Finding stability in growth

A well-balanced approach in the Karnataka budget, prioritising both welfare and capital investments, will ensure that economic progress benefits all regions while maintaining fiscal stability.

Karnataka’s upcoming budget presents an opportunity to drive sustainable economic growth while ensuring fiscal responsibility. With the state’s economy projected to expand, the budget must strategically allocate resources to maximise long-term development. By learning from past challenges – such as revenue deficits and regional disparities – Karnataka can craft a budget that strengthens infrastructure, boosts key sectors like education and agriculture, and promotes inclusive growth. A well-balanced approach, prioritising both welfare and capital investments, will ensure that economic progress benefits all regions while maintaining fiscal stability.

A major challenge for Karnataka is capital expenditure which plays a crucial role in long-term infrastructure development. For 2024-25, the capital outlay is set at Rs 52,903 crore, marking only a 3 per cent increase over the revised estimate for 2023-24. Given Bengaluru’s status as both a global IT hub and a rapidly growing urban centre, this limited rise raises concerns, as substantial investments are necessary to ease congestion, improve public transit, and support emerging business ecosystems. Data suggest that inadequate capital spending can stall critical infrastructure projects, dampen economic activity, and undermine long-term productivity – posing a significant risk to fiscal sustainability which is another pressing concern that the government must confront.

Karnataka’s revenue deficit which had been relatively controlled in earlier years is projected to nearly double in the coming fiscal period when measured as a percentage of the Gross State Domestic Product (GSDP). The revenue deficit for 2024-25 was projected to be 1 per cent of GSDP (Rs 27,354 crore), an increase compared to the revised estimate of 0.5 per cent of GSDP for 2023-24. The rise in expenditure is driven by social welfare commitments and growing non-scheme costs like salaries and pensions. While welfare programmes are vital for equity, balancing them with fiscal prudence is crucial to sustain investments in infrastructure and education without escalating debt.

The education and skill development sector in Karnataka also needs attention. Investing in modern infrastructure and vocational training can significantly boost productivity and innovation, with studies showing that even a 2-3 per cent GDP increase in education yields long-term benefits. By upgrading curricula and expanding digital access, the state can equip its youth for a rapidly evolving global economy, ensuring that Karnataka retains its competitive edge in the knowledge-driven world.

Agriculture, a key pillar of Karnataka’s economy, faces challenges like water scarcity, outdated practices, and inadequate farmer support. Research shows that investment in agricultural R&D delivers high returns, ranging from 20 per cent to 60 per cent annually. However, insufficient funding has left rural incomes stagnant. Increased investment in irrigation, crop diversification, and modern technologies can boost productivity and strengthen food security.

Disparities in development

Issues of regional disparity and social equity in Karnataka require urgent attention, as the state faces significant imbalances in development between urban and rural areas. Urban centres like Bengaluru benefit from substantial economic advantages, while many rural regions continue to lag behind. Data from the Economic Survey of Karnataka reveals that Bengaluru Urban district leads with a per capita Gross District Domestic Product (GDDP) of Rs 6,21,131, surpassing the state average, followed by Dakshina Kannada, Udupi, Chikmagalur, and Bengaluru Rural districts, all of which also exceed the state average. In contrast, the lowest per capita incomes are found in Kalaburagi, Bidar, Belagavi, Koppal, and Yadgir districts – four of which belong to the historically underdeveloped Kalyana-Karnataka region – where incomes are approximately 1.5 times lower than the state average.

This stark disparity underscores the need for targeted fiscal policies that prioritise healthcare, education, and infrastructure in underdeveloped areas to promote balanced growth and reduce socio-
economic inequalities. Additionally, adopting gender-responsive budgeting can further ensure equitable distribution of developmental benefits, empower women, and foster inclusive growth.

Furthermore, Karnataka must adopt data-driven governance, ensuring transparency and efficiency in resource allocation. Learning from past expenditure inefficiencies,
the government should track the impact of social programmes to optimise spending. Encouraging private sector participation through public-private partnerships (PPPs) can also drive infrastructure development without straining public finances.

The upcoming budget must be forward-looking, integrating climate-conscious policies to support the state’s clean energy ambitions. While the previous budget introduced incentives for electric vehicles, more comprehensive environmental policies such as sustainable urban planning and renewable energy investments are necessary to secure long-term economic and ecological benefits. Ultimately, Karnataka’s budget should strike a balance between social equity, economic expansion, and fiscal discipline, ensuring that immediate priorities do not come at the cost of long-term stability.

(The writer is an associate professor at the Department of Economics, Christ University)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.