Can Karnataka budget for double-digit growth this time?
One of the Karnataka’s most important budgets will be presented in Vidhana Soudha today. This is chief minister Siddaramaiah’s last budget for bold moves, with the next one being just ahead of the state elections in 2018.
This is an example of a #StatesMatter budget analysis piece.
First published in Times of India, March 18, 2016.
After good economic performance in the early 2000s, Karnataka has been a middling engine of growth, with both Tamil Nadu and Maharashtra clocking consistently higher growth numbers than Karnataka — while also being richer. Karnataka crossed the 10% growth mark last in 2009–10, after which the state was hit sharply by the global economic downturn, and has been slowly recovering since then. In the meantime, manufacturing and exports have taken a hit all over the country. This high growth is essential for Karnataka to add jobs, pull millions out of poverty and bring security and prosperity to all. Can Mr Siddaramaiah, one of Karnataka’s most experienced finance ministers, get Karnataka to double digit growth?
While everyone focuses on the Government of India and its budget, the state budget has never been as important as it is today. Last year, the centre budgeted just over 12,000 rupees per person in India — excluding their transfers to states. In contrast, the Karnataka government budgeted a whopping 19,900 rupees per person.
Thanks to the 14th finance commission, the Government of India is no longer in a position to dominate the states and micromanage affairs via one-size-fits-all centrally sponsored schemes. Karnataka has a far greater control over its expenditure today than it has ever before, and this is only set to increase.
Karnataka needs to focus on five priority areas in its budget to get to high economic growth. Cities, Electricity, Agricultural Markets, School Education, and Ease of Doing Business.
First, invest more on cities. Bengaluru remains an orphan city, with large parts of the city showing high signs of neglect. With the JNNURM coming to an end, the state needs to invest more on Bangalore and empower the city corporation. Well before the JNNURM and Smart Cities Mission, Bengaluru was leading the country in urban reforms. It is time to regain that mantle.
Karnataka cities don’t stop with just Bangalore. Over 25 million people in the state live in cities and towns today — with new hopes and aspirations. Karnataka has been unable to develop large cities outside of Bengaluru. Mysore and Hubli-Dharwad are still struggling at around 1 million population, while Nagpur, Nashik, Coimbatore, and Madurai have all surged ahead. It is unfortunate that Karnataka’s top port city — Mangalore — just about houses 6 lakh people.
Second, Karnataka must invest heavily in the power sector. While India has sufficient power generation capacity, the electricity distribution companies are heavily indebted and unable to buy enough power. In spite of this, Karnataka has not been serious about persuading the public to pay more for better supply of electricity. Instead of spending lakhs on diesel generator sets and polluting the air, most people would be willing to pay a little more for a reliable power supply.
Third, the state must invest in modernizing the agricultural supply chain. Too little of what consumers pay for food crops reach the farmers, and robust agricultural markets are an important step in relieving farmer distress. Karnataka is already leading the country in creating a unified agricultural market — but this needs focus and funding for full realization right away.
Fourth, Karnataka has an opportunity to reimagine school education. The centre is winding down its funding of Sarva Shiksha Abhiyan, and Karnataka can take the best parts of how the scheme worked, and experiment with new ideas that are relevant to the state. Karnataka has achieved near-full school enrollment, but is struggling to deliver basic learning outcomes, and centrally sponsored schemes will no longer be the bottleneck for addressing them.
Fifth, Karnataka must focus on high quality public services and improving the ease of doing business. Thus far, new companies and startups appear to be setting up in Karnataka in spite of government policies, rather than because of them.
