When Jagadish Shettar took his oath of office on July 12, he became the third chief minister since 2008 in the first Bharatiya Janata Party (BJP) state government south of the Vindhyas. The state he heads is facing economic crisis but, with less than a year to go before the Assembly elections in April 2013, he appears deeply preoccupied in establishing his political credentials.
Karnataka is suffering the second consecutive year of drought, revenues from iron ore are squeezed by a Supreme Court-mandated halt and beyond the glittering facade of its high-tech successes in IT is a story of shrinking agriculture, stagnant industry and growing inequality.
True, none of these problems are of Shettar’s making and Karnataka’s slipping growth reflects the global slowdown too. But so far, he has done little to reassure the state’s anxious business community that he has a grip on things. Most of Shettar’s energies have been devoted to fending off internal rivals, including predecessors B S Yeddyurappa and D V Sadananda Gowda, and two current aides with chief ministerial ambitions.
“The new chief minister is a good person, but not a very strong man. He is busy in cementing his position. Industry cannot blame him. Though the time is very short for him to deliver major reform agenda, he still can do some work in instilling confidence in the business community,” T V Mohandas Pai, chairman, Manipal Global Education Services Ltd and former board member of Infosys Ltd said.
As yet, the chronic political uncertainty has not had any major impact on industry. The state signed memorandums of understanding (MoUs) for a combined investment commitment for Rs 800,000 crore during the global investors meet in 2010 and 2012. Though none of the major investment proposal has materialised in the last four years of BJP rule, it is also true that investors have not shifted out of the state.
That’s because of a relative advantage. As J Crasta, co-chairman, southern council, of industry chamber Assocham, pointed out, “Given developments like the Telangana issue in Andhra Pradesh, power and labour problems in Tamil Nadu and stagnation in Maharashtra, Karnataka is the best destination for industries to establish their base. Irrespective of political uncertainties, the investors have not deserted the state.”
Som Mittal, president, Nasscom, said the IT sector requires special support from the state government in the form of incubation and venture funding. “The infrastructure bottlenecks need to be addressed for the industry to thrive and also the government should extend the exemption on standing order, which expired in March 2012,” he said. The standing order restricts the formation of labour unions in the IT sector.
To be sure, political turmoil is not new to the state. It has been unstable since 1989 as a result of endemic rivalries between the two dominant castes — the Lingayats (now the base of BJP’s support in the state) and the Vokkaligas (who dominate the Janata Dal-Secular, the other major grouping). But the BJP, which won the last Assembly elections with a strong mandate – 110 seats in the 224-member Assembly – has been unable to govern because of rampant corruption and infighting.
First, Yeddyurappa, who represents the Lingayats, had to quit as chief minister 38 months after coming to power on July 31, 2011 on bribery charge in a multi-crore mining scandal (which led to the suspension of mining under a Supreme Court order) and government land de-notification scam. His protege Gowda took over for just 11 months from August 4, 2011 to July 11, 2012 before defections within the party forced him to step down.
For Shettar, who is considered a relative political lightweight, the drought is the immediate problem — and a demand for Rs 11,489 crore of drought relief from the Centre is awaiting approval.
The big current crisis remains iron ore. Karantaka accounts for a quarter of India’s annual production, about 1.1 per cent of jobs in the state and 1.8 per cent of the state’s revenues. The corruption-related ban on exports since July 2010 and a total ban on mining in July and August 2012 have understandably impinged on jobs and revenues. The state’s royalty collections on iron ore declined 43.3 per cent to Rs 671 crore for 2011-12 against Rs 1,184 crore in the previous year.
But there are deeper, future stresses in the economy. Gross state domestic product (GSDP) grew 12.6 per cent in 2007-08, before slipping in the two subsequent years. Last year’s growth of 6.4 per cent was largely due to a 10.6 per cent surge in the services sector. Agriculture contracted 2.9 per cent owing to a decline in crop area following the drought and floods and industry grew by just 3.6 per cent.
The reason this is of concern is that although services, mainly IT, now accounts for more 56.3 per cent of GSDP (the state continues to be India’s largest software exporter, accounting for 33 per cent of national overseas sales), agriculture (17 per cent of GSDP) still accounts for 56 per cent of the employment. So, shrinking agricultural growth is exacerbating unemployment in the state (in 2010, an average 4.2 per cent of the state’s labour force of 26.96 million remained unemployed on a daily basis).
The mismatch between jobs and growth is evident in the widening disparities in patterns of growth in Karnataka. High productivity sectors like IT/IT-enabled services and banking are concentrated in a few urban centres such as Mysore and Mangalore apart from Bangalore. The vast expanse of northern Karnataka, however, remains devoid of such economic activity.
The problem with the emergence of services – of which IT accounts for about 60 per cent – as the strong growth driver is that urban centres are not geared for it. Karnataka accounted for Rs 135,000 crore worth IT exports in 2011-12 and is set to grow by at least 20 per cent in 2012-13. As the rapid growth in the IT/IT-enabled services in Bangalore, the symbol of the state’s global reputation, attracted thousands of youngsters from across the country, the real estate sector boomed, bringing in its wake thousands of more low-skilled workers. As a result, there has been enormous pressure on civic services.
Traffic snarls and heavily polluted air with around 1,000 additional vehicles added on the roads every day have become commonplace. Barring a central programme, the Bangalore Metro rail project, for which work is progressing apace, the accompanying monorail project is still to be cleared, and a high-speed railway project to connect the international airport, several flyovers and underpass projects are gathering dust in the files in government offices.
Much of this can be solved through simple, vigilant governance. But with the ruling party so deeply mired in the iron-ore and government land de-notification related corruption scandals, casteist politics is hardening.
As a result, things are clearly moving in favour of Congress, the main opposition party in the state, which has the advantage of a national presence unlike the JD-S. For the past few months, Congress has been actively engaged in strengthening its roots in the state. The party has held brainstorming sessions and tried to appease minorities. It has made five divisions and asked five top leaders – S M Krishna, Mallikarjun Kharge, K H Muniyappa, Veerappa Moily and Oscar Fernandes – to work on strengthening the party from the grassroots level.
The major positive factor in favour of Congress is that it has convinced the high command in Delhi to get Article 371 amended to give special status to six north Karnataka districts. It is also trying to win over MLAs from the ruling BJP who have greater chances of winning in the next elections. But whether it can address the state’s many problems any more efficiently remains a question only the next elections can answer.