Though Karnataka’s economic growth is steady, stable, and resilient, start-up funding in the State has dropped by about 80% and foreign direct investment (FDI ) has reduced by 46% in the first half of the financial year as a result of the slowdown in advanced global economies, according to Mid-Year Review (MYR) of State Finances 2023-24.
The MYR, which was tabled in the State legislature on Thursday, says that start-up funding has dropped by $2.8 billion from $3.4 billion in the first half of the previous year to $0.6 billion in the first half of the current financial year. It says that FDIs in Karnataka have dropped by $2.5 billion from $5.3 billion in the first half of the previous financial year to $2.8 billion in the first half of the present financial year.
Bengaluru, renowned as India’s start-up capital and home to 40% of India’s unicorns, is facing the impact of global challenges, the review notes. Karnataka being the IT hub of India with a majority of global IT companies headquartered in Bengaluru amplifies the impact of such global factors, it adds.
Impact of conflicts
Putting the decline in FDI and start-up funding in a global perspective, the review notes that the IMF has projected the global growth to decrease from 3.5% in 2022 to 3% in 2023 and to slow down further to 2.9% in 2024. While the outlook for global trade is downcast due to dismal global demand, the global supply chain and trade outlook are adversely impacted due to the ongoing Russia-Ukraine conflict and the conflict between Israel and Palestine.
At the same time, the State Own Tax Revenue increased by 15% in the first half of 2023-24 compared with the corresponding period in the previous year. State non-tax revenue for the same period showed a growth of 14%. Overall, the revenue receipts have increased by 5% compared with the corresponding period in the previous year, the MYR states.
Karnataka, which has budgeted gross borrowing of ₹78,363 crore from the Open Market in the current fiscal, has not borrowed from the market in the first half of the year. Considering the cash position, borrowings will be undertaken in the last two quarters only on necessity basis and within the permissible limit, the MYR notes.
State’s revenue expenditure for the first six months of 2023-24 stands at ₹98,070 crore which is 39% of the total Budget estimates. Growth of 13% has been seen in the revenue expenditure as compared with the first half of 2022-23, the review report points out.
Monsoon impact
The review has observed that the failure of the southwest monsoon has adversely impacted agricultural production and hydroelectricity generation which in turn poses an adverse risk to the State’s economic growth. The initial estimates have put the crop losses for the kharif season at ₹33,770.10 crore, the review points out.
