Karnataka has for long taken pride in being home to the Silicon Valley of India. The state’s economy has become as big as oil-rich Qatar, riding on the growth of software services. At 10 percent, it’s the third-highest contributor to India’s gross domestic product of $2.3 trillion after Maharashtra and Gujarat.
The southern state, one of the last remaining bastions for the Indian National Congress, goes to polls on 12 May. While the rest of the country has been slowly swept away by the saffron wave, Karnataka also remains important for Prime Minister Narendra Modi’s Bharatiya Janata Party. The results will be an early indicator of the people’s sentiment ahead of the general elections in 2019.
The Congress has been busy flaunting the ‘Karnataka Model’ of governance as an alternative to Modi’s ‘Gujarat Model’ to woo voters. The BJP focused on corruption that it claims is widely prevalent in the state.
So where does Karnataka’s economy stand? BloombergQuint compares its economic indicators with that of other large states – Gujarat, Maharashtra and Tamil Nadu.
Here is Karnataka's Economy in Charts:
Economic Growth
Karnataka's gross domestic state product is among the fastest growing in India (%)
Karnataka's economic growth fell sharply after the previous legislative assembly elections and remained stagnant over the next couple of years. It picked up during the previous financial year while the other three states slowed down.
Debt-To-GSDP Ratio
Karnataka is the second least indebted state in India.
Karnataka's indebtedness contracted in 2012, and has since remained comfortably lower than the other three states. It has the second lowest level of outstanding debt as a percent of the GSDP in India after Chhattisgarh. Gujarat’s is among the highest.
Gross Fiscal Deficit
(Rs Crore)
The rise in Karnataka's gross fiscal deficit, the gap between its revenue and expenses, has also remained low compared to Maharashtra and Tamil Nadu. Much like Gujarat, it managed to reign in its fiscal deficit.
Quality Of Expenditure
Karnataka, Maharashtra and Tamil Nadu allocate largely similar proportion of their aggregate expenses towards revenue expenditure that include more immediate short-term requirements of the state government. Gujarat spends a much higher percentage on capital expenditure to acquire or generate long-term assets.
In absolute terms though, the aggregate spending of Karnataka and Gujarat is significantly lower than that of Maharashtra and Tamil Nadu.
Consumer Prices
Karnataka's economic expansion resulted in higher consumer prices. The average retail inflation in the state between 2012-13 and 2016-17 was the highest in India, according to CRISIL. This is despite the CPI inflation in Karnataka falling more than the decline in India's headline inflation during the four years. Maharashtra and Gujarat were the two states where inflation declined the least in the same period.
Growth In Labour-Intensive Sectors
Karnataka still lags behind Gujarat and Maharashtra (FY13-FY16)
Karnataka witnessed relatively lower expansion in its labour-intensive sectors. Growth is even lower than the national average of 7.1 percent. According to CRISIL, a state which sustains high growth in labour-intensive sectors “is likely to be more successful in creating jobs”. In that aspect, Gujarat is the best in the country.
Labour Force Participation
(Per 1,000)
Among the four states, Karnataka has the second lowest rate of active labour force participation in rural areas. It’s well above the national average though. In urban areas, Karnataka’s labour force participation is better than Maharashtra and Gujarat, but lower than Tamil Nadu.
Share Of Services In Economic Output
Karnataka's economy relies heavily on its services sector
Two-thirds of Karnataka’s economic output comes from the services sector. That's mainly due to the presence of India’s largest information technology hub in Bengaluru. In contrast, Gujarat relies more on its manufacturing and construction sector for growth.
Wooing Foreign Investments
Karnataka has been the fourth largest recipient of FDI between 2000-2016.
Foreign direct investments in India are largely concentrated in Maharashtra and Delhi-NCR. The two regions together accounted for nearly half of all the FDI inflows between 2000 and 2016. Karnataka stands fourth on the list.
Contribution To India's Exports
Outbound shipments from Karnataka are the third highest in the country.
Karnataka contributes nearly a tenth of India's economic output even as it accounts for just five percent of its population. That makes it an economically important state.
Ease Of Doing Business Ranking 2017
Karnataka has jumped three places from last year.
Karnataka has steadily improved its ease of doing business ranking by implementing the government’s business action reform plan. It has displaced Maharashtra in the latest ranking available on the Department of Industrial Policy and Promotion. Gujarat slipped from top of the list in 2015 to the eighth spot in 2017.
(This article was first published by Bloomberg Quint. It has been republished with permission.)
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