas or complex administrative processes far more easily. The need is to invest in technology for effective management and providing opportunities to people to prosper and grow.

Why we are using the old-world theory of ‘divide and improve’ and applying it to new world? In the last 20 years, technology has touched every aspect of our life and will continue to do so in a more profound manner in the coming years. Thus why not look at “consolidation” or at least maintain status quo? The point I am trying to make is that the rules of governance don’t change much between states and businesses. Both ultimately strive to create a better life for their stakeholders.

Then the management of states, the thinking and the scientific approach that should go into running them, should follow similar logic as it does in businesses. The rationale behind creating new states must be based on measurable benefits and returns—not just in the emotional and political sense, but also in the economic sense. Only when our states perform well can we hope for our national growth to recover.