GST devolution: Double whammy for Karnataka

For the second consecutive year, Karnataka has suffered a setback on the GST devolution front.

Apart from receiving less than the amount budgeted for devolution for 2020-21 fiscal, budget estimates of devolution for the 2021-22 fiscal for Karnataka is also reduced by around 14% than the amount budgeted for the previous fiscal.

In total, the differences in the Budget estimate and revised estimates in the last two years resulted in losses to the tune of Rs 16,814 crore.

According to sources in the Finance Department, revised estimates for 2020-21 fiscal according to budget documents will result in Karnataka receiving around Rs 7,900 crore less than the Rs 28,000 crore budgeted as GST devolution. The revised estimates project GST devolution for Karnataka at Rs 20,073 crore, resulting in a major blow to the cash-strapped B S Yediyurappa administration.

Financial challenges of the government are expected to pile up in the coming days, as GST devolution for the next year is Rs 24,573 crore, which is lesser. This might come in the way of populist schemes in the next state budget.

Karnataka, it can be recalled, was among the biggest losers in percentage terms considering the decline in the share of devolved taxes. As a result, Karnataka’s share dipped from around Rs 38,000 crore in 2019-20 fiscal to Rs 28,000 crore in 2020-21 fiscal. The Centre had come under attack for failing to release the budgeted amount in 2019-20 fiscal, a situation Karnataka has found itself in again.

Sources noted that apart from the reduction in GST devolution, special grant announced to Karnataka worth Rs 5,495 crore to compensate for the reduction in devolved funds, funds budgeted for Centrally-sponsored schemes among others are yet to be released by the Centre.

“The delay has already stretched the state’s finances. Reduction in GST devolution, which is one of the key resources for the state government, will have a clear bearing in the upcoming state budget,” a source said.