With Centre tightening Karnataka's belt, government scrambles for fiscal relief

With Karnataka anticipating a loss of Rs 18,500 crore in the current fiscal due to GST revisions and the Centre’s refusal to share cess, the Siddaramaiah administration is scrambling to plug the shortfall, which may drive up borrowings.

Besides borrowing more, the government is planning resource mobilisation measures like auctioning liquor licences and monetising public lands. However, both ideas have met with resistance internally. 

In his letter to Prime Minister Narendra Modi last week, Chief Minister Siddaramaiah expressed fears about “more difficult months ahead”. 

Siddaramaiah told Modi that Karnataka may face a shortfall of Rs 9,000 crore, attributing this to “severe reduction” in GST collections. “This excludes the additional loss of approximately Rs 9,500 crore due to the non-merger of compensation cess,” the CM stated. 

Also, the state has seen a 26% drop in grants-in-aid received by the Centre between April and October (Rs 6,306.36 crore) compared with the corresponding period last year (Rs 8,623.51 crore). 

“There will be more tightening of the belt if the same situation continues,” a senior minister aware of the financial situation told DH. 

The government is examining a proposal to monetise urban land assets as recommended by a committee headed by retired IAS officer K P Krishnan. 

“This isn’t a new idea. Land-related resource mobilisation measures were first tried when H D Kumaraswamy was the CM in 2006,” the minister quoted earlier said. This minister is likely to flag the proposal. “Monetisation of land is nothing but giving off assets at throwaway rates. I am skeptical.”

The government wants to auction defunct CL-2 (retail liquor shop) and CL-9 (bar & restaurant) licences. Authorities are also planning to auction unused CL-11(C) licences, which are given to retail outlets run by the Mysore Sales International Ltd (MSIL). 

The auction may fetch the government up to Rs 1,000 crore. Once the newly licensed liquor shops are operationalised, the government will earn more from excise revenue. In the current fiscal, the excise revenue target is Rs 40,000 crore. 

However, senior Congress lawmaker B R Patil has shot off a letter to Siddaramaiah arguing that new liquor shops should not be allowed during the ongoing “Gandhi Bharata” campaign to mark 100 years of Mahatma Gandhi presiding over the Congress’ session at Belgaum.

There are indications that the government may resort to more borrowing. 

The government has estimated that it will borrow Rs 1.16 lakh crore this year. This is dangerously close to breaching legal limits. Last year, the government borrowed a whopping Rs one lakh crore.