Why are Kerala, Andhra Pradesh vying for Karnataka firms?

Higher output of Karnataka firms, better employment

Andhra Pradesh and Kerala were quick to roll out the red carpet as the government in neighbouring Karnataka faced backlash over a bill that proposes to reserve jobs for locals in the private sector.

While the Siddaramaiah government on July 17 evening decided to put the bill on hold, a Moneycontrol analysis shows that Andhra and Kerala stand on gain in terms of productivity if firms relocate from Karnataka.

Analysis of annual survey of industries numbers for 2021-22 shows that the value addition per firm in Karnataka was double that of Kerala and Andhra Pradesh.

While Karnataka firms had an average net value added of Rs 9.28 crore per annum, Andhra’s value added per factory was just Rs 3.81 crore per annum, while that of Kerala was even lower at Rs 2.97 crore.

Output per firm in Karnataka at Rs 52.8 crore was nearly 70 percent higher than Andhra Pradesh and more than double that of Kerala in 2021-22.

The gap between the two has widened following the coronavirus outbreak.

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Output per firm has expanded at a compounded annual growth rate of 15.9 percent between 2021-22 and 2019-20, compared with 15 percent in Andhra Pradesh. Kerala industries’ output has shrunk during this period.

Before the pandemic Kerala and Andhra Pradesh were growing at over 8 percent, while Karnataka’s output per firm was 1.3 percent between 2014-15 and 2021-22.

Firms in Karnataka also owned more fixed assets than their counterparts in Andhra Pradesh and Kerala, Moneycontrol analysis shows, with the gap widening after the pandemic.

Employment gains

A shift of firms will also translate to employment gains for the two states. Karnataka’s factories employed 75 people per firm in 2021-22 compared with 40 for both Andhra Pradesh and Kerala.

Both states have a higher unemployment rate than Karnataka, according to periodic labour force data of 2022-23.

Kerala’s unemployment rate at 7 percent was more than double that of Karnataka at 2.4 percent. On the other hand, Andhra Pradesh’s unemployment rate for people aged 15 and above was 4.1 percent.

It would also translate into a richer population for the states.

Salary and benefits for an average Karnataka person employed in factories was also higher at Rs 3.89 lakh per annum compared with Rs 3.12 lakh per annum in Andhra and Rs 3.06 lakh in Kerala.

Unorganised service sector also at an advantage

The relocation of unorganised service sector would also benefit the states. As Karnataka’s unorganised service firms had 25 percent higher gross value added per firm than Andhra and 32 percent higher than Kerala at Rs 3.29 lakh per annum.