Karnataka Bangalored

One reason for the remaining high poverty is an inter-sectoral cum inter-regional problem. For instance, despite commercialisation and the spread of irrigation, how does one solve the agriculture problem in dry and unirrigated areas of northern Karnataka? How do we ensure that industry and service sector growth (particularly in the extremely visible IT and BT) spread beyond Bengaluru, Mangalore, Mysore and Hubli-Dharwad? Karnataka’s growth cannot leave northern Karnataka behind, especially areas like Bidar, Bijapur and Gulbarga. (There has been a sharp increase in urban inequality in Karnataka.)

Notwithstanding these trends, Karnataka has shown improvements in agriculture, primary health, primary education, higher education, infrastructure, investment climate, revamping government (and municipal) finances, decentralisation and administrative reform. In post-reform India, the southern growth story has been driven by Tamil Nadu and Karnataka, less so by Andhra. Is there any overseas visitor who doesn’t make a trip to Bangalore? Is Indian IT or BT ever mentioned without bringing in Bangalore? B2B (back to Bangalore) became an expression for the return of software professionals from the US. However, the IT success also contributed to a neologism. Bangalored meant layoff or benching. Perversely, will ‘Bangalored’ now mean derailing of the Karnataka growth engine?

During the S.M. Krishna regime, flyovers were built everywhere, including one in Richmond Circle, although the foundation stone goes back to 1998. These flyovers are a powerful symbol for Bangalore’s (if not Karnataka’s) growth. But this Richmond Circle flyover is unique. It is the only flyover in the world that has a traffic light on top, with a traffic policeman directing traffic. Growth shifts down a gear or two. What does growth depend on? Economists will give diverse answers. The World Economic Forum’s Global Competitiveness Index (GCI) has a concept of pillars. At lower stages of development, emphasis is on factor-driven growth, that is, pillars of institutions, infrastructure, health, education and a stable macroeconomy. At higher levels of development, the emphasis shifts to efficiency and, later, to innovation. However, every economist will stress investment as opposed to consumption; and factor-driven growth also requires this. The arguments used to be advanced that, in contrast to East Asia and China, India’s 9 per cent-plus growth is unsustainable because investment rates are too low. India’s consumption-led growth used to be contrasted with China’s investment-led growth. Today, people argue that convergence is occurring because India’s investment rates have increased. Hence, there is more confidence in 9 per cent-plus growth. What does an economist mean by investment? It is defined as any use of resources that increases the future productive potential of the economy.

Those resources come from savings. Thus, there is a trade-off between present consumption and future consumption. One gives up consumption today because one wishes to increase consumption possibilities in future. De-linked from economics, in plain language, this means taking a longer-term view of gains, contrasted with present-day myopia. A distinction is sometimes drawn between a statesman and a politician, though every politician who has been dead for several years is often undeservedly referred to as a statesman. James Freeman Clarke’s (1810-88) quote is better, “A politician thinks of the next election. A statesman, of the next generation.” Even better is the anonymous one, “The difference is that a statesman thinks he belongs to the state, and a politician thinks the state belongs to him.”

We don’t, typically, have statesmen in India. We only have politicians. And one will probably pick the image of the bad politician from Bihar or UP, not Karnataka, with a glimmering of hope that Karnataka will some day produce a statesman, since Karnataka’s citizens and the growth story deserve better. All three parties involved in the Karnataka crisis (Congress, BJP, JD-S) have demonstrated these represent irrational expectations. Consumption is what these politicians are after.

In listing determinants of growth, economists, recognising the role of institutions, now increasingly flag rule of law. Rule of law means several things, but one strand it does include is adherence to contracts, agreements that set out legally binding exchanges of promises. Karnataka again demonstrates the fact that Indian contracts are not meant to be honoured. With so many lawyers among politicians, one should revisit case law on contracts, particularly two cases, Balfour versus Balfour (1919) and Merritt versus Merritt (1970). In the former, Mr Balfour went off to Ceylon and promised to pay his wife 30 pounds a month as maintenance. But they separated later and Mr Balfour stopped payments, whereupon Mrs Balfour brought an action to enforce payment. The court ruled that since the couple was married at the time of the contract, there was no evidence that this contract was ever meant to be legally enforced. Merritt versus Merritt was similar, except at the time of the contract, the couple was estranged, though still married. The court ruled that, because of this difference, the agreement was meant to create a legal relationship that was enforceable. The BJP thought conditions of Balfour versus Balfour were sufficient, but prerequisites required were those of Merritt versus Merritt. Without estrangement, the contract isn’t binding.

A broader issue, one transcending Karnataka politics, is the role of smaller and minor parties and the incremental damage they can bring, where, in the absence of electoral reforms, two seats can make someone PM. This too, must be a global record. As for Karnataka, would the state have been better off with a government subject to perpetual blackmail, like the UPA in Delhi, or is it better off with a fresh round of elections? The answer is the latter.

The writer is a noted economist