Karnataka: No room for election-year profligacy

The mid-term financial review has painted a rosy picture of Karnataka’s revenue position, but this is only one side of the story as the state could land in deep trouble if it fails to keep its current rate of accumulation of debt and borrowings under control. According to the report tabled in the Assembly, the state has demonstrated strong economic recovery from the pandemic-induced slowdown by registering a 9.5% growth. The revenue collections have gone up by 10%, with GST collections rising 30%, even as the inflation rate moderated from 6.39% in April to 5.81% in September, as against the national average of 7.4%. The state boasts a budget size of over Rs 2.65 lakh crore. The total revenue in the first six months of the financial year is a little over Rs 1 lakh crore. While this also includes the devolution of funds from the Centre, the state’s own tax revenue and non-tax revenue collection witnessed a rise in the first half compared to last year, although there will still be a revenue deficit. Chief Minister Basavaraj Bommai’s budget proposals for the year had estimated a revenue deficit of Rs 14,699 crore. The fiscal deficit has been revised down to 2.82% of the Gross State Domestic Product (GSDP) from the 3.26% budget estimate, which is also a healthy sign. This being an election year, though, there would be a tendency to splurge on freebies. Instead, the government should tighten its purse strings and do its best to at least reduce the revenue deficit, considering the robust growth.

However, what needs urgent attention is the rising debt, with borrowing estimated at a high Rs 72,000 crore this year. With more than Rs 65,000 crore committed to salaries and pensions and more than Rs 43,000 crore to interest payments and repaying debt, there is a stress on funds for developmental activities. Another area of concern is the high outstanding commitments in the irrigation and public works departments due to non-payment of pending bills. This amount, according to the report, is nearly as high as the annual budgetary outlay. Indeed, the total liabilities of the state at Rs 5,16,366 crore is nearly double the state’s budget for the fiscal. As the state is heavily dependent on IT and IT-related services for the bulk of its revenue, it should also factor in the potential impact of the global economic slowdown.

While the revenue growth has brought some minor relief, the overall fiscal situation is by no means encouraging. The need of the hour is fiscal discipline and prudence in spending, failing which the state could be staring at a financial mess a couple of years down the line.