A few years back, the fiscal position of Karnataka was quite comfortable. But the state polity entered into pleasing the public with a large number of schemes that were seemingly welfare-oriented. In fact, it caused a significant drain on the resources.
This continued for some time and today Karnataka demands Rs 1.4 lakh crore from the 15th Finance Commission of which Rs 53,000 crore is to be spent on Jaladhare and Rs 20,100 crore for doubling farmers’ income. Besides, the state has also pleaded for Rs 62,719 crore for urban local bodies.
It is true that urban development is one of the important tasks before the state government, but that is alone. The GSDP (Gross State Domestic Product) growth rate (at constant prices) in 2018-19 as per the advanced estimates is 9.6 per cent as against 10.4 per cent in 2017-18. In the current fiscal situation, the deficit is reaching about Rs 40,000 crore -- an unprecedented mark of near 3 per cent of the GSDP.
Among the major challenges confronted by the state in the upcoming fiscal year are loan waiver, revision of pay scales, increased direct benefit transfers, capital expenditure of PWD and irrigation and expenditure on various people-oriented schemes (Bhagyas) like free meals and subsidised foodgrains. The state has sought a public debt of Rs 11,636 crore of which only Rs 2,142 or 19.2 per cent is realised. The revenue receipts during the regular budget were placed at Rs 16,6396 crore of which only about 72 per cent is likely to be realised.
The state’s own revenue is expected to be Rs 95,821 crore, but possibly the realisation would be somewhere around 80 per cent of the budgeted figure. This makes the state more vulnerable and dependent on central funds. It is unlikely that the situation will change dramatically during the coming months. The realty sector is quite depressed and the state revenue from other sectors is also not very promising.
The state’s own tax revenue was estimated at Rs 1,06,621 crore and it is unlikely to reach the target. That is likely to put pressure on the non-tax revenue and receipts from the Union Government. The fiscal structure of Karnataka was enviably strong a decade ago, but we could not maintain it. A large dependence on central funds and non-tax revenue on one hand, and expenditure on welfare schemes which did not contribute to the real growth on the other, have increased the pressure. The state continues to borrow for schemes that have been uneconomical and yielded miserable results.
The devolution from the Union government was expected to be Rs 36,215 crore, but the realisation was only Rs 22,870. This will put more fiscal pressure on the upcoming budget and the state will have to depend a lot on non-tax revenues as well as transfers from the Government of India. Fortunately, the party governing the state and the Centre is the same and therefore, it is likely that the state will receive the golden hand from the Centre. But this is only an expectation. Over the years, the fiscal situation clearly tells us that the economy of the state is moving towards high dependence on the Union government without innovatively searching for new revenue resources. Only the prudence of the finance minister will save the state in the difficult fiscal situation. Let us be hopeful and wish it happens.
PROF R S DESHPANDE
Visiting professor at the Institute for Social and Economic Change and its former director