Short of money and bold ideas

Short of money and bold ideas

The Karnataka budget for 2020-21 has fallen short of expectations but given the financial crisis that the state is facing, it is perhaps the best that Chief Minister BS Yediyurappa could do. The budget size, at Rs 2.37 lakh crore, increased by a mere 1.5%, or less than Rs 4,000 crore, over last year. Admittedly, the chief minister was forced to cut grants to various departments due to a shortfall of nearly Rs 12,000 crore in the devolution of funds from the Centre and GST compensation in the current fiscal. The state’s share of central devolution for the next year was also cut from 4.71% to 3.64% by the 15th Finance Commission, leading to a loss of about Rs 11,000 crore. The government also had to shoulder additional financial burden last year as the Centre released only Rs 1,800 crore for flood relief against a demand of over Rs 3,000 crore. The chief minister’s hands are also tied because he cannot resort to borrowing beyond a limit, as the Karnataka Fiscal Responsibility Act mandates that the fiscal deficit should not exceed 3% of the state GDP (GSDP). But where there is a shortfall of revenues, there should have been a surfeit of ideas to overcome the state’s financial difficulties and a bold attempt to implement them and spur growth. Karnataka, for instance, could have taken the lead to deepen reforms at the state level, divesting from state public sector units, and undertaking land and labour reforms. These are lost opportunities. A silver lining is Yediyurappa’s promise of a Bengaluru-specific municipal corporation law, although we must await its details and implementation.

Though Yediyurappa described his budget as farmer-friendly, it contains no substantial programme that could alleviate distress in the agriculture sector, except harping on what has already been said in the past. Though Rs 500 crore has been allotted to the long-pending Kalasa-Banduri project across River Mahadayi, the overall grant to the irrigation sector inspires no confidence. Again, the absence of reforms in agricultural markets and policies to encourage innovation across the value chain represent another lost opportunity. Bengaluru, which contributes over 65% of the GSDP, has some reason to cheer with the chief minister allotting Rs 500 crore to the suburban railway project and Rs 14,500 crore for the peripheral ring road. Most other projects announced for the city have been hanging fire for long already.

With the introduction of GST, the state has limited tax avenues, which has forced Yediyurappa to increase taxes on petrol, diesel and alcohol. With Karnataka staring at a shortfall in tax collection this year too due to the economic slowdown, the state finds itself in an unenviable position. There is a need for accountability and financial discipline to ensure that development expenditure is maximised.  

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