Karnataka's high intra-state disparity shackling broader human development

Karnataka's rapid growth since 1991 hasn't translated into broader human development. It is time for a policy reset

Karnataka’s transformation from being a state with per capita income 19 per cent below the national average in 1990–91 to becoming India’s most vibrant technology and innovation hub, and a centre of the modern services industry, has been dramatic.  From this lowly position, the state galloped to the second-highest rank among the large states, with per capita income higher than the country’s average by 80 per cent in 2022–23.  This phenomenal growth was led predominantly by the services sector, contributing over 68 per cent of the value added — the highest among all the states. The per capita real income grew at an average rate of 6.4 per cent from 2011-12 to 2022-23, which was next only to that of Gujarat (6.8 per cent). 

The liberalising reforms of 1991 unshackled entrepreneurship in the services sector more than in manufacturing, as there were fewer regulations. The capital city, Bengaluru, had the necessary ecosystem to seize this newfound freedom and emerge as a technology and innovation hub. With its concentration of scientific and technical institutions and a large pool of technical and scientific personnel, the transformation was only natural. 

By 2023, Karnataka had 45 of India’s 112 unicorns, accounting for 44.6 per cent of their total value, and hosted over 875 global capability centres (GCCs). In 2025, Bengaluru climbed seven spots to rank 14th in the Global Startup Ecosystem Index. It is the largest foreign investment destination and a leader in services exports. This is due to, inter alia, its impressive knowledge economy, skilled manpower, elite public institutions, salubrious climate, multicultural and cosmopolitan population and responsive bureaucracy. With the large-scale migration of skilled personnel, the city transformed into a dynamic metropolis and a centre for scientific and technological innovation. 

However, the impressive growth performance of the state has not translated into broader human development due to high intra-state disparity.  Almost 50 per cent of the value added generated in the state comes from the capital city and the two districts on the west coast, Dakshin Kannada and Udupi. The state ranks 22nd in underweight children, 21st in stunted children, 20th in secondary-level dropouts, and 17th in higher secondary enrolment and literacy among persons above 15 years. A considerable part of North Karnataka remains backward in both economic and social development.  This has created a sense of deprivation, discrimination and alienation in these regions. Thus, Karnataka is a state of contrasts — with dynamism and spectacular development in some regions co-existing with penury and backwardness in others. 

While the infrastructure deficit can explain part of the backwardness in North Karnataka, the most important reasons must be found in the structure of incentives and accountability shaped by the region’s history and institutions. When the state was reorganised in 1956, Kannada-speaking parts of the Hyderabad Nizam’s territory and areas from the Bombay Presidency were merged with the districts under the Mysore royalty, along with South Kanara district on the west coast from the Madras Presidency. Both Hyderabad Karnataka (renamed Kalyana Karnataka) and Bombay Karnataka (renamed Kittur Karnataka) had long suffered neglect. 

They not only faced social and physical infrastructure deficits but also inherited an exploitative culture shaped by feudal practices such as forced labour, absentee landlordism, child marriage, and discrimination against women. The regions ruled by the Mysore royalty had better coverage of irrigation and electricity and more developed educational and healthcare institutions. Over the years, however, provision of free water and electricity has led to the concentration of water-intensive crops, increasing soil salinity and declining fertility, with the region facing stagnancy. 

The district of South Kanara on the west coast was part of the Madras Presidency before the state’s reorganisation, and it presents a fascinating development story. As part of the Madras Presidency, with the capital city located 700 kilometres away on the east coast, the people of the district barely felt the government’s presence  —  except when paying revenues! After reorganisation, it became part of Mysore State (later renamed Karnataka) and, in 1997, it was divided into two districts: Dakshina Kannada and Udupi. The district’s connectivity to the state capital, Bengaluru, remained limited due to the perennial challenge of crossing the Western Ghats. 

The people of the region were more connected to Mumbai, even before the Konkan Railway became operational in 1998. As early as the late 1960s and early 1970s, at least 200 private luxury buses operated daily between Mangalore and Mumbai. The country’s first private self-financing medical college was established in Manipal, a hilly area near Udupi city. The region’s high population density, vibrant temple culture, and large Brahmin community created an abundance of culinary skilled workers, who migrated to various parts of the country to establish the famous Udupi fast-food restaurants (see Chinmay Tumbe, India Moving: A History of Migration, Viking, 2018). 

The entrepreneurial spirit was seen in the establishment of private banks even in semi-urban areas.  The first two banks, Canara Bank and Corporation Bank were established in 1906, followed by Syndicate bank in 1923 and Vijaya Bank in 1924;  all of them grew big enough to be nationalised.  To keep the transaction cost of banking low and to create a customer-friendly environment, the bankers adopted innovative practices of financial inclusion, and employed young girls from the community after their matriculation (Amol Agarwal, History of Private Banking in South Kanara District, Manipal Press, 2022). This resulted in a quiet social revolution and significant female empowerment.  On his visit to the district to inaugurate the Bank Economists’ conference in 1980, I G Patel, then governor of the Reserve Bank of India, remarked that it was his “pilgrimage to the banking region.” There are several lessons of inclusive development that can be learnt from the experience of the two coastal districts of Karnataka. The human development indicators in the two districts are comparable to the best in the world. 

What has been the role of public policy in the state’s development? In Bengaluru, historically, notable scientific institutions and leading public sector enterprises helped create a strong ecosystem for growth. In recent times, massive migration of high-net-worth individuals to the city has put enormous pressure on infrastructure, and policymakers are largely reacting to the requirements rather than proactively planning for development.  In the case of the two coastal districts, the development drive was entirely by the private sector with hardly any government initiative. Electoral politics has resulted in the state steadily enhancing subsidies and transfers, displacing spending on capital works and human development. Its sustained and balanced growth would require significant policy reorientation. 

The author is chairman, Karnataka Regional Disparities Redressal Committee. The views are personal