Karnataka: A fast-growing economy, but poorer northern districts cause of concern

Ahead of the second phase of polling, Moneycontrol looks into the key metrics of the country’s fourth-largest state economy.

Karnataka’s capital Bengaluru is the second-fastest growing technology cluster in the world. From agriculture to mining to industry, the state is blessed with a versatile economic landscape. In 2022, Karnataka emerged as a top achiever in the Centre’s ease of doing business rankings along with Telangana and Andhra Pradesh.

Karnataka boasts of an average gross state domestic product (GSDP) growth of 5.66 percent in constant prices since FY20, higher than the all-India figure during the same period. Its debt-to-GDP ratio of 24 percent in FY24 is lower than that of many other southern states, including Kerala.

The southwestern state, which is home to many Fortune 500 companies, is ranked No. 1 in NITI Aayog’s Innovation Index. Karnataka has one of the lowest unemployment rates in the country - 2.3 percent in March 2023, as per the state’s economic survey.

Karnataka’s GSDP (measured at constant prices) with 2011-12 as the base year, likely grew 6.6 percent in FY24, as per provisional estimates, compared with 7.32 percent for India as a whole, as per the state’s economic survey for FY24.

The GSDP for FY24 (at current prices) is at Rs 25 lakh crore, amounting to a growth of 10.2 percent, and the state’s fiscal deficit is expected to remain at 2.6 percent - within the 3 percent limit suggested by the 15th Finance Commission and lower than the 3.1 percent average of all states and Union Territories. The state’s fiscal deficit has been projected at 2.95 percent of GSDP for FY25.

A closer look at the data shows that the state’s capital expenditure increased 7.74 percent in FY24. An analysis by PRS Legislative Research showed that Karnataka’s total expenditure (excluding debt repayment) in FY25 is targeted at Rs 3,46,409 crore. This is an increase of 17 percent over the revised estimates of FY24. This expenditure is proposed to be met through receipts (excluding borrowings) of Rs 2,63,428 crore and net borrowings of Rs 80,272 crore.

The state spends heavily on guarantees targeted towards key sections of society. The government allocated Rs 55,877 crore for capital expenditure in its FY25 budget and Rs 52,000 crore towards the Congress party’s five poll guarantees.

Karnataka's Macroindicators

“Through the five guarantee schemes of Shakti, Gruhajyoti, Gruha Lakshmi, Yuvanidhi and Annabhagya, we are putting Rs 52,000 crore in the hands of crore of people during 2024-25,” chief minister Siddaramiah said in his budget speech.

These five guarantees include Rs 2,000 monthly assistance to women heads of all families (Gruhalakshmi), 200 units of power to all households (Gruhajyoti), Rs 3,000 every month for graduate youth and Rs 1,500 for diploma holders (Yuvanidhi), 10 kg rice per person per month (Annabhagya) and free travel for women in the state public transport buses (Shakti).

Red flags

While districts in south Karnataka are developed, with higher per capita income and HDI (Human Development Index) values, the northern regions paint a less-than-ideal picture.

Raichur and Yadgir in northern Karnataka are the only districts in the state to feature in NITI Aayog’s aspirational districts programme, which aims to transform 112 most under-developed districts across the country.

According to Karnataka’s economic survey, the Kalburgi revenue region, which comprises the northern districts of Ballari, Bidar, Kalburgi, Koppal, Raichur, Vijayanagar and Yadgir, were the lowest by per capita income for FY23 at Rs 1,66,797 - significantly lower than the state per capita income of Rs 3,04,474.

Comparatively, the southern districts had a higher per capita income - Bangalore Urban (Rs 7,60,362) and Dakshina Kannada (Rs 4,92,074), Udupi (Rs 4,14,274) and Chikkamagaluru (Rs 3,77,968), according to Karnataka’s economic survey.

The gap between the districts with the highest and the lowest per capita incomes is a cause for concern. In Kerala, Wayanad has a per capita income of Rs 1,04,000 compared with the state’s average of Rs 1,74,214 and Ernakulam’s Rs 2.02 lakh.

Even on the Human Development Index, the gap between the southern and northern districts in the state is alarming.

According to the state economic survey, “Bangalore Urban district stands first with an HDI value of 0.738 while Yadgir, Kalaburagi and Raichur districts occupy the last three positions with HDI values of 0.538, 0.539 and 0.562 respectively.”

According to the economic survey, northern Karnataka also has high incidences of malnutrition in the state.

Karnataka has a high burden of under-nutrition. As per the National Family Health Survey-5 (2019-20), 35.4 percent of the children are stunted, 19.5 percent are wasted, and 32.9 percent are underweight. Similarly, 47.8 percent of the women and 65.5 percent of the children (six months to 59 months) in the state are suffering from anaemia. The incidence is high in north Karnataka, the state economic survey said.

The ‘National Multidimensional Poverty Index (MPI) Report’ by NITI Aayog from July 2023 showed that the northern districts of Karnataka have a higher percentage of MPI when compared to other districts of the state. The report noted that Yadgir, Raichur, Kalaburagi, Koppal and Vijayapura have high MPI at 0.116, 0.090, 0.075, and 0.078, respectively. These numbers are high in comparison to Bengaluru Urban’s 0.007, Dakshina Kannada’s 0.006, Mysuru’s 0.008 and Ramanagara’s 0.004.

The state’s own survey pointed out that the incidence of poverty is high in north Karnataka, especially in the Kalyan Karnataka region, making it necessary for the government to prioritise these regions when it comes to providing the benefits of welfare schemes.