services. They would also appear to share some political characteristics: governance in
both states was dominated by the Congress Party until the early 1980s, at which time new
parties espousing regional identities were established. Their status as World Bank focus
states under internationally visible chief ministers during the late 1990s and early
2000s—and the electoral rejection of both leaders in May 2004—has only reinforced the
tendency to regard them as siblings.
This paper will argue that beneath AP and Karnataka’s superficial similarities lie
significant differences, which have contributed to contrasting political receptions of
comparable economic reform policies in the two states. Building on recent scholarship
on state-level political development and economic reform in India—in particular work by
Loraine Kennedy, James Manor, and Aseema Sinha
2
—the paper assesses the states’
experiences so far along a particular critical dimension of reform: fiscal adjustment. This
area of policy does not take in the entirety of their Bank-supported programs; other
important components include policies to attract greater private investment, public
enterprise sale and/or restructuring (particularly in the power sector—but this in itself
represents a major aspect of their fiscal adjustment), civil service reforms and “e-
governance” initiatives, and social programs such as self-help credit cooperatives and
employment-promoting activities.
3
The focus here on fiscal reform reflects its centrality to the states’ overall
restructuring agendas. Whereas the emphasis on other aspects of economic adjustment
has varied (for example, self-help programs were stressed somewhat more in AP, civil
service reforms in Karnataka) budgetary matters are a common core issue. The states’
key constitutional responsibilities in education, health, agriculture, and infrastructure give
them significant roles in India’s overall economic development, but the 1980s and 1990s
saw declining real investments in these areas in the face of increasing outlays for
consumption subsidies, salaries, and interest payments.
2
Convention