Saturday, 05 Oct, 2024
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For the current fiscal year, the state government has earmarked Rs 52,000 crore for guarantee schemes, up from Rs 36,857 crore last year. As of FY23, outstanding guarantees for loans from 151 state-run institutions amounted to Rs 38,356 crore.
Karnataka’s Chief Minister Siddaramaiah-led government has introduced five flagship guarantee schemes, which account for nearly one-sixth (approximately Rs 52,000 crore) of the state’s Rs 3.46 lakh crore annual budget.. This allocation has strained the state’s finances, making it challenging to fund developmental projects. As a result, Siddaramaiah's economic advisor, Basavaraj Rayareddi, has acknowledged that these financial commitments have limited resources for other growth and infrastructure needs.
Details of the Guarantee Schemes
The five guarantee schemes are:
Escalating Financial Pressures
Since the Congress party took power in May, Karnataka’s finances have faced intense scrutiny. Concerns have been raised about potential financial instability due to these schemes. Additionally, the state has guaranteed Rs 52,335.74 crore in borrowings for electricity supply companies and Karnataka Power Corporation Ltd, with auditors warning that these liabilities could impact the state government.
Growing Guarantee Liabilities
The government has allocated Rs 52,000 crore for these guarantee schemes this fiscal year, up from Rs 36,857 crore last year. Outstanding guarantees for loans by 151 state-run institutions reached Rs 38,356 crore in FY23. Most guarantees were allocated to the power sector, with significant amounts also directed towards irrigation, housing, cooperation, and transport.
Regulatory and Financial Benchmarks
According to the Karnataka Ceiling on Government Guarantees Act of 1999, outstanding guarantees must be less than 80 per cent of the state’s revenue receipts from the second preceding year. Currently, total guarantees are at 30.59 per cent of this limit.
Economic Performance and Projections
Karnataka has shown robust economic performance, with an average GSDP growth of 5.66 per cent since FY20. For FY24, the state’s GSDP at current prices is Rs 25 lakh crore, reflecting a 10.2 per cent growth. The fiscal deficit is projected at 2.6 per cent, within the 3 per cent limit recommended by the 15th Finance Commission and lower than the national average.
Expenditure and Budget Targets
Capital expenditure in FY24 increased by 7.74 per cent. The total expenditure (excluding debt repayment) for FY25 is targeted at Rs 3,46,409 crore, a 17 per cent increase from revised estimates for FY24. This will be supported by receipts (excluding borrowings) of Rs 2,63,428 crore and net borrowings of Rs 80,272 crore.
Committed Expenditure and Revenue Strategies
A significant portion of Karnataka’s budget is allocated to committed expenditure, limiting the ability to fund other priorities. For FY25, estimated committed expenditure stands at Rs 1,52,023 crore, representing 58 per cent of projected revenue receipts. This includes salaries (31 per cent), pensions (12 per cent), and interest payments (15 per cent). The expenditure on pensions is projected to rise by 29 per cent from the previous year.
Revenue Enhancement Measures
To improve finances, the government has raised sales tax on petrol and diesel by Rs 3 each, aiming for an additional Rs 2,500 crore in revenue. From October 1 of the previous year, the guidance value of properties increased by around 30 per cent, expected to yield an extra Rs 2,000 crore. Additional measures include revising liquor prices, raising stamp duty, implementing new fees for solid waste collection in Bengaluru, and adjusting mining licence fees.
Experts are of the view that the ambitious guarantee schemes and rising liabilities illustrate a challenging fiscal landscape. While the state’s economic growth and controlled fiscal deficit reflect resilience, the substantial commitments and escalating guarantee liabilities could jeopardise long-term stability. The government's revenue-enhancing measures are prudent but may not fully offset the financial strain from increased expenditures. Effective management of these liabilities and strategic revenue generation will be crucial for maintaining fiscal health and ensuring sustainable growth in the face of these pressures.
(This is the second part in the India Tracker data journalism series “When Welfare Means Farewell to Prudence.”)
