Dip in growth, revenue deficit Karnataka's bugbears

Unlike the Union government, Karnataka does not assess growth on a quarterly basis, but is hopeful of faring better than most other states, given its diversified economy.

Published: 21st September 2020 02:47 AM  |   Last Updated: 21st September 2020 02:47 AM   |  A+A-

Karnataka CM BS Yediyurappa

Karnataka CM BS Yediyurappa (Photo | Nagaraja Gadekal, EPS)

Express News Service

The contraction in the economy has severely impacted most sectors, including those that are considered key engines of economic growth. The situation looks dire as recovery may take a long  time even as the pandemic rages on. To put the economy back on track, the government is taking a number of measures. In this series, The New Indian Express will take a look at the impact of Covid-induced slowdown on various sectors; government and private, organised and unorganised

BENGALURU: With reduced funds from devolution, uncertainty over Central grants and GST compensation and increased borrowing that may still not be able to offset the revenue loss, Karnataka may for the first time see a revenue deficit this fiscal year.

As the country’s GDP has contracted by a massive 23.9 per cent in the first quarter (the period worst hit by the Covid lockdown) for the fiscal 2020-21, Karnataka is unlikely to be an exception. 

Unlike the Union government, Karnataka does not assess growth on a quarterly basis, but is hopeful of faring better than most other states, given its diversified economy. While sectors like IT & BT and agriculture are expected to achieve or exceed the growth rates estimated in this year’s budget, others like manufacturing, real estate and transport are likely to see a slowdown. Within the manufacturing sector, defence is faring well, while aerospace is seeing a setback, according to the Industries and Commerce Department.

“We have suffered losses of thousands of crores during the lockdown. But we hope that we will maintain the predicted growth rate (10 per cent) in our new industrial policy,” said Jagadish Shettar, Minister for Large and Medium-Scale Industries, acknowledging the impact of the lockdown on industries. He added that the workforce is yet to be restored to its full capacity since production had halted and is now recovering slowly. In 2019-20, the growth rate for industries in Karnataka stood at 4.8 per cent and the services sector at 7.9 per cent.

The state is positive on agriculture as good monsoons have led to increased sowing. With the floods in August damaging far less agricultural lands in comparison to last year, the government is pinning its hopes on a bumper harvest this year. “The total targeted area under Kharif sowing was 74 lakh hectares, but we have achieved more than that and we expect another 1.5 lakh hectares covered. We have rarely crossed 67 lakh hectares in the past.

The quantity of fertilisers consumed is also an indicator of not just sowing but also of the health of agriculture. We have consumed 30 per cent more fertilisers than last year and that is an indication of a bumper crop. We can expect 30-35 per cent more yield than targeted,” said Brijesh Kumar Dikshit, Director, Agriculture Department.  

But experts suggest that agriculture independently doing well as a sector may not salvage the economy. “With migrant labourers returning to rural areas, there are more hands available for agriculture. Moreover, the returns in the sector are dependant on prices for the produce. But the scenario is not good for real estate that has lost labour due to the lockdown.

At a time when the Country is facing a contraction, Karnataka is unlikely to be an exception, simply because its IT sector and agriculture will fare well and revenues targets from excise will meet the targets,” said Prof Narendar Pani, Economist, Professor and Dean, National Institute of Advanced Studies. While the state is yet to make an estimated projection of its growth and the impact of Covid on its finances, revenue generation has hit a roadblock. 

Revenue receipts from excise, commercial taxes see uptick

The State has received reduced funds from Central devolution as per the 15th Finance Commission and is unlikely to get its GST compensation dues, while the state’s own revenue receipts are suffering.
Finance Department sources suggested that while revenues were almost nil in the first few months - April and May - of the lockdown, June, July and August have seen a steady pickup.

“Revenue receipts from excise has picked up almost to pre-lockdown times, while Commercial Taxes have reached about 85-90 per cent of the target. Revenues from Transport, Stamps and Registration have been low. Going by the current numbers, we may not be able to reach the targets set in the budget,” said an official from the Finance Department.

The losses in revenue have already hit developmental activities with even ruling party MLAs complaining about lack of funds for their constituencies. Many projects announced by the earlier coalition government have been stalled due to shortage of funds. “Works had been kept pending due to lack of funds. But this time, we are borrowing to spend on development activities.

Funds will start trickling in slowly,” J C Madhu Swamy, Law and Parliamentary Affairs Minister, told reporters on the day the cabinet approved an amendment to the Karnataka State Fiscal Responsibility Act to allow additional borrowing of Rs 33,000 crore. If the current revenue receipts are anything to go by, the state might see a revenue deficit this fiscal year that will impact salaries of staff and pending projects.


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