As the dust has settled on what was seen by many as a foregone conclusion, it is time to get down to the business of governance. In a span of 35 years, from August 1988 to May 2023, the state has had 18 different governments (many chief ministers more than once) and has been under President’s rule four times. So, that’s 22 different configurations over a period of 35 years, leading to a healthy-as-usual average of 18 months per configuration. If statistics are to be believed, Karnataka is synonymous with instability. One can wonder what this portends for a state with such a history.
target of a trillion dollar economy
Karnataka aspires to become a trillion-dollar economy by 2032 and needs a 17%-18% compound annual growth rate in its Gross State Domestic Product (GSDP) over the next decade – the current CAGR is around 13% – Thus, a steep ask. During 2022-23, Karnataka’s per capita GSDP is estimated to be around $4,000, which is almost twice India’s per capita GDP. Its GDP is around $250 billion, but the distribution is asymmetrical, with the bulk of the contribution coming from the services sector. Of this, the nearly $60 billion digital economy is largely concentrated in and around Bengaluru, putting a strain on the infrastructure of a city that was not built for such explosive growth; Therefore, it is important to create satellite technology/other clusters on the lines of Cyberabad, Mohali, Oragadam (Tamil Nadu), Navi Mumbai, and Naya Raipur (Chhattisgarh). Bengaluru has about two million knowledge professionals; A simple back-of-the-envelope calculation would reveal that the staggering number of buses ferrying and repatriating this workforce, in two shifts, from four or five clusters within the city, brought these places almost to a virtual halt. But brings No other city is facing this problem on such a large scale.
The services sector grew the most during this period at 15.5%, followed by manufacturing at 10.8% and agriculture at 11.8%. The services sector was also the largest contributor to Karnataka’s GSDP, accounting for more than two-thirds of the economy. Thus, there is ample scope to focus on manufacturing and agriculture in terms of increasing productivity and also increasing the size of the cake. The path to a trillion-dollar economy cannot rest solely on the shoulders of services and technology.
At a time when the tenure of the civil service is notoriously short in almost all the states of the country, Karnataka’s Finance Secretary has set a national record of sorts by presenting 13 budgets, in office for 10 consecutive years from August 31, 2013. has made. With an excellent team of IAS officers in finance, it has helped Karnataka remain financially savvy. Data speaks louder than words again. Karnataka is among the top 10 states when it comes to revenue surplus and it is around 0.07% as a percentage of GSDP. Also, if you take the ratio of capital expenditure to total expenditure, the average figure for Karnataka between 2015 and 2020 is 17%, which again tops the country. Similarly, the ratio of committed expenditure to revenue receipts at 39% is among the lowest in the country compared to many other states such as Punjab and Kerala, which account for over 75%. Further, outstanding liabilities as a percentage of GSDP are at a low level of 20%, which is among the lowest among all the four states in the country.
Even more interestingly, based on the available data, on all the above parameters, the other four southern states perform broadly worse than Karnataka except in the case of growth of outstanding liabilities as a percentage of GSDP, where Kerala and Andhra Pradesh. Do a little better
The big question remains as the incoming government moves to implement its guarantee: how much, for how long and how deeply will it affect the state’s fiscal deficit, which should go no more than 3% of GSDP, if any. follow the Accountability and budget management criteria? It would be a very difficult mission impossible; Because, if all the promises need to be met, the fiscal deficit to GSDP ratio could cross 4.5% (up from 2.6% at present).
Karnataka owes about ₹4,000-plus crore to power generation companies, which is certainly much less than what Maharashtra and Tamil Nadu owe to them (of the order of ₹20,000-plus crore). Also, various government departments have outstanding dues of over Rs 6,000 crore from various power distribution utilities. This number can come down with the promise of free electricity. There is a lesser known and used clause through which CPSE dues can be recovered from the tax devolution by the Government of India to the States. We can only hope that this does not happen, as many other states are far worse off with power sector dues.
skills and improvements
Skilling is an engine that needs to be revived by creating industry-relevant skills, which are commercially important. Telangana offers a good model to emulate, where the Telangana Academy for Skills and Knowledge (TASK) has trained and placed over 1,80,000 skilled workers in the electronics industry. Karnataka needs to do this in certain sectors such as electronics, software/software-as-a-service and product management. It should set up a Greenfield Skills and Entrepreneurship University on the lines of prestigious institutions (outside the control of the University Grants Commission) with intensive partnership with the private sector.
Karnataka has a history of widely successful private-public task forces such as the BATF, the Karnataka IT and Biotechnology Vision Group, which aim to channelize private sector ideas and resources to enhance government effectiveness. Why not set up a taskforce to oversee the design and rollout of government skill development initiatives? This will help in getting the right kind of skills that the industry needs (not the skills that the government thinks the industry needs) and bridge the demand-supply gap of talent across sectors.
on agriculture
Karnataka has made some interesting reforms in agriculture, including marketing and procurement, but the deepening of the value chain is not complete; Otherwise it will not remain stable at around 11%-12% of GSDP. It is the value addition in different parts of the value chain that provides higher income to the farmers. Karnataka should implement an agri startup policy for better funding, develop incubation infrastructure including branding and marketing, foster industry partnerships and provide sensible state support in the form of market-aligned incentives. Also, it needs to amend the Co-operative Societies Act to allow some sort of similar fee for rocket ship farm loans which remain low.
In conclusion, India and the IT capital of Asia needs a modern start-up policy in line with the demands of the times. This should be among the first five priorities of the new government, so that the current troubled sector can roar again. It is rather anachronistic and strange that Karnataka does not have one, even though it has one of the largest startup ecosystems in the world.
A government estimate suggests that achieving a one trillion economy requires a cumulative investment of ₹150 lakh crore (of which the government’s capex should be around ₹25 lakh crore over the next 10 to 12 years). And where will government capex come from. The real trillion-dollar question is as Karnataka embarks on a new journey.
Srivatsa Krishna is an IAS officer. Views expressed are personal