Regional Policies, Firm Characteristics and Exporting in the Indian State of Karnataka

Date01 February 2013
Published date01 February 2013
Subject MatterArticles
Regional Policies, Firm
Characteristics and
Exporting in the Indian
State of Karnataka
Jaya Prakash Pradhan
Mohammad Zohair
Mallikarjun V. Alagawadi
Karnataka is among pioneering Indian states to frame suitable policies aimed
at encouraging local firms’ export activities. Promotion and facilitation of firms
to look beyond national market was achieved by creating a strong enabling
institutional framework, supporting expansion of productive capacity and
helping exporting firms gain access to required physical infrastructure. As a
result of such policies, exports from the Karnataka have been growing rapidly,
with Karnataka contributing over half a quarter of Indian exports of com-
modities and software. The present study provides an overview of export
trends and patterns of Karnataka in the backdrop of the state policy develop-
ments. It examines the relevance of various factors pertinent to the exports
by Karnataka manufacturing firms and deduces implications for development
policy of the state.
JEL: O24, F10, O53
Export policies, exports, Karnataka, India
Jaya Prakash Pradhan, Associate Professor, Centre for Studies in Economics &
Planning, School of Social Sciences, Central University of Gujarat, Gandhinagar.
Mohammad Zohair, Assistant Professor, Department of Business Studies, School of
Business Studies, Central University of Karnataka, Gulbarga.
Mallikarjun V. Alagawadi, Professor, Department of Business Studies, School of
Business Studies, Central University of Karnataka, Gulbarga.
Foreign Trade Review
48(1) 45–81
©2013 Indian Institute of
Foreign Trade
SAGE Publications
Los Angeles, London,
New Delhi, Singapore,
Washington DC
DOI: 10.1177/001573251204800103
Foreign Trade Review, 48, 1 (2013): 45–81
46 Jaya Prakash Pradhan, Mohammad Zohair and Mallikarjun V. Alagawadi
On 24 January 2003, Karnataka became the first Indian state to formulate a state-
level export promotion policy with the mission to accelerate its export growth and
double its share in national exports from the existing level of 7 per cent to 15 per
cent by 2007 (Hindu Business Line, 2003). This policy, known as the Karnataka
Export Promotion Policy 2002–2007, unveiled a series of measures for enhancing
the competitiveness of the traditional export sectors of the state, like coffee, tex-
tile, silk and handicrafts, and non-traditional sectors like electronics and software
and biotechnology (Government of Karnataka, 2003). The policy documents
identified a number of policy tools to apply for enhancing the state’s exports,
namely, linkage programmes among export-facilitating institutions, framing sec-
tor-specific support measures for exports, extending e-governance support to
exporters and developing accessible database on products for exports and export-
ers in the state.
As per the Karnataka government sources, the state has, in fact, achieved its
target of doubling the state share in national exports with an estimated share of
15.13 per cent in 2006–2007 (Government of Karnataka, 2009). This export share
includes share in exports of commodities and software services. The Economic
Survey of India 2008–2009, however, puts Karnataka’s exports of commodities at
US$ 2.3 billion accounting for 10 per cent of India’s total commodity exports in
2006–2007 (Government of India, 2009). This is lower than the 15 per cent target
set out in the Karnataka Export Promotion Policy 2002–2007.
The case of Karnataka testifies to the new reality that sub-national entities are
increasingly focusing on export promotion like the national government in India.
The Government of Gujarat has been undertaking proactive policies for promot-
ing exports from the state, especially by its small and medium enterprises (SMEs)
sector. The Gujarat Industrial Policy 2009 formulated the vision to see ‘Made in
Gujarat’ a global brand through exports of high-quality products and to promote
global sourcing from the state (Government of Gujarat, 2009). Since 2001, indus-
trial policies of Maharashtra sought to augment exports from the industrial units
in the state by instituting investment-friendly policies, improving infrastructure
and proactively promoting the setting up of Special Economic Zones (SEZs)
(Government of Maharashtra, 2001). Several measures like the setting up of
Apparel Parks, Agri Export Zones and Special Parks and formulation of the SEZ
policy have been emphasized by the Government of Tamil Nadu for promoting
exports from the state (Government of Tamil Nadu, 2003).
Notwithstanding the growing focus of Indian states on promoting exports by
their firms, the extant literature is predominantly focused on national trends of
exports or firm-level export behaviour, with little attention paid to the regional
dimension of such activities. For example, empirical analyses on export perform-
ance of Indian economy and firms have explored changing sectoral and techno-
logical profile of manufactured exports (Lall, 1999); determinants and drivers
(Aggarwal, 2002; Bhavani and Tendulkar, 2001; Kumar and Pradhan, 2007;
Foreign Trade Review, 48, 1 (2013): 45–81
Regional Policies, Firm Characteristics and Exporting in Karnataka 47
Pradhan and Sahu, 2008; Roy, 2007; Siddharthan and Nollen, 2004; Singh, 2001);
and relationship between growth and exports (Chandra, 2003).
The nascent literature that focuses on the state-level export performance in
India is yet to explore the issue in terms of state-level export policies and export
behaviours of firms from the given state. Chaudhuri and Chakraborty (2010)
attempted to find potentially exportable products from Karnataka by matching the
list of products for which Karnataka possesses comparative production advantage
and potential export items from India. Similarly, Marjit and Kar (2008) tried to
construct an openness index for Indian states based on correlation coefficients
between a state’s production shares and export–import profile at the national
As there is little literature about the regional pattern of firm-level export activi-
ties in India, the present study attempts to fill the analytical gap by focusing on the
recent export performance of Karnataka using a unique firm-level dataset for the
period 1991–2008. What are the policies that the state government adopted for
promoting exports by local firms? How did aggregative and sectoral volumes of
exports from Karnataka respond to such policies? What are the factors that moti-
vate Karnataka-based manufacturing firms to exports? These are the questions
that the present study would seek to answer.
The article is organized as follows. The next section briefly reviews the export
promotion policies of Karnataka and evaluates trends in Karnataka’s export share
in national exports of commodities based on industry-level information collected
from government sources. The following section develops the analytical frame-
work for analyzing factors that motivate Karnataka-based firms to undertake
exporting. It also presents the empirical results and provides their interpretation.
The last section summarizes main findings and elaborates on the policy
Government Policy and Export Performance
of Karnataka
Karnataka is one of the pioneering Indian states to embed international trade as an
important objective in the overall development policy of the state. Different agen-
cies and organizations were created and entrusted with the task of export promo-
tion and industrial development in the state. Following agencies in Karnataka are
actively propagating exports as a goal for firms’ growth and competitiveness.
Department of Industries and Commerce, Government of Karnataka
This department is responsible for the overall development of the state’s industrial
sector and is increasingly adding to the state’s supply capacity for exports by

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