Why forming govt in revenue-rich Karnataka is crucial for BJP and Congress?

For the Congress, a failure to form the government could be debilitating to its functioning. For the BJP, it opens the gates to south India

The Congress and Janata Dal (Secular) lost little time on Tuesday afternoon to come to terms with the Karnataka Assembly verdict, overcame the bitterness of the election campaign and staked claim to form a coalition government.

Forming the government in an industrially developed and relatively prosperous Karnataka is crucial for both the parties. Punjab is the only other revenue rich state, apart from Karnataka, where the Congress currently runs a government.

The JD(S), a regional party with its base restricted to Karnataka, has been out of power for over a decade. In a recent interview, JD(S) president H D Deve Gowda told Business Standard that his party was “starved of funds”.

* For 2017-18 | Source: Reserve Bank of India

It is in the mutual interest of the Congress and JD (S) to form a coalition government if they have to give the efficient election machine a respectable fight in the 2019 Lok Sabha elections.

Karnataka is the second-largest economy in Southern India after Tamil Nadu and the fourth biggest in the country after Maharashtra, Uttar Pradesh and Tamil Nadu in terms of gross state domestic product (GSDP). The state reported gross domestic product (GDP) of Rs 12.7 trillion in 2017-18 (around $189 billion). It accounted for 7.6 per cent of India’s GDP at current prices last year, ahead of its 4.5 per cent share in India's total population. 

State capital Bengaluru is home to India’s technology industry and is a hub of start-ups and entrepreneurship.

Thanks to its rapid growth in the last three-decades, the greater Bengaluru region is now India’s third-largest urban centre with total population of nearly 12 million ahead of Chennai and Kolkata and only behind Delhi and Mumbai urban regions. A large population and the presence of world's major tech companies and starts-ups makes Bengaluru a megacity with a global profile.

This makes Karnataka one of the most influential state in the country both economically and political. For the Congress, a failure to form the government in the state could be debilitating to both its morale and functioning as a political party. For the BJP, Karnataka opens the gates to its spread in South India. 

The state also has one of the better public finances among major states. It reported a gross fiscal deficit of Rs 256.6 billion in 2016-17, equivalent to just 2.3 per cent of the state GDP. The interest and pension burden are minimal, and were equivalent to just 1.1 per cent of state GDP in 2016-17. This provides the state goverment with the headroom to make public investment in physical and social infrastructure and other long-term assets. Budget-funded capital expenditure accounted were equivalent to 2.9 per cent of state GDP and 37 per cent of the state own tax and non-tax revenue in 2016-17.

Karnataka is also the leader in the services sector in the country. The sector is the biggest contributor to the state’s revenue. 

In the last three years, Karnataka has seen the highest intent for industrial investment among all states. Large corporations intended to invest Rs 1,500 billion each in 2016 and 2017 and Rs 750 billion in three months of 2018, but could implement investment proposals worth Rs 90 billion in 2016, while Rs 25 billion worth each in 2017 and 2018 till date. 

Almost a tenth of foreign direct investment that comes to India gets realised in Karnataka, third in the country after Maharashtra and extended region covering Delhi, Uttar Pradesh and Haryana. 
 

Overall GST collected in Karnataka was Rs 240 billion, 9% of the national figure in its first six months of the indirect tax’s implementation, according to official data.

(with inputs from Archis Mohan in New Delhi)