Banks, beaches, and rapid growth

The economic and social development of Coastal Karnataka shows what can be achieved when government creates space for private enterprise

Among the large Indian states, Karnataka has experienced the most impressive growth performance. From being a state with below-average per capita net state domestic product (NSDP) in the 1960s, it has risen to have the second-highest per capita NSDP. At ₹3.81 lakh, it was second only to Telangana (₹ 3.87 lakh) in 2024-25. 

The estimate of gross state domestic product (GSDP) for 2025-26 is reported to be ₹32.81 trillion, which, in per capita terms, amounts to ₹4.78 lakh, or $5,030, almost 85 per cent higher than the national average. Over 66 per cent of the income originates in the services sector.  Almost 40 per cent of the income is generated in Bengaluru (urban) district alone, and not surprisingly, there is a talk about creating another Bengaluru to diversify economic activities and keep up the growth momentum. 

The important question is the role of the state in the making of Bengaluru as it is today. Over the years, the city has become an engine of dynamism, with some of the most distinguished industries and institutions, and the largest pool of scientific and technical personnel. Beginning with the tripartite agreement between the Maharaja of Mysore, Jamsetji Tata and the Government of India to establish the Indian Institute of Science in 1909, the city has developed a large pool of scientific, technological, and management institutions, creating an excellent ecosystem for knowledge-based industries. 

There are 150 engineering colleges and more than 25 medical colleges, with students from all over the country. With the ecosystem attracting the brightest technology professionals and new-age professional entrepreneurs, Bengaluru has become a natural choice for leading the boom in information technology (IT) and IT-enabled services. 

There are also other factors — multilingual, cosmopolitan population, salubrious weather, and responsive governance — that have made Bengaluru what it is today. Of course, the Union government located important defence and space institutions and industries, and the state government has helped foster the business climate. However, their role, particularly in recent years, has been more reactive to emerging problems, and much of the credit for the fast growth of modern knowledge-based industry goes to private initiative and enterprise. There are serious questions about the ability to create a parallel growth centre, as the recent resistance to the initiative by the chief minister to convert Bidadi, a place in Ramanagara district just 32 km away from Bengaluru, into an industrial cluster has shown. 

Much of the prosperity in Karnataka owes to Bengaluru and the two coastal districts of Dakshina Kannada and Udupi, while the entire northern Karnataka suffers from serious backwardness. This diversity in development is due only partly to differences in natural resources or infrastructure; it is largely due to the nature and quality of institutions. 

The 1956 reconstitution of the state included the Kannada-speaking areas under the Nizam of Hyderabad, Bombay Presidency, parts of the Madras Presidency, and the independent region of Coorg, with areas covered by Mysore Royalty.  The Hyderabad-Karnataka and the Bombay-Karnataka regions had a predominantly exploitative Jagirdari system and the regions have continued to suffer from backwardness.  In contrast, the district of South Kanara under the Madras Presidency was included in Karnataka and was bifurcated into Dakshina Kannada and Udupi in 1997. 

The average per capita NSDP in the two districts in 2022-23 was close to ₹4.5 lakh, and annual growth was higher than 7 per cent over the period, 2005-2022.  The social indicators in the two districts are as good as those in developed countries. The estimated population in the two districts is more than 3.3 million.  This region has the potential to expand its economic footprint in the state and can effectively become a growth centre.  

The spectacular development experience of the region also shows the importance of institutions. As part of the Madras Presidency, the erstwhile district of South Kanara, which is located on the west coast and was ruled by the colonial masters on the east coast, 700 km away, and is not resource rich, hardly received much attention.  Being on the periphery, the people had to depend upon their own initiative and enterprise.  

According to the 1901 Census, the district had a Brahmin population of 10 per cent.  The pervasiveness of temple culture and training in culinary skill combined with high population density provided an incentive to a large number of the skilled to migrate to different parts of the country to start Udupi restaurants (Tumbe, Chinmay, India Moving: A History of Migration). The focus on education helped to improve the human capital. The first self-financing private medical college in the country came up in Manipal, a small hilly area on the outskirts of Udupi.   

The fascinating journey of the district as a cradle of banking started in 1906, when two prominent banks, Corporation Bank and Canara Bank, followed by Syndicate Bank and Vijaya Bank in 1926, were established — all within a radius of 50 km in and around Mangaluru and Udupi. In his inaugurating address to the Bank Economists’ conference in 1981, I G Patel, who was then the governor of the Reserve Bank of India, stated, “For anyone connected with banking, this one district of South Kanara is like a banking country where one comes on a pilgrimage to see what has been done”.  There were more than 20 banks in the mid-1960s and four of them were big enough to be nationalised.   

These prospered even in a region where there were no big businesses by adopting innovative banking practices, financial inclusion by nudging people, particularly the women to save, and collecting their small savings through door-to-door banking. Initiatives such as the “Pigmy deposit” scheme contributed to financial inclusion. To keep the cost of running the business low, some banks employed young girls after their matriculation and this proved to be a major motivation for girls’ education, an increase in the age of marriage, demographic change, and women’s empowerment. 

A column is not enough to narrate the interesting economic and social development of the region in which women’s empowerment was a key feature. In the period from the 1950s to the 1970s, the thriving beedi industry provided employment to many women, which helped to supplement their incomes from farm labour. In more recent times, many families supplement their incomes from cultivating jasmine flowers in their backyards. Fr Basil Salvadore Peris, a  parish priest, brought the first sapling of the flower in 1934, which has spread to many parts of the two districts.  This Geographical Indication-tagged flower is in high demand and cherished by the local community. It is marketed not only across the region but also to places far away and provides attractive supplementary incomes to many households. 

Thanks to good-quality technical education, the region has attracted investments in IT and services as well. Its pristine beaches have also contributed to the considerable development of beach tourism. Unlike in other cities, people have a high level of awareness and civic sense.  Manipal continues to be a hub of technical and medical education.  As for the role of  the government, the most important thing it has done is not to obstruct progress in the region, which has vast potential waiting to be exploited. 

 

(The writer is former director, NIPFP, and member, Fourteenth Finance Commission. 

The views are personal)