Daybreak - Karnataka can’t fix its potholes. So it’s building an AI city

Episode Date: October 12, 2026

Every morning, a senior official in Mysuru’s city corporation swerves past the same potholes on his way to the office responsible for fixing them. Over three years, the money Mysuru gets from the state for everyday civic upkeep has fallen from Rs 25 crore to Rs 3 crore, leaving little for repairs.Just outside Bengaluru, Karnataka is borrowing heavily to build an Rs 18,000-crore AI city in Bidadi, backed by a state guarantee, before a single company has signed up to move in. Telangana and Andhra Pradesh are chasing similar projects as their own local bodies struggle for funds.In this read aloud of Mrunmayee Kulkarni’s newsletter edition by host Snigdha Sharma, we ask why states are betting big on new cities when the ones people already live in are grappling with crumbling infrastructure and lack of funds.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Over the last three years, the money that Mysuru gets from the state for everyday civic upkeep has fallen from 25 crore rupees to just 3 crores. That's not even enough to fix its potholes. Meanwhile, just outside of Bangalore, Karnataka is building what it calls India's first AI city. It is an 18,000-craw-ru-ru-t township in Bidadi, mostly paid for with borrowed money and backed by a state guarantee. and not a single company has signed up to move in yet. And Karnataka is not the only one. Telangana, Andhra Pradesh are chasing their own futuristic cities

while their local bodies struggle for funds. As one official in Bangalore's planning body put it, we are building AI cities while bleeding our existing cities drive. This contradiction is what my colleague at the Ken Brun Michael Karni set out to unpack in her latest newsletter edition. She looked at how Karnataka got here, and who's paying for it. Welcome to Daybreak, a business podcast from the Ken.

I'm your host, Nick Da Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague, Rachel Vargheese and I, will come to you with one business story that's worth understanding and worth your time. Today is Tuesday, the 13th of October. There is an art to drinking, piping hot chai in a moving vehicle without spilling it, even on the smoothest roads. Ram, a senior official in Mysore City Corporation, has it down to a T.

In the backseat of his car, he can grip a paper cup in one hand, flip through a file with his other, and balance a phone on his shoulder. The potholes have been here long enough, he told me. I know when and which way the car will swerve. He was chatting with me on the said phone, on the way to his office incidentally,

the very body responsible for fixing said potholes, while I took notes in awe of this near Sir Dusole feet. Ram, like the ancient man before him, had adapted to his environment to survive it in the best possible way. The Broken Road and Ram's muscle memory are indicative of a larger problem plaguing several city corporations in Karnataka. Their funding under the Fifth State Finance Commission, SFC, untied grants, which is the civic money that cities get to spend at their own discretion without a formal scheme, has been whittled down to almost nothing. The grant to Rams Mysore, for example, went from 25 crores to 3 crore rupees in three years of the current government. Mangalurus dropped from 8 crore rupees to 1 croix. Poor capital devolution in Karnataka overall is 2,244.

For context, Kerala, which is half the state budget of Karnataka, shells out three times as much for its cities at 6,251 per person. There is no money to patch up the daily wear and tear of city life. All of it instead has been allocated to the government's welfare schemes, the free rise and bus rides, the cash handouts, even the discounted electricity. Bankrupting its cities was not the government's original plan. It wanted to fund the schemes by selling parcels of lands to industries. The same land right now is being redeveloped and rezoned to become the state's AI city, funded by the government's money and a huge loan.

It's not just Karnataka. Telangana and Andhra Pradesh have their own variation of this problem with their own megaproject for AI cities and quantum cities. It is not a direct reallocation of funds, of course. But as with life, intent matters in urban governance. A senior official in the Greater Bengal Development Authority or GBDA told me. That is the planning body behind the new smart city being built outside of Bangalore.

The government is effectively saying it does not have about 4,000 crore rupees to make up for its urban fiscal deficit, while promising nearly double that amount to a city that will become functional in the future, he said. We are building AI cities

while bleeding our existing cities dry. The making of an AI city. The rural outskirts of Bangal lore rarely remain rural. They get appropriated in tech box, into battery manufacturing hubs, into real estate, vistas away from the bustle of the city. Bidadi, towards the southwest of Bangal, is being shaped into the state's AI-powered city.

For now, it is a collection of marked-out plots. Cows wander across the newly smoothened streets, perhaps missing their old grazing grounds. Bidari is Karnataka's milk hub. Dairy farmers have been protesting land acquisitions there ever since the idea of the AISC. city was floated in September 2025. This Greater Bangalore Integrated Township, or GBIT, is being sold as India's first AI city. 9,600-odd acres, a more than 18,000 crore-rupy price tag and a work-live play model. There will be residential areas, IT hubs, start-up, schools, hospitals and cultural centres

all built into one zone. Within the 9,600 acres, just 2,000. acres have been yearmarked specifically for AI-based industries. Roughly 70% of the money behind this is borrowed. It is mainly a housing and urban development corporation or Huttco loan alongside funds rooted through the Bangalore Development Authority and money raised by mortgaging civic immunity sites. The latter are small public plots meant for parks, community halls

that the government already owns and is using as a collateral to borrow against. To backstop all of it, the Karnataka government has approved a guarantee of 7,500 crore rupees. Curiously, no company has signed up to stay yet. The township is expected to attract multinational companies, AI startups and IT service providers, all of which seem like aspirational framing from officials, not a list of actual tenants or MOUs. The state has secured lending commitments of more than $12,500,000,000. against borrowing backed by its guarantee before a single company has agreed to lease a plot in its project. The model depends heavily on land monetization, the official at GBDA said.

The government is assuming industrial and commercial land can be sold at roughly 2,200 to 300 per square feet and that a large amount of developed land can be monetized. And what if it cannot be sold at that rate? You slow the next phase of development. You revise the pricing and absorption assumptions or you carry the debt for longer while waiting for the asset to monetize, he said. Risky is an understatement here, considering Karnataka's neighbours are developing similar cities of their own. Telangana is building its own AI-anchored future city outside of Hyderabad on a footprint three times the size of Bidaris, even as the state carries 6.71-lac crores in overall debt.

It has tenants already, a Brookfield Access Ventures Consortium for the project, TCS and Amazon planning their own data centers, to name a few. Anur Pradesh's capital project at Amravati now doubles as Amravati Quantum Valley, a government-anchored quantum computing hub with IBM and TCS as partners. Both states' local bodies are, however, in their own. way just as strapped for cash as Karnataka's. Telling Ghana owes its urban local bodies over €1,200 crore rupees in unpaid dues and separately lost close to €3,000 in union grants after failing to hold local body elections,

the same condition that is currently keeping Bangalore's civic body out of its own share of centre-granted money. The 16th Finance Commission's report names Andhra Pradesh as one of the states lagging on transferring funds to local bodies. The authorities are aware of the contradiction here. You can't sit inside the urban development system and not see that the corporations are struggling with their own finances, the GBDA official said. But internally, these are treated as two different policy problems and cities get deprioritized. City versus public welfare versus new city.

The story really begins back in 2023 around the time AI was gathering pace. but Chad GPT was not quite as colloquial. Karnataka, then governed by the BJP, was going through a state election. The Congress needed a win. It would boost the party morale before the big union election of 2024. It revamped and almost corporatized an old political strategy. Big promises. These were called the Congress guarantees.

Party leaders toward the state promised every female-led household five kgs of rice a month, subsidized residential electricity for everyone, free bus rights for women and what have you. It worked. The party won by your landslide and the strategy's success inspired more such promises in other state elections from both sides of the political spectrum. It also drew a lot of criticism. The schemes would cost the exchequer about 50,000 crore rupees. The money had to be found somewhere. The state could not exactly cut back on the investments for business projects. It had to to stay in competition with Telangana and Tamil Nadu. The guarantees officials had said at the time were to be funded, at least in part, by selling

land. That hasn't quite worked out. The fallout shows up in daily papers almost every day. In Habbali Dharwar, the state's second largest urban corporation, 1,500-odd employees went three months without salaries or pensions, even as the State Finance Commission had to formally instruct corporations to clear the arrears from their own general funds, money that they did not have either. In Mangaluru, sewage ran into open storm water drains for days because the staff who operate the city's wet wells had not been paid in three months and had gone on strike. In Kalaburagi, people are still buying bottle water because 24-7 supply project has blown past its deadline. Denial seems to be a common thread as well, apart from the deficit.

Mysuru's own commissioner, when confronted with figures showing the city carrying a deficit nearly three times its annual revenue, said there was no dearth of funds for development work. No dearth of potholes, either, Rahm said. So, what is the solution here? Not borrowing more, according to Ram. We try to fit civic works into other government schemes. We approach the state for special grants. We use our own revenue where we can. But still, sometimes work simply doesn't happen.

Not spending on AISC projects is not an option either. But there are better ways of raising financing, the GBDA official said. The state could, in theory, have built Bidari the way Telangana built its future city through a public-private partnership with a private consortium absorbing most of the financial risk instead of the state guaranteeing it. There was a trade-off though. A PPP or a public-private partnership means less public-capital access. but also less control over land planning companies involved and whatever value the project

eventually creates. Nobody, notably, is proposing a version of that same trade-off for Mysuru or Mangaluru or Habali Dharvard. Meanwhile, Ram back in his car still negotiates the same stretch of road every morning, one hand on his jai, swerving by muscle memory. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of a subscriber-only offerings and a full subscription unlocks daily long-form feature stories, newsletters and podcasts. Head to the ken.com and click on the red subscribe button on the top of the website.

Today's episode was hosted and produced by Snikda Sharma and edited by Arna Prakash.