Karnataka Budget highlights strains from BJP govt failures, Central aid shortcomings

The Karnataka Budget presented to the Assembly on Friday (July 8) is almost like a white paper on the previous BJP government.

It clearly shows that the Gross State Domestic Product (GSDP) growth, a primary indicator of the state’s economic health, slipped badly on most parameters. It also presents a sorry picture of how the Centre has not fulfilled its part of its obligations.

Chief Minister Siddaramaiah has highlighted the economic strain the state is experiencing due to many factors. These include the unrealised growth expectations in GST, the termination of GST compensation, an increase in cess and surcharges by the Centre, and a reduction in funds for Centrally Sponsored Schemes.

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During his record 14th Budget presentation, Siddaramaiah, also the state finance minister, drew attention to a decrease in GSDP growth from the previous year’s 11 percent to 7.9 percent in 2022-23. The FDI inflow into the state also experienced a drop from $22 billion in 2021-22 to $10 billion in 2022-23.

He also said the Centre promised 14 percent growth annually when GST was implemented. However, the state did not see growth rate in its GST collections in the last five years. Furthermore, the GST compensation (extra funds the Centre would give to the states to make up for any revenue losses from the transition to GST) stopped in July 2022. Owing to these factors, the state experienced a shortfall of almost Rs. 26,954 crore in its GST collections for the fiscal year 2023-24, severely impacting its financial situation.

Cess and surcharges

Cess and surcharges are extra taxes the Centre levies on top of the regular tax. The Centre doesn’t share this extra money with the states. So, when the central government increases cess and surcharges, the states’ share of the overall tax revenue decreases. Furthermore, these cess and surcharges have increased, reducing the tax revenue that gets devolved or passed down to states. In 2022-23 the financial year, the Centre collected Rs. 5,20,570 crore from all states in cess and surcharges. The increase in these additional charges has reduced the portion of tax revenue (tax devolution share) that the state receives, leading to a loss of Rs. 7,780 crore.

Centrally Sponsored Schemes (CSS)

With Centre gradually decreasing the grant in aid allocation for Centrally Sponsored Schemes (CSS), it has become inevitable to increase the state’s share. This has resulted in a shortage of funds to implement new schemes, Siddaramaiah said in his budget speech.

Sector-wise growth rates for Agriculture, Industries, and Services for FY 2022-23 stood at 5.5 percent, 5.1 percent, and 9.2 percent, respectively. However, the economic growth during the Congress’s tenure (2013-14 to 2017-18) in the Industrial and Service sectors were 8.70 percent and 9.69 percent (CAGR), respectively, while the growth rates for these sectors from 2019-20 to 2022-23 were only 3.86 percent and 4.25 percent (CAGR), respectively.

Herculean task ahead

These figures underline the previous government’s inability to rejuvenate the state’s economy following the pandemic-induced downturn. Due to these constraints, introducing new schemes has become a herculean task for the state government.

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Nevertheless, the total outlay for 2023-24 set by Siddaramaiah stands at Rs 3,27,747 crore, marking a significant rise from the Rs 3,09,182 crore allocated by the outgoing chief minister, Bommai, for the same period.

Unlike the previous budget, which did not introduce new taxes considering the electoral implications, Siddaramaiah’s budget plans to augment government revenue through various measures. These include boosting tax and duty collections, enhancing borrowing, and ramping revenue through stamp duty and registration.

Siddaramaiah, in his budget speech, said that implementing the “five guarantees” would require an estimated Rs 52,000 crore per year. However, the total budget allocation for these schemes is only about Rs 37,000 crore, yet the remaining financial requirements for the current year (nine months remaining) would push this amount up to Rs 45,000 crore. The state government expects to bridge the remaining Rs 8,000 crore shortfall through higher taxes and revenue collection targets from some of its departments.

The chief minister proposed strategies to fund these plans, including increasing tax and duty collections, enhancing borrowing, and boosting revenue through stamp duty and registration. First on the block is the one most state governments resort to bridge the revenue shortfall: increasing liquor prices which the government has dutifully carried out by increasing the additional excise duty on Indian-made liquor and beer by 20 percent and from 175 percent to 185 percent, respectively. The government has also raised the guidance value on property registrations across the state, aiming to generate Rs 25,000 crore for the 2023-24 fiscal year.

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Additionally, the government plans to adjust tax on certain vehicle categories and aims to set higher revenue targets for all departments to gather more resources. The Budget has earmarked an increased borrowing of Rs 85,000 crore, a substantial leap from the Rs 77,000 crore earmarked during the previous budget presented by Bommai. Despite these challenges, the Budget has set aside Rs 45,000 crore for Bangalore’s infrastructure development.

CM slams Bommai’s fiscal management

Siddaramaiah slammed the preceding government for its fiscal mismanagement, which he claimed has created funding issues for new projects. He also stated that several projects worth Rs 2,55,102 crore initiated by the previous government are yet to be completed, a task that he said would take up to six years. The Chief Minister noted that despite the state budget growing by 50 percent from 2018-19 to 2023-24, expenditures such as salaries, pensions and interest payments have jumped to 81 percent of the budget.

Meanwhile, the debt of the state’s energy sector, crucial for its economy, ballooned under the previous administration, with the total outstanding loan of electricity companies soaring from Rs. 51,087 crore in 2018 to Rs. 91,911 crore in 2023. The cumulative losses of these companies have also increased, indicating the poor management of the previous government.

Allocation for five promises

The ‘five promises’ that the Congress Government has promised include Rs 2,000 monthly aid to female family heads (Gruhalakshmi), free electricity up to 200 units for all homes (Gruhajyoti), monthly allowances of Rs 3,000 and Rs 1,500 for graduates and diploma holders respectively (Yuvanidhi), monthly 10 kg rice allocation per person (Annabhagya), and cost-free transportation for women on state buses (Shakti).

The Gruhalakshmi scheme was projected to cost Rs 30,000 crore per year, Gruhajyoti Rs 13,910 crore, Annabhagya Rs 10,000 crore, and Shakti, which provides free bus travel for women Rs 4,000 crore annually. For the Yuvanidhi scheme, which offers allowances to graduates and diploma holders, Rs 250 crore has been set aside. These add up to Rs 60,000 crore annually, Rs 8,000 crore more than the Rs 52,000 crore allocation per the state’s estimates.The Karnataka Budget presented to the Assembly on Friday (July 8) doubles as a white paper on the previous BJP government.