Hyderabad blues
The proposed new Indian state of Telangana is bad politics and even worse economics.


Telangana supporters celebrate after the announcement of the separate state of Telangana, in the southern Indian city of Hyderabad July 30, 2013.

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  • @dhume01: The proposed new Indian state of Telangana is bad politics and even worse economics.

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  • State division should be above electoral calculations, enjoy broad consent, dictated by economics

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  • New Delhi's Telangana decision seems to be driven by politics more than principle

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Is Telangana a good idea? Since last week, when the Indian government greenlit the formation of the country's 29th state, the question has roiled Andhra Pradesh, the megastate from which Telangana will be carved out pending parliamentary approval. As statehood activists celebrate, protestors from the rest of Andhra Pradesh have taken to the streets to vent their outrage.

At first glance the case for Telangana appears straightforward. Andhra Pradesh is one of India's largest states, with a mostly Telugu-speaking population of 74 million and an area the size of Colorado. From this Telangana will hive off 35 million people, and 10 of 23 districts.

India's experience suggests that smaller states—more culturally cohesive and easier to administer—tend to prosper. The most recent examples include the Hindi belt states of Chhattisgarh and Uttarakhand, which have grown relatively fast since their birth in 2000. To this argument Telangana activists add claims of government neglect, plus a supposed sense of separateness fostered by history.

Take a closer look, however, and the logic of Telangana begins to falter. For starters, the timing of New Delhi's decision appears driven by politics rather than principle. Polls show the ruling Congress Party struggling in Andhra Pradesh, which accounts for 33 of its 206 seats in Parliament—more than any other state. With national elections less than a year away, the Telangana announcement seems like an attempt to salvage a chunk of seats (Telangana will account for 17 of Andhra Pradesh's current 42 parliamentary seats) even if it means writing off the rest of the state.

Nor does the statehood movement itself inspire confidence. If anything, at its core Telangana represents petty chauvinism, the closing of the Telugu mind. On Friday, K. Chandrasekhar Rao, the leader of the pro-Telangana movement, warned that "Andhra employees working here should move back to their respective places. Telangana people would work in our government."

From the start, Mr. Rao's tactics have involved blackmail and intimidation. In 2009 he went on a hunger strike to demand the creation of Telangana, sparking protests and vandalism by his supporters. Many of these violent partisants were college students promised jobs that might otherwise go to better candidates from elsewhere in Andhra Pradesh. For the most part, other parties have simply gone along with this pandering.

But India cannot afford to cave in to the demands of every rabble-rousing politician peddling an identity and a grouse. In a country that is already hard enough to govern, the precedent set in Telangana will likely lead to an outbreak of similarly tumultuous movements elsewhere.

As for historical neglect, while it's true that many of Telangana's 10 proposed districts are poor, on many indices of income and development the region ranks above Rayalseema, another part of Andhra Pradesh. Nor have voters shown particular sympathy for Mr. Rao's demands. In the last elections, in 2009, his single-issue party lost three of its five seats in Parliament, and 16 of 26 seats in the state assembly. Indeed, Telangana voters have usually backed the same politicians as the rest of the state.

Then there's the economy. Andhra Pradesh ranks as India's second-largest state by economic output—$111 billion at current exchange rates. With 7.7 million people, its capital, Hyderabad, is the country's fourth-largest city by population. New Delhi wants Telangana to assume full control of Hyderabad within 10 years. From an economic perspective, this is daft.

Over the past 15 years, thanks in part to the efforts of the reformist former chief minister N. Chandrababu Naidu, Hyderabad has evolved from a sleepy backwater to one of India's most important business hubs. Foreign investors include IBM, IBM +0.17% Dell, Oracle and Microsoft. For many Indians, the suburb of Cyberabad is synonymous with technology. The city also hosts the Indian School of Business, founded in partnership with Wharton and Kellogg.

Hyderabad has prospered because entrepreneurs from the rest of Andhra Pradesh plow wealth from agricultural surpluses into business, and because a well-educated global Telugu diaspora that sees the city as home. Dr. Reddy's Laboratories helped put India's pharmaceuticals industry on the world map. The Nagarjuna Group spans fertilizers, chemicals and power. The GVK Group has built airports in Mumbai and Bangalore and plans to expand into Indonesia. All were founded by people that Telangana partisans would consider "outsiders."

While the largest firms will likely find a way to stay put, the last thing investors need is uncertainty about Hyderabad's future. The prospect of surrendering the city to a petty chauvinistic party with no record of governance does not inspire confidence in either business or the diaspora. It's hard to imagine a landlocked city divorced from the entrepreneurial energy of coastal Andhra doing nearly as well.

This is not to suggest that India's internal borders are sacrosanct. Indeed, on administrative grounds alone the country's 1.2 billion people should be split among 50 or 60 states. But in order to work, these divisions must be seen to be above petty electoral calculations, enjoy the broad consent of the entire state in question, and be dictated by economic logic, not parochial passions. Unfortunately for India, Telangana fails on all three counts.

Mr. Dhume is a resident fellow at the American Enterprise Institute and a columnist for WSJ.com. Follow him on Twitter @dhume01 

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