The Tuesday Interview | Guarantees: ‘No severe shortage of funds, only tightening of belt’
Karnataka’s five guarantee schemes have received bouquets and brickbats. While the schemes are a pioneering effort towards universal basic income, there are concerns over fiscal prudence. Senior IAS officer LK Atheeq, the additional chief secretary to the finance department and Chief Minister Siddaramaiah, tells DH’s Bharath Joshi what he thinks is the way forward. Excerpts:
The government is studying the impact of the guarantees schemes. What have the studies shown so far?
From preliminary results, we’ve learnt that the schemes have 98 per cent coverage. Some people have complained that Gruha Lakshmi (Rs 2,000 monthly for women head of households) hasn't reached. But in this, out of 1.21 crore applications, we’ve approved 1.16 crore. For those who were left out, we’ve conducted panchayat-level outreach to resolve issues such as bank accounts not being linked and ineligibility due to men having applied. We're also learning that people are happy. One interesting observation from Prof Prabha Kotiswaran, especially on Gruha Lakshmi, is that people don’t understand why they’re being given the benefit. In Shakti (free bus travel for women), the feedback is that it's nice while there are complaints of buses being overcrowded and parents saying kids can't find space. We're responding by increasing the fleet. Under Anna Bhagya, people want other groceries such as cooking oil instead of cash.
On what basis is the government saying that five crore citizens are being lifted out of poverty and promoted to middle class?
There are 1.20 crore households or nearly five crore citizens receiving these guarantees. With a certainty of additional income of Rs 4,000-5,000 per month, it has taken the form of universal basic income. There's the potential of lifting them out of poverty. The poverty rate in Karnataka is 13-20%. The National Food Security Act (NFSA) envisages covering a wide range of citizens who are low-income groups. They may not be absolutely poor - they could be transient poor or lower middle-class. The Gruha Jyoti (free power up to 200 units) covers 90% of domestic consumers. It's additional income support for all categories. The median income of citizens is pretty low despite per-capita income being high. The additional income support is to shield citizens from the effects of inflation and unemployment.
The five guarantee schemes are predominantly welfare-based. Is there enough fiscal room for development works such as roads and asset creation?
Some amount of re-prioritisation of expenditure is inevitable. It doesn't mean that there'll be a severe shortfall of resources for development. What is generally being said is that, given the big size of committed works/projects and the associated pending bills, there'd be some constraint in expeditiously settling them. That has given rise to an impression that there's no money for development. But what is development? Development is a comprehensive phenomenon consisting of education, health, welfare, irrigation, roads...if you see the approvals given by the Cabinet over the last 8-9 months, a substantial number of projects have been approved. So, I don't believe that there's a severe shortage. But there's definitely tightening of belts once you decide to give Rs 50,000 crore towards (guarantees).
Isn’t it a fact that the government is falling short of meeting revenue targets in 2023-24?
It's true that revenue collection has slightly fallen short. This is because the targets themselves were ambitious based on assumptions that it'd be a normal year. The government didn't get more than eight months to implement measures to achieve targets. Actual works began on August 1.The full financial year wasn't available. Revision of guidance values was done on October 1, the long overdue revision of stamp duties was done in December, which has shown results in revenues of February and March. Because it was a drought year, we suffered some shortages. Also, because the government started functioning after July, work contracts started only in August. They have an impact on GST. But what we've collected is 13 per centhigher than the previous fiscal.
In the next fiscal, the government wants to borrow over Rs 1 lakh crore. This gives credence to the notion that the guarantees are pushing the state into financial distress.
The union government and our own Fiscal Responsibility Act lay down certain parametres - debts shouldn’t exceed 3% of GSDP, total liabilities should be under 25 per cent of GSDP and there must be a revenue surplus budget. Karnataka’s GSDP is growing robustly. Because we have space, we're borrowing. It's true that the borrowings will be used for the guarantees. But with the government's capability to generate more revenues and increase our receipts, we have the capacity to repay what we borrow. There's a slightly old-fashioned way of looking at borrowings that one shouldn't borrow much. If you see Japan, the debt-to-GDP is 250 per cent. It is over 100 per cent in the US. These economies have the potential to generate resources to repay loans. They're credit worthy so they're borrowing. Karnataka is also credit-worthy. Ideally, we should limit borrowings to curb interest costs. But if you can afford it, then you can borrow and pay later when capacities come up.
The Medium Term Fiscal Plan (MTFP) says it’ll take two years for the state to become revenue surplus. What's the basis of this projection?
We believe that expenditure on the guarantee schemes will stabilise whereas GSDP and tax revenues will both grow. Karnataka will also make efforts to increase non-tax revenues. We're hiring services of consultants to advise on mining, forests and also user fees that haven't been revised for decades. Plus, we're a favourite investment-destination. So, our GST base should further increase. The budget size will also increase. Guarantees form around 14 per cent of our total budget. Next year, assuming that the budget size will reach Rs 4 lakh crore and we still invest only Rs 52,000 crore on guarantees, it'll be down to 13 per cent. Then 12 per cent and 10 per cent over the years. Then we'll become revenue surplus. We believe that the guarantees have the potential of generating more income with a multiplier effect and contribute to GST. They’ll also create demand in the economy. Surveys have also revealed that women are spending money to buy books, clothes and medicines for children. Some are saving money. Some are repaying debts. This is one revenue deficit that we believe is not not ideal, but it's not wasteful either. We can put up with it for sometime.
The total committed expenditure as a percentage to revenue expenditure has reached 103 per cent. What is the government doing to reduce this bleeding?
A prominent task for the newly-appointed Administrative Reforms Commission (under RV Deshpande) would be to look at reducing expenditure. We will make efforts and identify where we can streamline. But these expenditures are sticky. It's not very easy to reduce administrative expenditure. For example, if you reduce one post, another will come up somewhere. I don't want to sound pessimistic. And, committed expenditure being 103 per cent of revenue expenditure is slightly misleading. Salaries, pensions, interest payments and administrative expenses would be almost 60-70 per cent. There's another category that we have for programmes that are more or less here to stay. The irrigation pump subsidy, for example, is committed, but in theory it can be stopped. Similarly, we have social security pensions and scholarships. They have become indispensable and are treated as committed expenditure. But they’re also useful expenditure as they contribute to development.