BENGALURU: Karnataka’s finances do not appear to be robust for the fiscal year 2019-20. Economic slowdown, floods, and a reduction in the devolution of funds from the Centre are likely to affect the state’s fiscal health.
A mid-year review of the state’s finances for the fiscal year 2019-20 has shown that while all other taxes have seen a growth in comparison to the same period in the last fiscal, a decrease in vehicle sales has led to a shortfall in the collection of motor vehicle taxes. Apart from this, the Union government’s decision to reduce corporate income tax, as an afterthought to the Budget, is also likely to affect revenue receipts.
In what could come as a dent to the state’s total receipts, Karnataka may see a shortfall of Rs 1,672 crore under the devolution of funds from the Centre. While in its February budget, the state government had estimated Rs 39,806 crore as devolution from the central government, the Union Budget presented in July has indicated devolution of only Rs 38,134 crore to Karnataka.
“Devolution from the Government of India during the first six months of 2019-20 is Rs 14,668 crore,” noted the mid-term review prepared by the state finance department.
The state has seen 36.85 per cent achievement under devolution of funds till September 2019 for this fiscal year. The percentage achievement is 2.97 per cent lower than in the same period last fiscal, that had seen 41.74 per cent achievement.
This means that the state received 2.97 per cent less devolution from the Centre this year, compared to the same period last year. “The finance minister has announced a reduction in corporate income tax for the year 2019-20. This may have an adverse impact on devolution, as the divisible pool of taxes may come down,” noted the report.
The report also noted that the contingency fund limit was raised through an ordinance by the state government, from Rs 80 crore to Rs 2,200 crore, to accommodate expenditure on the state’s additional contribution to the Pradhan Mantri Kisan Samman Yojana and for flood relief operations. The burden is the cost of Chief Minister BS Yediyurappa’s announcement of an additional Rs 4,000 assistance to beneficiaries under the Central government scheme.