We explain why Karnataka is an instructive case study, containing both positive and negative lessons. In the last decade income growth has been spectacular; self-interested policy making have led it to be branded India’s most corrupt state. We look at how the state’s role has altered rather than diminished, so that it has become a regulator of, and partner for, private sector growth. How did it change financial and policy incentives to attract investment? How did it identify and target critical sectors such as biotechnology, IT and business outsourcing? How did it leverage key educational institutions to advance its human capital? In answering these questions we draw a set of key principles of wider interest and general application.