At ₹48k cr, Karnataka’s fiscal deficit registers sharp uptick

The state’s fiscal deficit (FD) has seen a sharp uptick from ₹19,169 crore (in 2015-16) to ₹48,470 crore (in 2021-22), the data from Medium-Term Fiscal Plan (MTFP) 2022-26 shows

The state’s fiscal deficit (FD) has seen a sharp uptick from ₹19,169 crore (in 2015-16) to ₹48,470 crore (in 2021-22), the data from Medium-Term Fiscal Plan (MTFP) 2022-26 shows.

Chief minister Basavaraj Bommai presented his maiden budget on Friday. (PTI)

The MTFP, which outlines the medium-term fiscal objectives of the government, reveals that the state’s FD as a percentage of gross state domestic product (GSDP) stood at 2.82% in 2021-22 from 2.6% in 2015-16.

The state GSDP that stood at ₹7.35 lakh crore in 2015-16 has since gone up to ₹17.21 lakh crore.

Karnataka chief minister (CM) Basavaraj Bommai on Friday presented the second FD budget in two years, indicating the growing stress on the state’s finances which have already been under pressure on account of the fledgling economy as well as Covid-19 pandemic-induced lockdowns.Bommai had said that he will borrow ₹72,000 crores in the new fiscal.

While presenting the budget, the CM had announced salary hikes for the lower rung of the workforce, a move towards the Bharatiya Janata Party (BJP)’s attempt of mobilising support for the upcoming elections in the state, including zilla and taluka panchayat, Bengaluru City Corporation and the 2023 assembly polls.

“For this to even appear as an election budget, there are constraints in fiscal situation as well as imagination. The fiscal constraint is that the total liabilities have exceeded 25% (of GSDP) as stated by the fiscal responsibility act although the borrowing limit for the year has been increased,” Bengaluru-based political analyst A Narayana said.

“The fiscal health does not seem too good to indulge in the fiscal profligacy,” he added.

With less than 14 months to elections, Bommai tried to use the budget to drown out noises against his seven-month old government which has been marred with charges of corruption, money laundering using cryptocurrencies, charging 40% commission to award public works and infighting in the state cabinet.

The principal opposition, Congress, has also been repeatedly raising the issue of growing liabilities, which is expected to go up from ₹4.58 lakh crore in the current fiscal to ₹ 5.18 lakh crore in 2022-23. Further, this is expected to rise to nearly ₹7.40 lakh crore by 2025-26.

Capt (Retd) Ganesh Karnik, former MLC and spokesperson for the BJP in Karnataka said that the money that is being borrowed is not going to be doled out but will be invested in creating assets, which he said, would add to the multiplier effect.

“The money that is borrowed from whatever sources at different interest rates is not being doled out. If you look at the budget, both the Centre and state...at the Centre, we were going in for elections in five states and in Karnataka we will be heading to elections next year. But this is not seen as a populist budget. A debt becomes a burden if it is not productively invested. I would like it if this money that is borrowed is invested judiciously in creating assets, creating economic activity and demand which will also provide employment,” Karnik said. “It (liabilities) will cross ₹5 lakh crore. There is no financial discipline and it has gone awry in Karnataka in the last two years. Government should take steps to control the expenditure and address the major problem, that is corruption,” Eshwar Khandre, working president of the Karnataka Pradesh Congress Committee (KPCC) said on Sunday. “In tax collection also there is a lot of pilferage of around 20-25% that has to be filled. Unnecessary expenditure should be controlled and fiscal discipline should be there then only Karnataka will be safe otherwise development will get affected,” he added.

However, the capital outlay has also come down in recent times. The MTFP also states that the “state’s capital expenditure is mainly funded by the borrowings”.

“With the committed expenditure consuming a major share in the state’s revenue expenditure, the rising debt levels will eventually result in a large share of revenue expenditure being spent on interest servicing,” it says.

The payments in terms of salaries stand at ₹38,430 crores currently and are likely to rise to ₹66,251 crore by 2025.

The end of the Goods and Services tax (GST) compensation from 2022-23 will also weigh in as Karnataka will have to find new sources of revenue.

“The revenue shortfall and increased expenditure commitments has pushed the state into a revenue deficit. With the end of GST compensation from 2022-23 the reduced revenue collection may result in reduction of capital expenditure in future years,” according to the MTFP.