INTERVIEW: ‘Guarantees will not bankrupt Karnataka’, says Senior IAS officer Atheeq

The actual budget preparation in the finance department starts in November.
Senior IAS officer LK Atheeq
Senior IAS officer LK Atheeq(Photo | Express)

In his longest budget speech of 3.15 hours, Chief Minister Siddaramaiah, who holds the finance portfolio, presented the state budget for the year 2024-25, with an outlay of Rs 3,71,383 crore. The borrowing for this year has crossed Rs 1 lakh crore, which is the highest ever.

Senior IAS officer (1991 batch), LK Atheeq, Additional Chief Secretary to the Chief Minister and also ACS Finance, who earlier served as senior adviser to World Bank and also as Joint Secretary to Prime Minister’s office during Manmohan Singh’s tenure, explains the preparations of the Budget right from the beginning, priorities, guarantee scheme implementation, challenges and more.

Excerpts:

Can you explain the exercise of Budget preparations?

The actual budget preparation in the finance department starts in November. The committed expenditures include actual and committed expenditures. The actual expenditures include salaries, loan interest payments, administrative expenses and pensions. These are some things that have to be paid. The committed expenditures cannot be done away with, like scholarships and social security pensions. After all these are calculated, estimates are given to the departments, under which they are told to make proposals.

Once they come back, we also do an analysis of all salaries etc, to make sure there are adequate provisions. Then the CM (also the finance minister) starts reviewing the whole budget from January. We have a series of meetings with the departments, that propose their wish lists. We look at them during the first round of consultation meetings with the CM, and the concerned ministers and their department officials. Some good proposals are included. During the second round of discussions, which happens in January-end, we start finalising the schemes. From January 20 onwards, we start to write the budget speech.

So is it final then?

The budget speech is the main document which comes out. We do a series of re-readings. That time, we also take a look at the political components and things from the manifesto that can be incorporated. We do consultations with stakeholders. The speech goes for printing, the night before the budget presentation is done.

How do you prioritise what has to be included, as each department makes its proposals?

Largely, some of its commitments are already made as each department has its own size. So, little bit of reprioritization does happen and this depends on the outlook of the ruling government, political mandate, the CM and their priorities. Like CM Siddaramaiah focuses on welfare schemes heavily. So we look at the budgets of social welfare, agriculture and farming sectors very carefully.

You have worked with the Prime Minister’s Office (PMO). How was the experience?

PMO is much more organised compared to the CMO. The contact with the public was also less. It was great to work with Prime Minister Manmohan Singh. The budget of the Centre is in the domain of the finance ministry and we (PMO) would not get into budget-making as the PM used to tell us not to get into their kitchen.

As the Karnataka government introduced five guarantees, how challenging was it to prepare the budget?

The outlay we set aside for the guarantees is rather large that no other budget has ever experienced it. Naturally, we had constraints while allocating over Rs 50,000 crore for the guarantees which is almost 20 per cent of the total outlay of Rs 3.71 lakh crore. We have committed expenditure for the salaries, pensions, and subsidies for the irrigation pump set among others. So we prioritised winding up certain schemes similar to each other and pruning some of the schemes which were there for several years and saved money to fund the guarantees.

We increased the revenue target. We have increased the guidance value of the properties which had not been revised for a long time. We have streamlined the stamp collection. We also have a plan to collect a little more revenue from the mining sector. The only tax we can increase is on liquor and there are limits.

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The government is under flak as it has been funding the guarantees by increasing the liquor prices. How do you explain?

Despite a 20 per cent hike in excise duty, the prices of cheap liquor from where 95 per cent of revenue comes from in Karnataka is lower compared to the neighbouring states. Goa is an exception. So, to say that guarantees were funded by increasing the price of alcohol is not correct as we hiked (the prices) because it was underpriced. In the budget, we have proposed to rationalise the prices and reduce the taxes on premium liquor. Because our premium liquor was 60 to 100 per cent more expensive than in the other states, people tend to buy it from other states.

Most of the budgets in the past were revenue surplus budgets but this government has presented a revenue deficit budget. What will be the impact in the long run?

There are three fiscal responsibility parameters: It should be a revenue surplus budget; fiscal deficit should be within 3% of the GSDP (Gross State Domestic Product); and accumulated liabilities should not exceed 25% of the GSDP. We have always been within these limits. Only during COVID-19, we presented a revenue deficit budget. Last year, it was a deficit budget again. This time we had to present a deficit budget as we had to accommodate guarantee schemes and the revenue deficit increased to Rs. 26,000 crore.

As per the medium-term fiscal policy, we anticipate a revenue deficit budget next year also but it will be a revenue surplus thereafter. I would say that as long as our fiscal deficit is within 3% of the GSDP, we are still fiscally prudent. As we are spending on human expenditure through guarantees, I would not worry too much about the temporary deficit.

What are the changes proposed in Excise?

We had set a target of Rs 36,000 crore under Excise revenue. As this was a drought year, it impacted the sales to some extent. Going forward, we are planning to bring some changes in Excise. So far, except in the premium segment, liquor prices in the state have been cheaper. We have planned to reduce prices of premium liquor which is available at cheaper prices in neighbouring states. It’s the rationalization of slabs so that the sales of premium liquor increase in the state. Also, we will be facilitating the smooth processing of licensing and their renewal. We are looking at increasing revenue from licensing and renewal fees by bringing in transparency.

Does the Central budget or budgets of other states influence the state budget?

We look at the Central budget as it fixes the devolution and earmarks the grants-in-aid. However, the Karnataka budget is increasingly self-financed because state-owned revenue accounts for nearly 79 per cent of our expenditure.

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What do you have to say about the CM complaining that the State pays Rs 100 as tax to the centre, only receiving back Rs 12?

Both the Central and state governments levy taxes, with certain taxes such as GST being levied by the central government but collected by the states, while others like Income Tax and Corporation Tax are both levied and collected by the central government. To determine the proportions for division within each state, a finance commission is established every five years which plays a crucial role in balancing tax collections and distributions. However, the amount collected from a state may not necessarily be fully returned to it. The commission considers various factors including population, forest cover, representation of minority communities, geographical area, and poverty levels.

The 15th commission notably saw certain southern Indian states, particularly Karnataka, receiving a substantial dip. Previously, Karnataka received 4.7% of the total divisible pool, but this share has now decreased to 3.61%. The state with the highest per capita income tops the list, followed by others accordingly. Weightage is inversely proportional to the distance from the top, implying that states closer to the top are considered relatively richer and consequently receive a lower share. In this arrangement, Karnataka stands second, with Haryana at the top.

This situation arose because Karnataka’s GSDP was revised in 2015, primarily due to the contributions of software equipment from Bengaluru. Despite being the IT capital, Karnataka does not receive significant revenue from GST or Income Tax, as these sectors benefit from tax exemptions. Apart from this, previously, the Finance Commission used 1971 population data for distribution purposes.

However, later it shifted to using 2011 data. In Karnataka, between 1971 and 2011, the population growth rates in the western and southern regions have been relatively lower. This can be attributed to falling fertility rates and effective population control measures. Consequently, states with less effective population control measures have benefited from this shift in criteria. Moving forward, Karnataka plans to approach the 16th Commission to request a more balanced approach, considering additional factors beyond just population data.

It is being said that guarantees will make the government go bankrupt and that freebies are bad. What is your take on this?

I don’t think guarantees will bankrupt Karnataka. This is the second budget that we have presented with the schemes and despite it being a revenue deficit budget, it is not disastrous. It is not desirable, however, sometimes it’s okay as long as the money is useful. We believe this is a useful way. Karnataka is a growing state and we should aspire to do more. Increase GST collections, industrialise, create more jobs and earn more revenue. That should be used to help uplift the bottom line of 50% of the population.

Organisations such as UNICEF, World Bank and IMF studies show that if you’re able to give purchasing power in the hands of the poor and relatively poor, it helps to boost the economy. I believe it’s not a wasteful expenditure as it’s going into the right hands. We don’t believe it’s a freebie and the freebie concept is also debatable. We are practising an unconditional cash transfer in the state offering almost Rs 4500 per family, per month. There is no evidence that this money will be wrongly used. We are very consciously giving it to women which helps better rights in the family. Shakti scheme has also made women get up and go, without seeking permission from either the husband or son.

There are guarantees plus this year we have a drought. Is it a double whammy?

The drought year certainly has affected us. But thanks to good rains for the past 2-3 years and some good work done in water conservation, lake rejuvenation and forestation, we haven’t had that serious problem with drinking water. It has affected the economy a little bit and had an impact on our revenues. It has also increased our drought expenditure—we had to drill more borewells and spend more on drinking water.

Is it advisable to rely on various Public-Private Partnership (PPP) models, including those proposed for education?

While Corporate Social Responsibility (CSR) funds directed towards education are encouraged, it is not our primary investment source. Public investment remains our mainstay, with private contributions being appreciated but not relied upon as the sole source of funding. When it comes to Public-Private Partnerships (PPP), they are particularly targeted towards urban areas due to their dense populations. Additionally, we are seeking private investments in the energy sector, given Karnataka’s leadership in renewable energy, with 63% of the state’s electricity sourced from renewable resources.

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What is your perspective on Bengaluru’s traffic?

Bengaluru has reached its saturation point, prompting the government to explore options beyond the city. We are offering concessions for setting up industries at Mangaluru, Mysuru, Hubballi-Dharwad and Belagavi as the next industrial hubs and not for Bengaluru. Additionally, we are focusing on surrounding areas and towns near Bengaluru, including Ramanagara, Nelamangala, Doddaballapur, Chikkabalapur, Anekal, Bidadi, Kanakapura, and Devanahalli.

What do you have to say about the recent Janaspanda grievance meeting that happened at Vidhana Soudha?

The success of Janaspandana is not a reflection of the efficiency of the government. If these were addressed at the taluk or district level, why would people come to Bengaluru? I would say that it is not a good idea that so many people come to Bengaluru. We found out that 70 per cent of the grievances come from the revenue department. Within the revenue department, 70 percent of issues are related to surveys. We have a shortage of surveyors. If we address this issue, fewer people will come. This is a long-term issue. To address this immediately, the CM is going to hold Janaspandana in various regions - Kalaburagi, Belagavi and Mysuru.

Panchayats and Urban Local Bodies are not self-reliant and they depend on the government, what can be done?

I think both Panchayats and urban local bodies need to become more self-reliant. The local body should increase their revenue sources. For the collection of taxes, a lot of initiatives have been taken up. Online tax collection has been introduced where one can pay taxes through debit card, credit card and UPI. Similarly, including BBMP should become self-reliant wherever it is possible.

What do you say about fancy expenditures that will affect the state’s financial health?

I don’t think this expenditure will make a big impact.

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