The political bleeding of Karnataka’s economic strategy

Anyone studying Karnataka’s Assembly elections cannot miss the complete reversal of direction in the 1980s. Until 1983, the ruling party always won; and since 1989, the ruling party has never won. The exploration of this dramatic reversal in voter preferences has been so focused on the political that little attention has been paid to its underlying economic causes. The inability of state governments over the last four decades to develop economic strategies that will not bleed them politically calls for a longer-term view of Karnataka’s economy.

By the time Karnataka was formed in 1956, the limits to the state’s ability to raise private capital were already evident. Private capital did play a role in coastal Karnataka, particularly in the formation of large private banks that were later nationalised, but this trend did not cross the Western Ghats. Agrarian capital in the rest of the state was hampered by an agriculture that had a greater dryland character than is usually recognised. As a study by the Centre for Economic and Social Sciences (CESS) has shown, Karnataka ranks behind only Rajasthan and Gujarat in the share of the total arid area in the country.

The response to the problem of dryland agriculture before independence varied across the regions that became Karnataka. The rulers of Hyderabad Karnataka largely looked the other way. Mumbai Karnataka saw some pioneering cooperatives, but they fell short of the success that was achieved in what is now Maharashtra. Princely Mysore decided to use technology and State capital to counter the problem. A 130-foot-high dam was built to irrigate what was then dryland Mandya. The success of State-supported technology initiatives influenced the attitudes to education. Mysore focused on supporting higher education, whether it was the efforts to locate the Indian Institute of Science in Bengaluru or to set up what is now University Visvesvaraya College of Engineering. 

By1956, Karnataka’s labour force was demarcated by education into three distinct segments. Those who had little or no education relied on traditional knowledge in their work, usually in agriculture. At the other extreme was the technical manpower, especially engineers. In the middle were those who had significant levels of schooling but not much more. In the absence of substantial private capital, the onus of providing employment to technical manpower, as well as to those with schooling alone, was left to the government and public sector units.

Karnataka’s governments before 1980 had distinct strategies for each segment of workers. The interests of those involved in agriculture were boosted through large-scale irrigation projects, while increasing investment in the public sector was targeted at the other two sections of workers. Whatever academics may now think of this strategy, workers of all three segments were not too disgruntled, ensuring the party ruling the state was invariably returned to power.

By the 1980s, these strategies were reaching the end of their tether. Cauvery waters were no longer abundant, causing intense conflicts with Tamil Nadu in poor rainfall years. The public sector was becoming less competitive. The creation of large industrial estates to enable public sector units to outsource to small industries with an informal labour force only resulted in the under-utilisation of infrastructure.

The crisis of an under-utilised infrastructure was averted by a fortuitous change in the global garment industry. The combination of student movements and rebel music resulted in middle fashion in the West being taken over by denims and other clothes of the working class. The industrial estates became an attractive site for garment manufacturers catering to global brands selling middle fashion garments. As workers with school education were employed in these units in Bengaluru, it eased the pressure on one section of workers hoping to join the public sector. By the mid-1980s, though, the one-time advantage of available infrastructure was beginning to be offset by higher land and other prices in Bengaluru, as well as increased global competition.

During the same period, the communications revolution ensured Bengaluru’s technical manpower could be employed in the city as a part of global supply chains, and the IT boom took off. Fascinated by the high growth this sector offered, governments competed to provide the huge resources needed to create the urban infrastructure that the IT industry came to expect. The IT-led strategy provided the high growth the governments sought. A paper of the Economic Advisory Council to the Prime Minister has calculated that Karnataka’s per capita income moved from being just 81.1% of the national average in 1990-91 to 180.7% of the national average in 2023-24.

While the IT-led strategy took care of the interests of technical manpower, it did not directly help the other two segments of the labour force. Agriculture was no longer able to employ all who had little formal education, and the slow growth of manufacturing meant that those with basic education were also under stress. Governments were forced to respond to this stress by offering welfare measures. As competition to be in government increased, politicians created their own family-based welfare networks, with declining regard to how the resources were to be generated. This strategy as a response to the unequal distribution of work had the failure of political parties built into it. It was always easy for an opposition party to promise more welfare than a government could deliver.

In recent years, Karnataka’s governments have tried to address the regional imbalance by creating infrastructure for industries outside Bengaluru. But the location of these industries is not linked to the type of labour that is available in the vicinity of these locations, sometimes making these units dependent on migrant labour. Thus, even as these units enhance Karnataka’s economic growth, they do not always adequately address the needs of local workers. This keeps alive the demand for welfare.

Unless Karnataka’s governments can come up with an economic strategy that is more sensitive to the needs of its segmented workforce, its political initiatives will remain dependent on welfare. As opposition parties of all hues encourage a steep rise in public expectations of welfare, Karnataka’s governments will continue to face elections with hope prevailing over experience.

(The writer is JRD Tata Chair Visiting Professor, National Institute of Advanced Studies, Bengaluru)