Amid steep targets, a budget for balance

Karnataka made history in 2004-05 when Siddaramaiah, then Deputy Chief Minister holding the finance portfolio, presented the state’s first-ever revenue surplus budget. At the time, Karnataka was hailed as the first state to achieve this milestone – ahead of the Centre, earning Siddaramaiah national praise for projecting a dramatic improvement in the state’s fiscal health. The Karnataka Fiscal Responsibility Act (KFRA) of 2002 mandates that the state must present a revenue surplus budget. However, Siddaramaiah’s record 16th budget has now projected a revenue deficit for the second consecutive year. While the deficit of Rs 19,262 crore marks a significant improvement from the previous year’s revised deficit estimate of Rs 26,127 crore, it still reflects the state’s ongoing financial struggles. With Rs 51,034 crore allotted to the five guarantee schemes, it is evident that the Chief Minister is grappling with the complexities of balancing welfare commitments and fiscal discipline. Karnataka is now steadily inching towards breaching KFRA’s targets. The state’s fiscal deficit stands at 2.95% of the Gross State Domestic Product (GSDP), just under the 3% cap mandated by the Act. The total liabilities have surged to 24.91% nearing the 25% ceiling.

The budget emphasises Siddaramaiah’s long-standing focus on welfare, with significant allocations to agriculture and irrigation. A notable highlight is the 47.3% increase in capital expenditure, the highest ever for asset creation, amounting to over Rs 83,200 crore. Additionally, infrastructure development in Bengaluru has received a substantial push, addressing some of the city’s chronic congestion issues. However, the budget falls short in addressing the state’s heavy reliance on the service sector, which dominates Karnataka’s economy. The sector contributes 66% to the gross value added (GVA) and has grown at an impressive 8.9%. Economists have repeatedly warned that such over-reliance on the service sector is precarious and have advocated a greater focus on expanding the manufacturing sector. While the Industrial Policy for 2025-30 sets an ambitious target of 12% growth for manufacturing, the sector’s current growth rate stands at a modest 5.8%. The budget lacks a clear roadmap to achieve this target by 2030, raising questions about its feasibility.

Overall, the budget attempts to strike a balance between immediate welfare needs and long-term infrastructure goals. However, it falls short in presenting a transformative vision for Karnataka’s future. While it addresses urban challenges, particularly in Bengaluru, and prioritises the welfare of marginalised communities and farmers, it compromises on fiscal prudence. On a positive note, the state has exceeded its revenue targets, but unless fiscal management is strengthened, Karnataka, which has long prided itself on being well-managed, risks perpetuating its cycle of deficits and unmet development promises.