Chapter:1 Characteristics of Karnataka Economy

● Features of Karnataka Economy

● Trends and sectoral distribution of State Domestic Product and Per Capita Income
● Measures to redress regional imbalances – Dr. Nanjundappa Committee Report,
Article 371J

Economy or Economics:
An economy is a system of inter-related production and consumption activities that
ultimately determine the allocation of resources within a group.
or
Economics is the study of scarcity and its implications for the use of resources,
production of goods and services, growth of production and welfare over time, and a
great variety of other complex issues of vital concern to society.

‘Economics’ is defined as the study of how humans collaborate to convert finite

resources into commodities and services to meet their (infinite) wants and how they
share the same among themselves.

Microeconomics and macroeconomics are the two primary disciplines of economics.

Micro Economics is the study of the behavior and performance of individual economic
players within the economy, such as consumers, families, industries, and businesses. It
determines how limited resources are allocated among individuals to satisfy their
demands.

Macroeconomics is the study of the overall economic phenomena or the total economy.
It is mainly concerned with the behavior and performance of aggregate variables and
issues that affect the economy.

It addresses significant economic concerns such as unemployment, poverty, the general

price level, total consumption, total savings, GDP (Gross Domestic Product), imports
and exports, economic growth, globalization, monetary/ fiscal policy, and so on.

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
Differences between Micro and Macro Economics:

Microeconomics Macroeconomics

Microeconomics studies the particular Macroeconomics studies the economy as

segment of the economy, i.e. an a whole, that does not talk about a single
individual, household, firm, or industry. unit rather it studies aggregate units,
It studies the issues of the economy at an such as national income, general price
individual level. level, total consumption, etc. It deals with
broad economic issues.

Microeconomics focuses on individual The focus of macroeconomics is on

economic units. aggregate economic factors.

Microeconomics is used to solve Macroeconomics, on the other hand, is

operational or internal problems. concerned with environmental and
external issues.

Demand and supply are the fundamental The primary tools of macroeconomics are
tools of microeconomics. aggregate demand and aggregate supply.

Microeconomics examines any economy In contrast, macroeconomics has a

from the ground up. top-down approach.

Economics Reforms 1991

India’s reform strategy launched in July 1991 provided a combination of

macroeconomic stability and structural adjustment. It is guided by short-term and
long-term goals. In order to restore the balance of payments and curb inflation, stability
is needed in the short term. At the same time, changing the structure of the institution
itself through reform is equally important in the long run.

The Indian government implemented economic reforms in 1991: structural reforms can
be treated with respect.

1. Liberalization: Liberalization means removing all unnecessary controls and

restrictions such as permits, licences, protectionist rights quotas, etc. In other

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
 words, it can be defined as relaxation of governmental rules. A country’s
regulations allow private sector companies to conduct business transactions with
fewer restrictions
2. Privatization and Contraction of Public Sector: In the new economic policy
privatization of the economy was given more emphasis. Privatization is a
process by which the public sector undertakings are increasingly brought under
private ownership. It promotes consumer sovereignty. A high degree of
consumer sovereignty means wider choice and better quality of goods and
services. Increasing privatization reduces the role of the public sector in the
economy.
3. Globalization: Globalization can be defined as a process that involves increasing
openness, increasing economic interdependence and deepening economic
integration into the global economy.

Policies which promoted globalization:

1. Raising the foreign investment limit

2. Partial convertibility
3. Long-term trade policy
4. Tariff reduction

The economic reforms of 1991 focused on the formal sector, so we saw a strong boom in
liberalization. Sectors such as telecommunications and civil aviation have benefited
greatly from deregulation and subsequent reforms. However, economic liberalization
and reform still have a long way to go, especially for the informal sector, including the
urban poor who work as street vendors or rickshaw drivers, the agricultural sector,
micro, small and medium enterprises (MSMEs) and indigenous peoples.

Karnataka Economy:

Karnataka is one of the most progressive and industrialized states in the country and is
leading States in driving India's economic growth. Economic growth and fast
development of any state depends on Industrial relations.

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
The state has an illustrious history of successfully introducing several industrial and
technological initiatives. State's pre-eminent position on the industrial and business
map of India is based on several factors

Karnataka is rich in natural resources and known for its salubrious climate. It has a
strong resource base of highly educated people, backed by an extensive educational
infrastructure comprising world-renowned schools, colleges, institutes of higher
learning, research and development centres, and highly skilled labour force, disciplined
and hardworking. And, above all, it has a far-sighted, development-oriented,
investor-friendly government that firmly believes in, and actively encourages,
public-private partnerships. Today, Karnataka is driving domestic growth and creating
wealth through a potent mix of resource-based, skill-based, technology-based and
knowledge-based products and services.

Karnataka Economy in Various Sectors :

Information Technology.
Karnataka is the leading IT hub of the country. Bengaluru as the 2nd largest technology
cluster in the world after Silicon Valley.

1. 3500 IT companies contribute over 38% of the IT exports in the country with
Karnataka being the largest software exporter.

2. 33 Billion USD IT exports in the year 2014-15.

3. More than 400 out of Global Fortune 500 companies outsource their IT services from
Bengaluru. 4. More than 85 Chip Design houses and 370+ R & D houses provides direct
employment to over 10 lakhs and indirect employment over to 25 lakhs as on 2014-15.

5. 50% of the world's SEI CMM Level 5 certified companies located in Bengaluru. 6.
Presence of almost all leading IT companies of the world, including Infosys, Wipro, Tata
Consultancy Services, Oracle, Dell, IBM, Microsoft, Accenture, Cognizant, etc.

Bengaluru - Start-up Capital of India:

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
Bengaluru has emerged as IT Start-up Capital of India with more than 30% of national
share. Start-ups are being supported with integrated package of subsidised incubation
space, fully equipped laboratories, early stage funding and capacity building,
partnerships with NASSCOM 10 K program, IAMAI's 10X initiative and DietY, GOI's
IOT initiative. Incubation Centres established and start-ups being supported in Tier-2
cities to develop them as upcoming ICT destinations over 70 Venture Capital Firms.

Biotechnology:
Karnataka placed at the forefront of Biotechnology in the country, is rightly
known as the Biotech Capital of India. Karnataka is home to large array of
biotechnology educational, R&D institutions and enterprises: large companies,
medium-sized ones, and many promising biotech start-ups.

All of these are integral parts of the ecosystem required to find innovative solutions and
to convert them into products and processes to mitigate challenges such as hunger,
malnutrition, health and wellness, energy deficiency and deterioration of the
environment.

Biotech Sector in Karnataka reflects:

1. 200 plus biotech companies including BIOCON, the first one to go public.

2. Rapidly growing number of biotech start-ups

3. Contribution of 26% of India's biotech revenues including high export revenues and
domestic sales. 4. Highest expenditure for R&D

5. A diverse range of specialized domain training from agriculture to energy to

bio-engineering.

Drugs & Pharmaceuticals Manufacturing:

Karnataka is home to 221 formulation units and 74 bulk drug units. State's
Pharmaceutical industry generated Rs 8k crore in revenue contributing 8% of the
country's total revenues, ranking 10th in the number of Pharmaceutical manufacturing.
Karnataka exports 40% of its pharma produce. GSK Pharmaceuticals is establishing one
ARUNDATHI KOWSHIK,
Guest Faculty,SABS
of the world's largest drug formulation units in Vemgal, Kolar. Besides there is a huge
presence of exclusive Pharma SEZ, Pharma industrial areas and R&D Centres in
Karnataka.

Agro & Food Processing:

Karnataka leads in the exports of silk in India accounting for approximately 25% of the
total Indian export market.

Karnataka is the leader in horticultural products and spices, aromatic and medicinal
crops, and tropical fruits. Only Indian State to have all varieties of fruit. It is the largest
producer of coffee and cocoa in the country. It is also the second-largest milk producing
state, and third and fourth largest producer of sugar and sugarcane respectively.
Karnataka has 5 dedicated Food Parks and one Food Processing SEZ.

Trends and sectoral distribution of State Domestic Product and Per

Capita Income :

Gross State Domestic Product

The State Domestic Product is defined as the “aggregate of the economic value of
all goods and services produced within the geographical boundaries of the
State,counted without duplication, for a specified period of time” by convention: a
financial year.

Net State Domestic Product

The estimates of Net State Domestic Product (NSDP) are derived from the Gross State
Domestic Product (GSDP) by deducting Consumption of Fixed Capital (CFC)
Depreciation.

Major aspects of State Domestic Products are :

● Agriculture & allied activities,

● Industry and

● Service sectors

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
ARUNDATHI KOWSHIK,
Guest Faculty,SABS
Per Capita Income:
Per capita income is a measure of the amount of money earned per person in a
nation or geographic region. It is calculated by dividing the area's total income by its
total population. Per capita income is national income divided by population size.

On the basis of the Per capita income and growth rates, the districts are categorized into
four groups:

Group I – Advanced

Group II – Semi-Advanced

Group III – Partially Advanced and

Group IV – Under developed.

What is the per capita income of Karnataka districts?

Kalaburagi has the least per capita income in the state at Rs 1.24 lakh. This is
compared to Rs 6.2 lakh in Bengaluru Urban, which is the highest in the state. Other
districts of the region also fare poorly: Bidar (Rs 1.33 lakh), Koppal (1.39 lakh), Yadgir
(Rs 1.39 lakh) and Raichur (Rs 1.44 lakh).

Per Capita Income of Karnataka was reported at 301,673.359 INR in 2023. This records
an increase from the previous number of 265,623.399 INR for 2022.

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
ARUNDATHI KOWSHIK,
Guest Faculty,SABS
Measures to redress regional imbalances – Dr. Nanjundappa Committee Report,

Article 371J

Regional imbalances or disparities

Regional imbalances or disparities means wide differences in per capita

income, literacy rates, health and education services, levels of industrialization, etc.
between different regions. Regions may be either States or regions within a State.

Dr. Nanjundappa Committee Report:

Dr. Nanjundappa Committee was formed to remove regional imbalance.The High

Power Committee on Redressal of Regional Imbalances, popularly known as
Nanjundappa Committee, submitted its report in June 2002.

Findings of the Report:

❖ Nanjundappa committee (2002) report 114 out of 175 taluks in Karnataka were
declared backward, of which 59 were from North Karnataka.
❖ The Nanjundappa Committee used 35 indicators under Agriculture & Allied
Sectors, Trade Business & Finance, Economic Infrastructure, Social Infrastructure
and Demographic Characteristics. It was based on this that the 114 backward
taluks were classified as most backward (39), more backward (40) and backward
taluks (35).

Reasons For Regional Imbalances or Disparities:

1.Historical Factor:
Historically, regional imbalances in India started from its British regime. The
British rulers as well as industrialists started to develop only those earmarked regions
of the country which as per their own interest were possessing rich potential for
prosperous manufacturing and trading activities.

2. Geographical Factors:
Geographical factors play an important role in the developmental activities of a
developing economy. The difficult terrain surrounded by hills, rivers and dense forests
leads to increase in the cost of administration, cost of developmental projects, besides
making mobilisation of resources particularly difficult.

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
3. Locational Advantages:
Locational advantages are playing an important role in determining the
development strategy of a region. Due to some locational advantages, some regions are
getting special favour in respect of site selections of various developmental projects.

While determining the location of iron and steel projects or refineries or any
heavy industrial project, some technical factors included in the locational advantage are
getting special considerations. Thus regional imbalances arise due to such locational
advantages attached to some regions and the locational disadvantages attached to some
other backward regions.

4.Inadequacy of Economic Overheads:

Economic overheads like transport and communication facilities, power,

technology, banking and insurance etc. are considered very important for the
development of a particular region.

Due to adequacy of such economic overheads, some regions are getting a special favour
in respect of settlement of some developmental projects whereas due to inadequacy of
such economic overheads, some regions of the country, viz., North-Eastern Region,
Himachal Pradesh, Bihar etc. remained much backward as compared to other
developed regions of the country.

Moreover, new investment in the private sector has a general tendency to concentrate
much on those regions having basic infrastructural facilities.

5.Failure of Planning Mechanism:

Although balanced growth has been accepted as one of the major objectives of
economic planning in India, since the Second Plan onwards but it did not make much
headway in achieving this object. Rather, in real sense, planning mechanisms has
enlarged the disparity between the developed states and less developed states of the
country.

In respect of allocating plan outlay relatively developed states get much favour than
less developed states.

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
6.Lack of Growth of Ancillary Industries in Backward States:

The Government of India has been following a decentralised approach for the
development of backward regions through its investment programmes on public sector
industrial enterprises located in backward areas like Rourkela, Barauni, Bhilai,
Bongaigaon etc. But due to lack of growth of ancillary industries in these areas, all these

7.Lack of Motivation on the part of Backward States:

Growing regional imbalance in India has also been resulted from lack of
motivation on the part of the backward states for industrial development. While the
developed states like Maharashtra, Punjab, Haryana, Gujarat, Tamil Nadu etc. are trying
to attain further industrial development, but the backward states have been showing
their interest on political intrigues and manipulations instead of industrial
development.

8.Political Instability:

Another important factor responsible for regional imbalance is the political

instability prevailing in the backward regions of the country. Political instability in the
form of unstable government, extremist violence, law and order problem etc. have been
obstructing the flow of investments into these backward regions besides making flight
of capital from these backward states.

Recommendations of Nanjundappa Committee

To reduce the regional imbalances Karnataka ,Nanjudappa Committe said that

area/Taluk/Distict wise development should be made for the overall Economic
development of the state. On that basis Government Of Karnataka has taken various
steps like setting up Hyderabad Karnataka Area Development Board, Bayaluseeme
Development Board, Border Area Development Progamme, Malanad Area
Development Board.

Article 371 J
This article was inserted in the Constitution by the 98th Constitutional
Amendment Act of 2012. Under Article 371-J, the President is empowered to provide

ARUNDATHI KOWSHIK,
Guest Faculty,SABS
that the Governor of Karnataka would have special responsibility for: The
establishment of a separate development board for the Hyderabad-Karnataka region.

Article 371J grants special status to six backward districts of

Hyderabad-Karnataka region. This includes the six backward districts of Northern
Karnataka, viz., Gulbarga, Bidar, Raichur, Koppal, Yadgir and Bellary.

Objectives of Article 371J:

● The establishment of a separate development board for the
Hyderabad-Karnataka region.
● Making a provision that a report on the working of the board would be placed
every year before the State Legislative Assembly.
● The equitable allocation of funds for developmental expenditure over the region.
● The reservation of seats in educational and vocational training institutions in the
region for students who belong to the region.
● The reservation in state government posts in the region for persons who belong
to the region.

Conclusions:

Report of Prof. D.M. Nanjundappa, which examined the regional imbalances in the state
of Karnataka, had categorized the taluks based on cumulative development index. After
so doing it also indicated the quantum of resources that are required to bring the
trailing taluks on par with developed ones.

ARUNDATHI KOWSHIK,
Guest Faculty,SABS