Life at work or life after work-what matters more? Ten years ago, answering that would have been easy. People moved to places where they found jobs, less concerned about the quality of life. Not anymore. Though jobs are still the prime movers, for an increasing number of middle-class Indians quality of life is becoming as important as quality of work. And as life and work become more intertwined, businesses and people flock to states that cater most appealingly to both.

That's why India Today asked economists Bibek Debroy and Laveesh Bhandari to devise a ranking of Indian states that gives importance to both-business environment and quality of life (see methodology). The result is India's first ever ranking of the best and worst states to live-and work-in. Each states' performance was tracked between 1991 and 2001. The performance of the 1990s provides early indications of the winners and losers in a competitive environment. The rankings also reveal some tectonic shifts in India's economy, demography and living standards.

In the New Economy, Big May Not be Better

WORK AND WORKOUTS: Life after work has become important in most happening states

Call it the Singapore effect. The tiny south-east Asian nation isn't the world's biggest or wealthiest. But it is widely regarded as the most efficient and dynamic. Yet, if Singapore collapses tomorrow, that won't pull the global economy down into a recession. Similarly, if smaller Indian states have pipped the bigger ones to the post-the top five states account for less than 8 per cent of India's population-it is not because they have suddenly turned into the country's growth engines. It is just that in some small states-not all-physical and social infrastructure is less burdened, the investment environment is less taxing and economic bureaucracy is more agile.

Ask Dr Reddy's Laboratories whose proposal to set up a formulations plant in Goa was cleared in 15 days by the state administration (see state profile). Himachal Pradesh is busy weaning investors away from Punjab by offering tax incentives and easier working environment at Baddi, just 25 km east of Chandigarh. So it is not a coincidence that some of India's most picturesque states-Goa, Himachal Pradesh and Kerala-have notched up the top ranks.

Unlike most other state rankings, india today's ranking is not survey based. It is based on objective parameters. Moreover, the parameters were normalised (divided by a common denominator, such as population) to make interstate comparisons possible. Such a ranking places higher value on the adequacy rather than the availability of facilities and utilities. So if Goa, Delhi or Himachal Pradesh rank higher than bigger states like Gujarat, Maharashtra, Karnataka or even Uttar Pradesh it is not because small states get more investment or have more infrastructure. It is because their investment environment and infrastructure facilities are more accessible to new investment. That makes small states the darlings of the booming services economy.

While traditional wealth creation still thrives largely on the industrial infrastructure of western India, small states are cashing in on the growth of it and services companies. The virtual disappearance of 9-to-5 offices, heightened concern for a city's suitability for children and spouses-mostly working-and increased attention to issues like pollution and cleanliness are drawing new investments to newer destinations. Many of these new destinations happen to be in small states.

Delhi's rise is somewhat more intriguing. The country's capital became a magnet for foreign and domestic investment in a decade when the Centre's management-and manipulation-of investment actually declined. How? The credit mainly goes to Delhi's satellites of Noida, Gurgaon, Greater Noida and Bhiwadi which ensure that the city-state can expand almost endlessly offering everything that a modern evolving work place demands. Together with its satellites, Delhi isn't very small either. With a population of nearly 20 million, the National Capital Region is as big as Haryana or Punjab. Part of the surprise over the top two slots going to Goa and Delhi could simply stem from the fact that the two states haven't been states for very long. Goa attained statehood in 1987 and Delhi in 1993. Before becoming states, the two Union territories may have performed better than many states, but weren't considered as competitors.

It is nobody's case though that big states are inherently bad. They can be as agile and endearing to new-economy investors as small states if they want to. After all, Karnataka still attracts the largest chunk of software investment, followed by Andhra Pradesh, another big state. In fact, Tamil Nadu rubs shoulder with Delhi as the most improved investment destination in the 1990s (see table). More significantly, it was a big state Andhra Pradesh that improved its overall performance ranking the most in the 1990s. Many big states have some very high-growth dynamic regions and some consistent underperformers. Telengana and Rayalseema in Andhra Pradesh are poles apart. So are western and eastern Uttar Pradesh. The laggard regions pulled down the average score and the state's ranking. Small states, being more homogeneous, may perform better.

DEEPENING DIVIDE: Competition is increasing the inequality between high performing states like Himachal Pradesh and low performing ones like Orissa

The real lesson is this: the boom in the services economy, explosion in communications technology and quest for good life after work is taking new businesses to new destinations. In the process, just like its politics, India's business too is getting decentralised.

Your Life is as Good as Your Government Allows

Big or small, governance matters more than the size of a state. Compared with 1991, almost every state has improved its overall performance in 2002, but some states have improved more-much more-than others. The degree of improvement depends almost entirely on the quality of governance. For instance, Himachal Pradesh revolutionised its education and rural infrastructure in the 1990s. The state's literacy rate (percentage of literate population) rose from 63 per cent in 1991 to 77 per cent in 2001. Most of its villages are electrified and 80 per cent of them have piped drinking water. The proportion of people living below the poverty line fell dramatically from 29 per cent in 1993-94 to just 8 per cent in 1999-2000. Such a spectacular record is a tribute to the otherwise warring political parties in the state which remained focused on development when they came to power. Rajasthan's big strides in education and agriculture and Madhya Pradesh's pace of progress in primary healthcare are all instances of governance improving the quality of life.

In contrast are the states of Bihar and Uttar Pradesh. Bihar spends only Rs 60 a year on the healthcare of every person living in the state. Since 1991, the level of spending has remained stagnant. In 1991, 6.7 per cent of the state's households had access to tap water. By 2001 only 5.3 per cent of the families enjoyed this amenity. The state's per capita income, the lowest in the country at Rs 4,616 per annum, grew only at an annual rate of 0.88 per cent in the 1990s. Interestingly, Punjab's per capita income growth also tottered at just 2.4 per cent a year in the 1990s. It is another matter though that both in 1991 and 2001, an average person in Punjab was at least four times richer than the average person in Bihar. And that is another big message: the quality of governance matters a lot, but the pre-existing level of development is of no less consequence in evaluating a state's performance. Not all states were equal in 1991. The quality of governance across states will determine whether existing inequalities narrow or widen.

Competition Initially Increases Inequality

Here is an unwelcome aspect of India's diversity. It has states like Maharashtra, Gujarat and Karnataka, which have grown as fast as Asia's tiger economies during the past 10 years; it also has Bihar, with a population the size of Germany's and living standards on a par with Burundi's. If that is not bad enough, the divisions are deepening-simply because in the 1990s the guiding principle for sharing resources has shifted from entitlement to competition. Combined with economic liberalisation, competition among states is bound to increase disparity. The state rankings and their scores clearly point to the widening wedge between the living standards of different states. The rich are getting richer. The poor aren't getting poorer, but they aren't getting richer as fast as the rich. In 1991, Bihar's per capita income (Rs 4,230 a year) was 4.2 times lower than the per capita income of Goa (Rs 17,670 a year). By 2001, the difference had grown to 6.7 times-Rs 4,616 for Bihar and Rs 30,744 for Goa.

Why have liberalisation and competition if they increase inequality? Because competition gives performers a chance to perform to their potential, even as it allows non-performers to drift. Surely, it is not that all mechanisms of transferring funds from rich (often also better performing) to the poor (often also non-performing) have been given up. The Planning Commission and the Finance Commission still "redistribute" thousands of crores of rupees from the rich to the poor every year. It is just that such redistribution has shrunk a bit and private investment is free to go where it wants to. Unfettered by governmental dictates, most private investment has shied away from poorly governed states and has flowed almost entirely to better-managed rich states.

While inequalities have magnified, the fruits of inter-state competition have also begun to emerge. Andhra Pradesh and Karnataka have been successfully hot selling themselves as alternative-and even better-investment destinations than the established investment centres of Gujarat, Maharashtra and Tamil Nadu. To a lesser extent, Rajasthan, Himachal Pradesh, Madhya Pradesh and now even Chhattisgarh have been competing for a share in the investment pie with some degree of success. The verdict is clear: competition is a double-edged weapon. It can increase or decrease inequality. Since not all poor states are necessarily non-performers, competition allows poor but performing states to catch up with the rich and thus bridge the inequality gap.

Produce in South and West, Sell in North

NORTHERN COMFORT: North Indian states have emerged as the consumption basket of the country

The northern states are emerging as a bundle of contradiction. The largest number of India's poor live in these states, yet the north is the biggest consumption basket of the country. Consumption not just of the basic necessities, but also of lifestyle and luxury products. Five of the top 10 states for consumer markets are the northern states. Per capita ownership of two-wheelers and TVs are high not only in prosperous Punjab, Haryana and Delhi, but even in Uttar Pradesh. A lesser known fact is that Uttar Pradesh is the second highest contributor to India's GDP. The explanations are many: rise in the prosperity levels in pockets of north India in the 1990s, a significant rise in manufacturing in some of the northern states and higher propensity to consume among north Indians. Whatever may be the reason, north India is a sales manager's dream territory.

Western states, of course, have protected-and strengthened-their status as the prime centres of traditional wealth creation, peppering it with doses of new economy enterprises.

But the region that is least attractive for business-and living-is the east. Surprisingly, even on critical infrastructure indicators like percentage of households with electricity connection, ratio of road length to population and spread of bank branches, the eastern states-Bihar, West Bengal and Orissa-fare very badly. Prospects of a possible revival of the east don't seem promising. About 75 per cent of small-scale industries registered in West Bengal and a third of those in Orissa are sick. Per capita investment expenditure of state governments is a dribble and private investors are reluctant to invest in the region. The east is undoubtedly the sick child of the Indian economy right now. That doesn't bode well for the Northeast which can do justice to its potential only if it integrates with a vibrant east.

So what is the big story emerging out of the sub-plots? India's destiny-and development-is being scripted in the 30 state capitals across the country. While some scripts hold out hopes of a positive ending, some are horror stories in the making. But these are true stories, impacting the lives of millions of Indians. More importantly, the failure of one state will undermine the success of others by pulling down the whole country. While there will always be high and low ranking states, India can't be ranked high unless the growing gap between the lives of people in different parts is halted and reduced by that one all important factor-good governance.