New methodology pegs GSDP down

New methodology pegs GSDP down

 A new methodology recommended by the 14th Finance Commission has resulted in “under-estimation” of the Gross State Domestic Product (GSDP) in the State.

The new methodology gives a lower weightage to the Information Technology (IT) sector while calculating GSDP.

According to the State budget documents tabled in the Legislative Assembly, lower weightage of giving 16 per cent to the IT sector (instead of 23-25 per cent taken during the previous year) has resulted in “under-estimation” of the GSDP of Karnataka for the financial year 2015-16.

Finance department officials point out that a direct implication of the lower GSDP is that it will curtail major economic indicators as well as the State’s capacity to borrow.

Advance estimate

Based on the new methodology recommended by the 14th Finance Commission, the Directorate of Economics and Statistics (DES) has arrived at the advance estimate of GSDP of the State. In absolute terms, the GSDP for the financial year 2015-16 has been fixed at Rs 7.36 lakh crore. The GSDP would have worked out to Rs 7.9 lakh crore if the same weightage was given to IT as in the previous year, states the Medium Term Fiscal Plan 2015-19.

Karnataka affected

Officials said while the recommendation of the 14th Finance Commission applies to all states, it had particularly affected Karnataka as IT sector contributes majorily to the economy. 

IT product export revenue of the State stood at Rs 1.8 lakh crore and account for 38 per cent of the country’s IT export. The industry contributes to 25 per cent of the State’s GDP.
As per the  Karnataka Fiscal Responsibility Act (KFRA), 2002, the net debt in the State cannot exceed 25 per cent of the GSDP. In other words, higher the GSDP, more the State government can borrow. The official said following the “under-estimation” of the GSDP, the State borrowing capacity has come down by Rs 13,676 crore.

The decline in borrowing capacity comes at a time when the State is not in a position to meet its revenue targets and is facing cuts in central grants.

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