This paper uses panel data accumulated from 1972 to 1997 to investigate the effect of political systems on the public expenditure of state governments in India. We focus on the decline of the Indian National Congress, which was the dominant party until the mid 1960s, and the development of regional parties (RPs) that are based on specific religious or caste groups. The effects of changes in party systems are carefully distinguished from those in voter preference, which affect party systems and government policy. We find that the decline of a dominant party increases development expenditure, which suggests that little political competition is bad for development. By contrast, an increase in seats occupied by RPs decreases development expenditure and increases non-development expenditure. This suggests that, in a pluralistic society, the diversity of political parties does not contribute to an economic development and a reduction in poverty.