Karnataka: Callous financial management

State borrowed more than needed, kept idle cash

Over the years, Karnataka has been lauded for maintaining fiscal discipline, although there were concerns about indiscipline in budgetary spending by successive governments, but during the last three years, the state has failed on both counts. The state always took pride in the fact that it had always limited its borrowing to less than 3% of the Gross State Domestic Product (GSDP), as mandated by the Karnataka Fiscal Responsibility Act, 2002. The Act was amended some time ago to permit the state to borrow up to 5% in view of the Covid situation, which is understandable. But such has been the mismanagement of finances in recent years that the Comptroller and Auditor General (CAG) has in its finance and audit report pointed out that the state had actually borrowed more than its requirement in 2019-20, with open market borrowing amounting to 59% of the total fiscal liability. This excess borrowing led to an increase in the cash balance of the state by 57% compared to the previous year. In other words, the government resorted to borrowing more than necessary, on which interest has to be paid, and then let the money remain idle, without putting it to any use. The CAG has rightly noted that maintaining idle cash balance is not prudent financial management and that the state should limit its market borrowing to its requirements. The debt sustainability analysis also shows that the growth in public debt was higher than GSDP growth.

Also read: Karnataka budget allocations not getting spent: CAG report

Even more shocking is that though funds were available, budget allocations remained unutilised year after year during the past three years, indicating non-achievement of projected financial outlays. The budget-making exercise, it seems, was so casual that allocations were made without even considering the expenditure of the previous years. Even as large amounts remained unspent, the government sought supplementary grants and appropriations without justification. Noting that 11% of the total provisions made in 2019-20 remained unutilised, the CAG has urged the government to be more practical in its budget. This is also a sad commentary on the lack of oversight by the legislature, which blindly approves the supplementary grants sought by the government periodically.

The CAG report has put Karnataka, which had till recently boasted of being one of the better-managed states financially, to shame. Excessive borrowing, failure to utilise available funds and then holding cash in hand without earning anything on it, point to a callous bureaucracy and political leadership. Chief Minister Basavaraj Bommai, who also holds the finance portfolio, should ensure strict budgetary control and compliance with established financial practices to save the state from financial doom.