Why Karnataka's Stellar Economic Growth In Recent Years Faces Serious Threat From Congress's Reckless And Ruinous Freebie Promises

Karnataka is an economic powerhouse. The state's GSDP (Gross State Domestic Product) and per capita income has witnessed a spectacular surge in recent years.

Karnataka is the third largest state economy in the country, at a projected Rs 23.3 lakh crore nominal GSDP in FY 24 (GSDP at the end of FY 23 was at Rs 21.87 lakh crore)

At Rs 3.32 lakhs per-capita GSDP, Karnataka is easily the wealthiest state among the Top 5 big economies of the country. The state's per capita is among the highest in the country, resulting from a substantial 66 per cent contribution to the economy by the services sectors with incredibly high value-add thanks to its status as India's technology capital.

The state has a robust revenue and tax profile and is fiscally well-managed.

In FY 22, the state contributed 8.7 per cent to the national GDP in nominal terms, 11 per cent to the new formal jobs created on the EPF system and exceeded tax revenue collections by Rs.23,000 crore over the budget estimates of INR 2.31 lakh crore.

The recent state budget presented by Chief Minister Basavaraj Bommai forecast a revenue surplus of Rs 402 crore in 2023-24, with revenue receipts estimated at Rs 2.26 lakh crore and revenue expenditure at Rs 2.25 lakh crore,

The capital expenditure by the state in FY was pegged at Rs 58,327 crores representing an increase of 10 per cent over the previous year.

The fiscal deficit, estimated to be Rs.60,581 crore, is at 2.60 per cent GSDP, well within the parameters specified in the fiscal laws.

Karnataka's monthly collection of goods and services tax (GST) has surpassed Rs 10,000 crore for several months in a row, indicating robust growth in consumption that drives tax buoyancy. The state has left neighbouring Tamil Nadu way behind in tax collections and even toppled Gujarat to emerge as the second-highest GST contributor.

Powered by Bengaluru, the state's direct tax collection is closing on the NCR region and is only behind Mumbai region.

The sustained growth rate in GSDP over the last few years has enabled increased capital expenditure, attracting investment and creation of employment on a large scale.

The infrastructure strides in the last couple of years owe much to high-quality resource allocation in state budgets, especially for capital expenditure.

By comparison, Karnataka's capex is close to Rs 20,000 crores more than Tamil Nadu even on absolute terms and despite its slightly smaller GSDP base. Muted capex reflects on how TN is hardly executing any big infra projects.

With the Bengaluru-Mysuru expressway, Karnataka has embarked on the next phase of an ambitious road network expansion program. Except in certain pockets, the state already has an impressive network of National highways developed over the last decade.

The state is pursuing an expansive vision for the aviation sector too. Shivamoga airport was recently inaugurated, and two under-construction airports (Vijayapura and Hassan) will be opened in the next 12 to 18 months. Bids have been invited for Raichur and Karwar, funds provided for further expansion of Mysuru airport and a proposal is under review for the construction of a greenfield airport at Ballari.

Bengaluru airport's impressive brand-new Terminal 2 is said to have played a pivotal role in electronic behemoth Foxconn's decision to set up a mobile phone manufacturing unit on 300 acres of land at the Information Technology Investment Region (ITIR) industrial area, Doddaballapur, in Devanahalli Taluk.

Bengaluru, the state's crown jewel, is in the middle of its biggest infrastructure upgrade, with over 150 km of metro being rapidly developed (the city already has the country's second largest metro network). An extensive suburban rail project for Bengaluru is also under-construction.

Even as it focussed on industrialisation and infrastructure, the ruling BJP government under both Yediyurappa and now Bommai has eschewed the temptation to pursue a reckless populist path. The state did a creditable job of managing the pandemic much more effectively without the triumphalist shrillness associated with some neighbouring states.

Even though when the state is well poised as India's undisputed tech powerhouse, it is not resting on laurels and is pursuing a well-crafted strategy to attract electronics manufacturing and working on establishing labour-intensive industries predominantly in smaller towns (for cost efficiency and in labour-surplus regions like North Karnataka). However, the state's heady economic success story faces a huge risk heading to assembly elections in May 2023.

In a bid to regain power, the opposition Congress unveiled four freebies (it calls its 'guarantees'). Even a cursory glance at these 'guarantees' and one can conclude that they will cause economic ruin for the state.

Under 'Graha Lakshmi guarantee, the party has promised every woman head of the family will get a monthly cash dole of Rs 2,000.

Under the 'Yuva Nidhi' scheme, the party has promised that if voted to power in the state, it will provide an allowance of Rs 1,500 per month to every diploma holder for two years, while graduates will receive Rs 3,000 per month.

Under the 'Graha Jyoti' promise, Congress has promised that every family in the state will be provided 200 units of power for free.

There is only one way to describe these: reckless and ruinous. Even a rough estimate of the cost of delivering promises could be upwards of Rs 1 lakh crores every year.

It remains to be seen what the voters of Karnataka decide on what is best for their future.