On March 4, all eyes will be on Chief Minister Basavaraj Bommai as he will present his maiden state budget.
Two years of acute economic distress caused by the Covid-19 pandemic had left little room for fiscal manoeuvring. However, revenue collection has improved since the dreaded Delta wave last year, allowing for some big-ticket announcements in the budget.
There is much speculation about the contours of the Bommai budget as expectations remain high given that Karnataka is inching closer to the 2023 Assembly polls.
Any populist announcement, however, will depend on how Bommai manages to meet committed expenditure, which is growing year by year mainly due to increased borrowings.
Uncertainty on whether the Centre will continue providing GST compensation - it is slated to stop this year - will also be a factor affecting the upcoming budget.
Top government sources note the added challenge of accommodating announcements Bommai has made so far. In the six months that he has been in office, Bommai is said to have announced programmes that may cost in excess of Rs 30,0000 crore - the Raitha Vidyanidhi scholarship for farmers’ children worth Rs 1,000 crore, a special grant for Bengaluru infrastructure aimed at solving the city’s notorious traffic issues by decongesting Hebbal junction at a cost of Rs 6,000 crore, schemes for SC/ST women among others.
Apart from giving these projects a place, Bommai faces the unenviable task of providing funds to major departments that have committed works - irrigation, public works, rural development and so on.
“Bommai could go for an expansionary budget along while keeping a check on fiscal deficit,” Madhusudhan B V Rao, senior research advisor, Centre for Budget and Policy Studies says.
Although the economy is still recovering from the effects of the pandemic, the outlook is pretty optimistic, says Rao. “Revenue collection has seen a marked improvement. The government has reached 80-85% of its revenue collection target in January this year. With improvement in GST collection across the country, Karnataka will also receive its share of funds under GST devolution. Funds such as grant-in-aid will also be released soon,” he says.
Karnataka, at the end of January this year, had only raised 57% of the eligible loans under the Karnataka Fiscal Responsibility Act, according to Rao. These factors have ensured that Karnataka is fairly well-positioned financially.
A populist budget is also likely as funds will be allocated for the Kalyana Karnataka region. This will be of strategic importance ahead of elections, Rao says.
The Federation of Karnataka Chambers of Commerce and Industry has placed two demands with Bommai to accelerate economic recovery. “Revival of Medium, Small and Micro Enterprises (MSMEs) is key to reduce the economic stress,” FKCCI president I S Prasad says.
“The government should provide soft loans and interest subsidy scheme for MSMEs and other affected industries in the budget this year. FKCCI has also sought matching grants from the state to speed up the implementation of PM Gati Shakti scheme, which aims at improving infrastructure and connectivity,” he says, adding that the industry body also urged the government to reduce power tariff as the status of industries “is still not great”.
Sources note that almost a tenth of the budget went to servicing loans raised by the state government. In 2021-22, Karnataka spent Rs 27,160 crore just to pay interest on loans - a 76% increase in three years.
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