Pending dues, impending crisis

The Karnataka government, which finds itself under acute stress due to constricted revenue flows stemming from pandemic-related lockdowns and increased borrowings to fund the deficit, may well be staring at a financial crisis. Its unpaid bills to contractors have piled up to such an extent that it now owes them about Rs 15,000 crore, with the Public Works Department (PWD) alone accounting for Rs 4,500 crore, followed by the water resources department and the Bruhat Bengaluru Mahanagara Palike (BBMP). The dues, which stood at Rs 4,500 crore when the Kumaraswamy government was pulled down in May 2018, have tripled during the two years B S Yediyurappa has been the chief minister. Though pendency of bills is nothing new, it has never ballooned to such proportions. This is just the tip of the iceberg. While the state readies itself to tackle the third wave of Covid-19, it is yet to clear bills worth crores of rupees to private hospitals for treating patients referred by the government. So far, it has paid bills of barely 30% of the 2.66 lakh patients treated under the government quota. Huge bills of Indira Canteens, which provide subsidised food to the urban poor, are also yet to be cleared.

Such delays in payments will have a telling effect on businesses, leaving contractors and their companies bankrupt, besides severely impacting the entire supply chain and rendering many jobless. Contractors and vendors usually have a holding capacity of 45-90 days maximum and any delay in clearing bills beyond this period tends to choke the flow of funds and adversely affects the progress of projects they may be undertaking. Besides, since almost all projects are funded through borrowings, contractors will be forced to default on loans, which not only increases the burden of interest but also has a bearing on their credit rating. The fallout may be even worse in the case of hospitals, with experts predicting that a third wave of the pandemic is impending. While large corporate hospitals may be able to bear it for a while, smaller facilities will be forced to shut down, leading to an acute shortage of beds.

Without doubt, the state’s financial position is precarious, but the government, being a sovereign entity, should find ways and means to raise funds and clear its obligations at the earliest. Any further delay will not only destroy business entities to which the state owes large sums but will also have a cascading effect on the state’s economy as a whole.