Economy
In Charts: At Rs 3.05 Lakh Per Capita, Karnataka Shines As India's Breakout State But Path To $1 Trillion GSDP Faces Challenges
- A 13-point socio-economic agenda to transform Karnataka into the driving force of India’s $10 trillion GDP vision.
Karnataka CM Basavaraj Bommai (File photo)
Karnataka is an economic powerhouse. It is the third largest state economy in the country, at INR 20.5 lakh crore nominal GSDP in FY 22, translating to a per-capita GSDP of INR 3.05 lakhs. Karnataka's per-capita GSDP is the highest among the Top 5 states and, indeed, one of the highest in the country, the result of a substantial 66% contribution to the state economy by the services sectors with incredibly high value-add like IT.
Data shows Karnataka is rebounding strongly from the recessionary impact of COVID-19. In FY 22, the state contributed 8.7% to the national GDP in nominal terms, 11% of the new formal jobs created on the EPF system and exceeded tax revenue collections by INR 23,000 crore over the budget estimates of INR 2.31 lakh crore.
The state has a robust revenue and tax profile and is fiscally well-managed. With decisive leadership and time-tested growth drivers, Karnataka can accelerate its growth to GDP of USD 500 billion by 2026 and GDP of USD 1 trillion by 2032. These targets align with India's GDP goals of USD 5 trillion by 2026 and GDP of USD 10 trillion by 2032, meaning the state will become 10% of the national economy. To do this, Karnataka will have to expand faster than India and accelerate its growth drivers.
Alongside the economic agenda, Karnataka must ensure it responds proactively to the population's needs. The state is aging quite rapidly, with fertility dropping to 1.7 in 2019-21 and the number of births stagnating. The young population (18-23) is declining, while senior citizens aged 60+ are projected to grow to 15% in 2030. These trends indicate the state will soon house a large ageing population, accompanied by a shrinking workforce, barring immigration; it is recommended that human capital be strengthened over the next decade to maintain high economic output despite the population downturn.
3 Key Challenges For Karnataka
Regarding the economic agenda, a detailed survey of the state economic data reveals three significant issues that must be addressed for accelerated growth.
There is a considerable asymmetry in workforce-to-sector dependence. 41% of the workforce, and consequently the population, depends on the agriculture sector, contributing only 14% to state GVA. In comparison, 59% of the population depends on industry and services that contribute a combined 86% to state GVA while providing high-growth opportunities and higher-wage employment prospects. Consequently, the wage ratio of an agricultural dependent to one in industry and services is incredibly skewed, at 1:2.7:5.1, calling for an immediate rebalancing.
The industry sector, in particular, is a laggard with a 5-year CAGR of only 6.1% compared to 11.6% for services and 16.6% for agriculture. It contains two highly under-utilized growth drivers: manufacturing and construction, that need policies and public investment to grow into massive economic growth engines and provide quality employment to the workforce coming o the land.
The state economy is highly skewed towards the Bengaluru urban district, which, counter-productively, hardly receives any investment. Both components need addressal. The rest of the state requires a focused urbanization agenda, while Bengaluru needs the necessary allocation of resources to achieve its potential as a global hi-tech city.
Low GER In Higher Education Relative To Other Southern States
Higher education to nurture specialization and human capital development is exceedingly important in the knowledge economy. Karnataka’s GER in FY 20 was 32, with women’s GER at 32.7, having overtaken men’s at 31.2 for the first time. While this is 5 points above the all-India average of 27.1, Karnataka is lagging other southern states, who are all above 35. Tamil Nadu (51.4) leads and is the only state with GER over 50, followed by Kerala (38.8), Telangana (35.6) and Andhra Pradesh (35.2)
Economic Agenda For Karnataka
A detailed 9-point economic agenda:
Amplify the agriculture sector value-add and output with comprehensive technology, branding, marketing and export strategies.
Expand manufacturing and exports via labour-intensive industries, predominantly in smaller towns for cost e ciency and in labour-surplus regions like North Karnataka.
Boost the construction sector value-add with increased infrastructure spending that will lend impetus to mass employment, generation of taxes, exports and general productivity.
Pursue systematic urbanization in 200 smaller towns of the state so they can be developed to sustainably absorb the rural-to-urban shift.
Model NITI Aayog's Aspirational District program in Karnataka to rapidly develop the 10-15 poorest districts, primarily located in North Karnataka.
Invest in specialized hi-tech industries like biotechnology, semiconductors, electronics component design and materials innovation to develop future-forward manufacturing capabilities, sustain technological leadership, and expand domestic and export markets.
Invest in Bengaluru to consolidate its unique potential as a global hi-tech city.
Boost the IT services sector to build on feedforward capabilities like artificial intelligence, machine learning, internet-of-things, cybersecurity, agri-tech and other drivers.
Invest in the state's startup ecosystem—which leads the rest of the country—so these companies can proliferate and become economic growth engines for Karnataka.
(Excerpted from the report 'Karnataka: a $1Trillion GDP Vision'. The report, authored by Mohandas Pai and Nisha Holla explores a 13-point socio-economic agenda to transform Karnataka into the driving force of India’s $10 trillion GDP vision.)
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