Despite Covid Setback, BSY Is Making Karnataka A Leader In India’s Economic Revival

Karnataka is one state where Covid-19 infections have been rising at a fair clip, with 101,465 cases being reported as at the end of 27 July, including 61,827 active cases. It will surely spike further before we get any respite.

On the other hand, Karnataka is also the one state that has boldly said that the economy is as important as dealing with the pandemic. In May, Karnataka was one of the first states to end the lockdown mania, and barring a needless regression for one week this month, Chief Minister B S Yediyurappa has been clear that there will be no more lockdowns.

Tuesday’s Times of India quotes him as saying once more: “We have to learn to live with the virus. I have told the district deputy commissioners to focus on economic activities instead of thinking about a lockdown.”

This is the clearest statement yet from the Chief Minister of any major state that livelihoods and economic activity are more important than just containing the spread of the virus.

Karnataka is thus a test case where both economic activity and Covid-19 cases are spiking. If it succeeds in containing the latter despite opening up the economy and reforming it, it will be the model to follow. The mere fact that right now Covid-19 cases are rising sharply does not prove that we have to kill the economy to merely “contain” the spread of the virus.

The early fruits of this shift in emphasis are already visible, with goods and services tax (GST) collections in June actually coming higher than in the same month of 2019. This year’s GST revenues were at Rs 6,710 crore as against 2019’s figure of Rs 6,559 crore. It may be the only major state to show promise in terms of reviving state revenues.

Karnataka is also becoming a model for reforms in several areas simultaneously: agriculture, land and labour.

Through an ordinance two months ago, Yediyurappa’s government amended the Agriculture Produce Marketing Committee (APMC) Act to end the purchase monopolies of 160 APMC markets. Farmers are now free to sell to anyone, including private parties landing up at their doorsteps. Private parties can set up their own procurement and purchase operations. The tyranny of farmers being forced to sell to a monopoly procurer has ended.

With another ordinance, Yediyurappa has tweaked three labour laws to enable establishments to hire and fire more easily. The Industrial Disputes Act, the Contract Labour (Regulation and Abolition) Act and the Factories Act have been amended to allow for higher thresholds on labour.

This means no state permission is required to retrench workers if an establishment employs fewer than 300 people (as opposed to the earlier threshold of 100). Only contractors employing more than 50 workers will now attract the law on contract labour (earlier only 20).

A third change substantially alters land laws. The new law removes restrictions on non-agriculturists buying farm land, and doubles the ceiling on land holdings. This means any business needing land can now get the same without going through a lot of legal hoops.

If you are betting on a sharp revival in gross domestic product (GDP) this year, it is likely that Karnataka will be one of the leaders in the pack.

Karnataka was No 4 in terms of nominal state GDP in 2019-20 with Rs 15.88 lakh crore, about Rs 1.13 lakh crore behind Gujarat at No 3. If it outpaces Gujarat in terms of reforms and economic activity this year and the next, it should be in a position to rise to No 3.

A Crisil report on the impact of Covid-19 on state growth rates puts Gujarat, with a high share of the state’s own tax resources, as one of those vulnerable this year along with Maharashtra and Tamil Nadu, the No 1 and No 2 states in terms of state GDP.

Despite the Covid-19 setback, which hopefully is temporary in nature, under the ageing Yediyurappa (77), the state seems to have got the right economic leadership for growth and economic revival. Age, it seems, is no barrier to reforms and revival.