Economic logic for Telangana

Economic logic for Telangana

Andhra Pradesh has been on the boil. Soon after the Telangana Rashtra Samithi (TRS), the party spearheading the statehood demand, began a 48-hour bandh on Sunday, protests erupted in Hyderabad and parts of the Telangana region of the state. Soon enough, “intellectuals", too, voiced support. By Monday night, an all-party meeting convened in the state capital told the chief minister, K. Rosaiah, that a resolution be moved in the legislative assembly for the creation of a Telangana state. The matter now rests with the central leadership of the Congress, the ruling party in Andhra Pradesh.

The political reasons behind the demand are obvious. Often, some economic “logic" is also tagged with the politics. Backward regions have not had their share of development and governing large states is not easy. Smaller states permit development of new infrastructure and better provision of public goods such as education, healthcare and civic facilities.

Is there any economic sense in the demand for smaller states? An equivocal yes and an unequivocal no. In a 1954 classic, Paul Samuelson showed that there could be no “market type" solution to the provision of public goods. The reason being that providing such goods required eliciting the preferences of persons who demand these goods. He showed that there was no way to find out these preferences. Voting and other political mechanisms provided an imperfect way to do so. Two years later, Charles Tiebout gave a neat counter-argument to Samuelson and showed that under certain conditions, public goods could be provided efficiently at a local level (a city or a town). Movements for the creation of Jharkhand, Chhattisgarh and Uttarakhand follow this logic, however it may be expressed.

The problem is that when this academic vision is translated into reality, the results are rather unhappy. New states such as Jharkhand and Chhattisgarh are pretty unruly places, hardly the models of civic order that Tiebout had in his mind. To be sure, these are burdened regions: They are plagued with pre-existing problems such as ultra-Left violence and near-total absence of infrastructure. Vast resources have been sunk to make them viable. It has not worked. The demand for smaller states is fine in theory, but something very different in practice.

Will a separate Telangana state usher prosperity there? Tell us at