State government's spending on infrastructure comes down

The Karnataka government’s spending on infrastructure development, also called capital expenditure, has declined over the years, mainly on account of shrinking revenue surplus position and slackness in tax efforts.

The capital expenditure as a percentage of Gross State Domestic Product (GSDP) has decreased from 4% in 2011-12 to 3% in 2015-16. This has forced the government to heavily depend on borrowings to meet the capital expenditure needs – the total outstanding liabilities of the state, as a result, is set to cross a staggering Rs 2 lakh crore by the end of the current fiscal year.

As per the documents obtained from the Finance department, the revenue surplus position has shrunk since 2013-14 – from Rs 1,595 crore in 2011-12 to Rs 522 crore in 2016-17 fiscal.  The Karnataka Fiscal Responsibility Act mandates the government to cut down wasteful and unwarranted expenditure and invest more on infrastructure development such as power generation and building roads.

The government is supposed to maintain capital expenditure of 5% against the GSDP, as per the recommendation of Expenditure Reforms Commission (ERC) headed by former chief secretary B K Bhattacharya.

“Even during fiscally stressful years, enhanced capital expenditure is required for ensuring growth and resultant buoyancy in future tax receipts; and the expenditure on education, Health, Nutrition, and Rural Water Supply and Sanitation etc, has to be protected on equity considerations,(sic)” the report suggested. The government has implemented most of the ERC’s recommendations.

But the Siddaramaiah government has not been able to save much and increase the surplus position due to splurging on subsidy schemes, mainly Bhagya schemes – expenditure on various subsidies has almost doubled since 2013-14. And, interestingly, the subsidy expenditure is expected to grow further as the chief minister has already announced to increase the quantum of food grains per person per month under Anna Bhagya from April 1 this year. Siddaramaiah also holds the finance portfolio in his government.

Slackness in tax efforts

Besides, documents reveal slackness in tax effort on part of the government since 2013-14. The government has not been able to further widen the tax base and bring in efficiency in tax collection. This is evident with decline in the tax to GSDP ratio – 10.41 % in 2013-14 to 10.27 in 2015-16. “The challenge for the state would be to ensure maintaining a high tax effort to garner adequate resources to meet expenditure requirements of critical sectors,” the Medium Term Fiscal Plan (MTFP) 2016-20, prepared by the Finance department, stated.