Karnataka Assembly raises fiscal deficit ceiling as Opposition walks out

Amidst a walkout by Opposition Congress, the Legislative Assembly on Friday passed a Bill allowing a one-time relaxation to raise fiscal deficit (FD) to five percentage points of the GSDP.

At present, the law requires the government to keep the fiscal deficit within 3% of GSDP.

During a discussion on the Karnataka Fiscal Responsibility (Amendment) Bill, Leader of the Opposition Siddaramaiah urged the BJP government to restrict the fiscal deficit to 3.5% of GSDP, adding that he was "strictly opposed" to increasing the ceiling beyond that.

"We can't increase the limit for a year, as it is still uncertain when the pandemic will end," Siddaramaiah said, adding that additional borrowing that the amendment would allow could push the state to bankruptcy.

As the Centre will stop providing GST compensation from the 2022-23 fiscal, revenue deficit will surge by over Rs 30,000 crore, the Congress leader said.

"Rather than additional borrowing, drastic measures should be taken to cut down wasteful expenditure and increase non-tax revenue," he said, asking the government to do away with unwanted posts and merge departments to save costs.

"For example, why should there be a joint director and a deputy director in the agriculture department?"

Former Congress minister Krishna Byre Gowda highlighted the long-term effects of the amendment, saying that the borrowings would add to the government's committed expenditure leaving little funds for development activity.

Noting that the government had planned to borrow based on 2020-21 budget estimates of GSDP, Gowda said: "Borrowings should be on actuals and not the notional projection of Rs 18 lakh crore GSDP."

He also sought to know why the government had not moved for an amendment of the ratio of liabilities to GSDP, adding that it was certain that the government's liabilities would exceed the 25% GSDP limit set under the Fiscal Responsibility Act.

Law Minister JC Madhuswamy, who piloted the Bill in Chief Minister B S Yediyurappa's stead, said that the amendment was necessitated by "extraneous circumstances" due to the Covid-19 pandemic. "Liabilities-to-GSDP ratio will be within 23.5% of GSDP," he assured the House.

Madhusway said reducing committed expenditure - salaries, pensions, and so on - was easier said than done.

In the 2020-21 fiscal, Karnataka could face a revenue shortfall of Rs 65,288 crore, Madhuswamy said.

Siddaramaiah said the government should fight for Rs 5,495 crore special grant recommended for the state by the 15th Finance Commission, but "rejected" by Finance Minister Nirmala Sitharaman. "We'll make sure we get it," Madhuswamy said.