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Balancing act on a fraying tightrope in Karnataka

The recently presented Karnataka state budget is a case study in desperation: a balancing act performed on a fraying tightrope by the chief minister, who also holds the finance portfolio.

Published: 11th March 2021 07:09 AM  |   Last Updated: 11th March 2021 09:00 AM   |  A+A-

Karnataka CM BS Yediyurappa

Karnataka CM BS Yediyurappa (Photo | EPS)

The recently presented Karnataka state budget is a case study in desperation: a balancing act performed on a fraying tightrope by the chief minister, who also holds the finance portfolio. That rope is so frayed that it meant no new promises, except for the one for ‘communities’ on the side of politics. That’s to douse the rising protests, while acting more out of hope than conviction that the economy would recover. 

It’s an unstated admission that the state is struggling to cope with the devastation wrought by the pandemic—the first deficit budget of Rs 15,134 crore in about a decade, confirming what was first flagged in a report by this newspaper. As the jigsaw fell in place, it emerged that the Karnataka Fiscal Responsibility Act, 2002, will have to be amended to balance the books, to allow the fiscal deficit, liabilities and revenue deficit the state can possibly incur to be increased. As it stands, the fiscal deficit has to be under 3% of the GSDP, and liabilities not over 25%, with a mandatory revenue surplus. Tall order that, when B S Yediyurappa has opted to keep taxation under control. No new taxes, not even on liquor. Quite brave, given that fuel and alcohol are the only big taxable items in the state’s kitty, post-GST. So the state has little option but to borrow, and heavily, to keep existing welfare schemes and other bread-and-butter sectors running. 

BSY has gambled to reduce stamp duty for new housing in the Rs 35-45 lakh range, hoping it would spur buying in small housing—with a knock-on effect on the whole economy. It could well turn out to be a trap if the incentive fails to, well, incentivise. The way states have been getting into debt, without the expected revenue coming in from the Centre, we may be staring at a pan-Indian crisis. Karnataka, as we said, is only a case study.



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