Guarantee schemes 'forced' Karnataka govt to cut funds for nutrition & rural development: CAG

Bengaluru: The flagship ‘guarantee’ schemes have forced the Karnataka government to reduce funding for programmes such as nutrition, rural development and slum improvement, the Comptroller & Auditor General (CAG) said Thursday.

The CAG’s report on state finances for the 2024-25 fiscal, tabled in the Assembly on Thursday, warned of a “loop of indebtedness” due to the ‘guarantee’ schemes.

The Congress government spent Rs 52,525 crore on the ‘guarantee’ schemes in 2024-25.

“The introduction of five guarantee schemes shifted the state from a revenue surplus to revenue deficit in 2023-24 and 2024-25; the deficit is then financed by debt which pushes up the future debt and interest burden, thus creating a loop of indebtedness,” the CAG said.

Typically, the CAG said, borrowings should be used to fund developmental expenditure. “In 2024-25, only 62.12% of the state’s borrowings were used for this purpose and a significant portion was utilised to cover the revenue deficit and repayment of earlier debts,” it said.

The state’s revenue growth, while stable, is “insufficient to absorb the recurring costs of the guarantee schemes”, the report stated. “...and hence the state needs to rely on borrowings to fund the guarantee schemes.”

According to CAG, in 2024-25, the government availed net market borrowings of Rs 71,525.15 crore “to finance the guarantee schemes and the deficits arising thereof”.

This is the second time the CAG has flagged the adverse impact of the ‘guarantee’ schemes. In August last year, the CAG said the schemes could become “detrimental” to growth.

On Thursday, too, the CAG called for a review of subsidies. “Implementation of the five guarantee schemes in the current form without rationalisation of the existing subsidies/financial assistance or better targeting would place a strain on the state’s finances,” it said.

‘Struggling’

Karnataka is “struggling” to maintain debt levels within the sustainability parametres and fiscal deficit within the statutory limits, the CAG said.

“...mobilisation of resources through increased tax compliance (e-Khata) and tax rate enhancements is not matching with the growing expenditure on subsidies and other committed expenditure,” the CAG said.