The ACLU's latest criminal justice infographic tries to dispel the notion of causation between an increase in the prison population and a decline in the crime rate. New York has seen its prison population decline along with its crime rates, while Indiana saw its prison population increase with a much more negligible dip in the latter:

Most criminologists will acknowledge that incarceration does have an impact on crime rates but that given the sheer number of people in prison the U.S. has long passed the point of diminishing returns.
Republican Governor Mitch Daniels, to his credit, tried to implement criminal justice policy reform in Indiana which included some of the ideas in Hawaii's HOPE probation program, but was stymied in part by members of his own party who watered down the bill to the point that, if it had passed, it would have actually "increased prison time, populations, and budgets; the state would have had to build three new prisons, at a cost of $210 million each with an additional $48 million a year to operate them." Since the whole point of the proposal was to save money while reducing recidivism, Daniels gave up and promised to try again next year.