Karnataka epitomises India's post-liberalisation developmental trajectory: high growth rates combining with continuing pockets of poverty and deprivation. These pockets are typically seen in terms of regional disparities, between the state's backward northern districts and the more advanced south, and between the urban and the rural. As discussed in this chapter, the state's glittering image as a leader in IT and ITES is at least partially darkened by slow progress on human development indicators and low levels of social sector expenditure. From the mid-1980s onwards, a growing, upwardly mobile, technical/professional middle class supported, as well as benefited from, the quick expansion of IT in Karnataka; on the other hand, large numbers of unskilled and semi-skilled workers remained outside of the technology-led growth. Even as successive agrarian crises caused dislocations from the farm sector, a declining rate of employment in manufacturing left them with little opportunities of absorption into the urban economy. These features of the state's political economy, presented below, foreground a discussion of the rise of Bangalore as India's Silicon Valley, where similar contradictions have played out.
Karnataka's growth rate (GSDP) increased from 5.3 per cent in 1980 to 7.3 per cent in the 1990s and stood at 8.3 per cent in the second half of the 1990s. During the latter part of the 1990s, Karnataka's agricultural, industrial and service sectors grew at average rates of 4.0 per cent, 9.2 per cent and 10.6 per cent respectively as compared to all-India averages of 3.6 per cent, 5.0 per cent and 8.7 per cent respectively. The growth rate of GSDP in Karnataka was 6.2 per cent in 2012 and 8.5 per cent in 2017–18. The growth rate of GDP for India was 5.5 per cent in 2012 and 6.5 per cent in 2017–18. Thus, the growth record in the state has been consistently higher than the all-India one.
As is well known, Karnataka's economic rise has been largely led by the service sector. The share of services in the state's GSDP was 65.15 per cent in 2018–19. The state has emerged as an IT hub, home to the fourth-largest technology cluster in the world, nineteen IT and ITES special economic zones (SEZs), five software-technology parks and dedicated IT investment regions.