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Why Karnataka got record 45% of India’s total FDI in first half of this financial year

Bengaluru: When Karnataka’s minister for large and medium industries Murugesh Nirani became the only BJP-ruled state minister to invite Tesla to set up shop in Bengaluru earlier this month, after Elon Musk spoke of “challenges with the Indian government”, he had a good reason. The tweet came at a time Karnataka is leading the charts of Foreign Direct Investment (FDI) inflow in the country.

For two successive quarters of the fiscal year 2021-2022, Karnataka has attracted the highest FDI in the country.

During the first two quarters of 2021-2022, Karnataka accounted for 48 per cent and 41 per cent of total FDI in India, respectively. By the end of September 2021, Karnataka had received over Rs 1.02 lakh crore in FDI. This is close to 45 per cent of the total FDI inflow to India, Rs 2.29 lakh crore.

If the trend continues, Karnataka could be creating history this fiscal year by trumping Maharashtra, Gujarat and Delhi as the number one investment destination in India — and all this amid a pandemic.

The last time a state accounted for more than 45 per cent of total FDI in India was Maharashtra in 2008-2009. 

Karnataka’s success in attracting investment is being credited by both experts and industry insiders to the government’s foresight and investor-friendly policies, excellence of local firms, as well as a pro-development bureaucracy and polity.

“The largest inflow of FDI to Karnataka has been towards aerospace and defence manufacturing, agrotech, fintech, biotech, nanotechnology, electronics, drone technology, hospitality, food processing, hardware, and electronic system design and manufacturing (ESDM),” said Nirani. 

Confident of remaining India’s top investment destination this fiscal year, Nirani credits the FDI inflow to the state’s industrial policy and clearance committees.

Former Karnataka chief secretary K. Ratna Prabha agreed.

“One of the first big investors for Karnataka were Toyota and Boeing for automobiles and aerospace,” Prabha said. “We moved towards setting up country-specific industrial park like Japan industrial township in Tumakuru, Taiwan industrial park in Devanahalli. We offered more incentives in Tier II cities to take industries out of Bengaluru. Hosting multiple delegations, visiting many countries to invite them to invest is all yielding results.”

In 2020-2021, Gujarat topped the list of states for FDI inflow, accounting for 37 per cent of India’s total FDI, followed by Maharashtra (27 per cent) and Karnataka (13 per cent).

Also read: Karnataka govt aims to develop industrial ecosystem in Belagavi: Minister

‘Local firms showcasing success abroad’

While it is common knowledge that Karnataka is the largest software exporter in India, Nirani believes the largest investment opportunities are in the aerospace, defence manufacturing, electric vehicles, semiconductor manufacturing and the ESDM sector. Currently, Karnataka accounts for an estimated 65 per cent of India’s total aerospace exports.

“We set up the aerospace and defence parks more than a decade ago. Streamlining clearance committees, creating a land bank to avoid delays and engaging our industrialists, like the founders of Infosys and Wipro as brand ambassadors of Karnataka, is helping us reach out to more investors. Our homegrown companies are advertising for Karnataka abroad,” Nirani added.

R.S. Deshpande, former director, Institute for Social and Economic Change (ISEC) and policy consultant with the governments of Karnataka and India, told ThePrint that “we could explain this as link theory in capital investment, borrowing from link migration theory in population studies”.

“Our companies in various sectors here are showcasing their success to investors abroad and attracting more investment,” he said, adding that political stability is a clear determinant of FDI attraction, apart from ease of doing business.

“There is a spread effect in Karnataka, which allows investments not just in Bengaluru but also in tier II and tier III cities. It is true for Maharashtra, too, but no other states. Most importantly, pro-development and people-oriented bureaucracy and polity are Karnataka’s biggest advantages. There is no other state in India where bureaucrats are as unassuming and cooperative,” Deshpande added.

Special incentive packages for sectors

Industry insiders agree. “Land, labour and power are key to any industry. We have plenty of labour, but land is expensive in Karnataka. Recent reforms, like slashing of commercial taxes, electricity subsidies, land sale initiatives have helped bring in more investments. The state’s policy of promoting cluster manufacturing specific to each district is expanding scope of investment,” I.S. Prasad, president, Federation of Karnataka Chambers of Commerce and Industry, told ThePrint. 

Karnataka’s push for alternative energy, Prasad added, has enhanced investment in EV (electric vehicles) and green energy sectors. Karnataka also set up a 2,000 MW solar park at Pavagada, the largest in the country, of which 1,400 MW is operational.

Special incentive packages are also being introduced sector-wise in the state. For example, 100 per cent subsidised land, power subsidy for 10 years and 100 per cent subsidised fresh water for 10 years has been announced for semiconductor manufacturing companies. 

“IT and IT-enabled services are working now on auto-pilot mode and are registering growth with or without additional incentives. Other sectors now need focus,” Prasad added.

At the global investors meeting scheduled for November 2022, Karnataka hopes to create fresh milestones on investments.

A host of policy tweaks over the years has also helped Karnataka achieve milestones in FDI, like the Karnataka Udyog Mitra — the one-stop-shop nodal agency for all investors from proposal to project implementation. 

“Under the new Industries Facilitation Act (passed in June 2020) our State High-Level Clearance Committee (SHLCC) and State-Level Single Window Clearance Committee (SLSWCC) are taking up project proposals on priority,” Nirani told ThePrint.

Between October 2021 and January 2022, the two committees had, between them, cleared 345 projects worth Rs 21,998.43 crore, according to data from the commerce and industries department.

(Edited by Saikat Niyogi) 

Also read: Prosperous Maharashtra, Karnataka hide a disparity within. Development is not for all: Study

Source: The Print

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