Saturday, October 5, 2013

The Futility of State Creation in India - Political Stunt At Best

I reckon most of us Indians have decided to mentally age backwards as time progresses forward. If we look around the globe, most governments are doing their best to make border controls minimal to facilitate easy movement of people and more importantly easy transmission of goods and services. Minimal barriers reduce taxation and administration burdens and make businesses, governance more effective and in turn results in well-being of people.

These were some of the basic tenets that the newly independent India also decided to implement in the nation. Just free from over 15 decades of foreign rule and knowing extremely well how the West was so easily able to use Divide and Rule policies with so many regional borders and kingdom, the mindset was absolutely correct. Of course the implementation was not extremely effective because the basis to divide the states was decided on the basis of linguistic differences.

We must understand the point that for the 7th largest nation by area and one of the most populated countries, it is always a matter of taking a few tough choices. By continuously creating more and more states, our politicians are simply creating more and more tensions and increasing costs to the common man. First, there was division to create Chattisgarh, Uttarakhand, Jharkhand and UP. Now politicians are playing the Telangana and Seemandhra card.

If things go through then Gorkhaland, Vidarbha, Khalistan will be the next issues and one cannot help question the government what exactly are you trying to achieve? More states means more and more administrative burdens to be created - first and foremost. Right from municipalities to police to taxmen etc. Then comes drawing up the borders and disagreements related to that. [We have so many times seen the issue of Belgaum, Nippani etc being taken up; ask anybody be it Marathi speaking or Kannada speaking person they will say they did not really care. If anything, they rued the fact that so much damage to property was done and productivity went for a toss] In due course of time, we will perhaps have a demand in Karnataka for separate North and South Karnataka. In Tamil Nadu, there might be a demand to divide the state on the basis of coastal belt and Brahmin belts.

Then suddenly, the erstwhile zamindaars and royal families will realize that they can have their provinces again. it is simply an endless vicious circle. On the one hand we hate it when Moody's and SnPs and Fitch downgrades our country's debt outlook [There is enough empirical evidence to suggest that interest rates beyond 6% on sovereign debt are never sustainable!] We are already reeling from a severe fiscal deficit, Current Account Deficit and double digit CPI inflation.

Look at most government offices / PSUs; the 'Salaries and Pensions' are way beyond 55% of Fixed Expenses in most segments [even in the corporate world with high salary allocations and perquisites, above 45% is deemed unsustainable] With 7th Pay commission and beyond, we are not far away from PSU Salaries and Pensions comprising over 65% of Fixed Expenses! The common man pays for this through high taxes, more instances of graft and double digit inflation.

With more and more state border issues coming up, there will be more contributions to be made for administrative staff. More corruption and exponentially higher instances of graft. The governments are yet to implement a uniform VAT/GST regime and completely do away with CENVAT and Local Levies. The due date for 'Implementation IN FULL' was in FY10. We are in FY14 and no where close to a resolution. I really doubt whether this resolution can get through before FY16. Now with more borders in place, one can comfortably add some more chunks of 2% each time a state border is crossed.

Then there will be teething problems and state level debt has to be issued so that the newly formed state can manage to get some limbs in place. Already existing states have given up on Food Security Bill and confirmed that they want the Central Government to foot the bill. States like West Bengal have been asking for re-organization of debt and these new state creations will further drag the budgets.

To summarize, there are neither economic gains nor administrative conveniences coming out of new state creations. We have already set wrong precedents and things will only get worse as more borders are drawn out. This is a political stunt for votes and the common man will suffer tremendously. Our leaders have to answer some tough questions one the same and I sincerely hope that the voters will force the leaders to change that.

No comments: