Karnataka may be facing a governance deficit with its bouquet of scams but counter intuitively, there is no flight of investments from the state just as yet, a cross section of industry leaders said. The state, they noted, has been able to separate politics from industrial development.

Kiran Mazumdar-Shaw, chairman and managing director of Biocon said that the state government has done all the right things to attract the industry. ?The bureaucracy in Karnataka is quite good. They are go-getters. We mainly deal with the bureaucracy. Politics and industrial development have been kept seperate in Karnataka and high-profile sectors such as bio-technology has felt no impact from scams,? she said. While Gujarat has become a model of economic development of late, Karnataka remains more business friendly compared to some of its neighbouring states, she added.

The same view is held by S Vishwanathan, managing director of John Fowler India, a multinational maker of filtration systems. ?I don’t think the investment climate has deteriorated yet. Scams have been in the air since the last two years. That has not put off investors. However, we can’t ignore the issue altogether. The question is more of good governance. If the industry does not get land and are made to wait, for instance, they would go elsewhere,? he said.

A report by Assocham, released on June 16 this year, paints a bright picture of investment flows into the state. In the post recession period between March 2009 and December 2010, Karnataka received R4.7 lakh crore, second only to Gujrat, which received R6 lakh crore of investment. In the 12 months to 2010, investment flows into the state’s manufacturing sector have more than doubled while flows into services registered a growth of 77%.

S Chandrasekhar, chairman, of CII Karnataka State Council noted that two weeks back, the state approved investments worth R8,000 crore. ?However, the challenge is the conversion rate from approvals to reality. Availability of land, its prices and connectivity has become a big issue. Investors are being made to wait. Karnataka needs a proper land acquisition bill passed. The other issue is availability of water and environment clearance,? he said.

In a bid to woo industries, the Karnataka government has identified over 1 lakh acre and has notified nearly half of that for acquisition. But it has not been smooth sailing as in the case of South Korean steel company, Posco, whose proposed R32,000-crore steel plant in Gadag district faces an uncertain future after protests from local people over the land acquisition.

Besides, over the past couple of years, the Yeddyurappa government has come under attack for alleged land scams which have cost two ministers their posts while the opposition parties have accused the chief minister and his family members of benefitting from land transactions and de-notification of land.

While scams are a concern, they have not driven away investments yet, he added. ?In the first quarter, there was nothing depressing. The rains have been good in the south and this will give a boost in the coming months. The perception of the state, however, can impact international investments,? he warned.

An official of a real estate company, who did not want to be identified, said that the real estate sector does not see much impact from the current developments, reasoning that Karnataka has seen a healthy rate of industrial investments over the past year.

Since real estate typically follows industrial development in smaller towns with a lag of a few years, this official said that there would be little impact in these regions as well.

Karnataka has been pushing industrial investments into smaller cities in a bid to de-congest Bangalore.