The Hindu Business Line : Karnataka likely to hike user charges on select services

The medium-term fiscal policy (MTFP) applicable for the period 2004-2007 has indicated progressive increase in user charges in irrigation, health and secondary education. The State Government recovers barely 15 per cent of the irrigation costs, since the charges do not cover either the fixed or the variable costs or even the maintenance costs.

However, the MTFP which is prepared under the guidance of the World Bank and the Centre as part of a fiscal adjustment programme for the States, indicates that cost recoveries from irrigation would go up to 80 per cent by 2006-07, implying that tariffs in the sector are likely to face large increases. Presently there is no system for recovery of the charges other than indirect means.

However, officials indicated that the cost recovery on some of the projects would have to be escalated considerably if the projects such as the Krishna Bhagya Jala Nigam Ltd are to be in a position in repay some of the loans. This was because the projects funding was raised through issuance of bonds supported by guarantees. Consequently, if the guarantees devolve on the State Government, there would be considerable impairment of the fiscal targets. In fact indications are that the zero revenue deficit target, estimated by the year 2006-07 is largely on the assumption that some of these subsidies would be erased through hikes or rationalisation of user charges, implying a complete elimination of cross subsidies.

Similarly, sectors such as public health are likely to see better-cost recovery mechanisms in place. Cost recovery in health service is about 1.15 per cent. But public health sectors would remain to be subsidised in view of the high economic rates of return. By 2006-07, the cost recovery in the health sector is expected to rise to about 2.4 per cent, implying that subsidies in the sector would continue, some rationalisation was likely to take place, the officials indicated.

The officials indicated that even in secondary education cost recoveries are expected to be raised in the coming years. The cost recovery in the secondary education segment is currently in the region of 1.95 per cent. This is expected to be raised to about 3.5 per cent by 2006-07.

However, the officials said that costs recoveries in these sectors would be achieved mostly through better rationalisation. There would not be any major commercialisation of the sector, since neither of them have led to a major stress on the fiscal balance of the State. The major stress factors on the revenue account were the power sector, where a separate financial restructuring programme was underway, the transport sector and irrigation sectors.

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