The Hindu Business Line : Karnataka Govt's growth projections too good to be true: Analysts

For a 24 per cent nominal growth rate to be achieved, one of the fundamental pre-requisites is power consumption. For every 1 per cent GDP growth, power availability would have to grow by at least 1.5 per cent net of losses.

Bangalore , Sept. 10

CHINA admirers who believe that only Shenzen can grow at a scorching pace need to rethink. Karnataka's growth projections are a stunner.

Projections for the current year made by the State Government show a 24 per cent nominal growth rate in the Gross State Domestic Product (GSDP).

At the current high inflation rate, this would translate into a real growth rate of 16 per cent. The GSDP for Karnataka is projected at Rs 1,61,840 crore for 2004-05, against the previous year's revised estimate of Rs 1,30,678 crore. These are not fictional figures. All these figures are mentioned by the State Government and forwarded to the Planning Commission.

But Karnataka's figures are too good to be true, analysts with rating agencies indicated. Here is one reason: For this growth rate to be achieved, one of the fundamental pre-requisite is power consumption. For every 1 per cent GDP growth, power availability would have to grow by at least 1.5 per cent net of losses.

This would mean: to achieve the projected real growth rate, the actual availability would have to be at 25 per cent more than what it is presently or about 135 million units per day. That is a rather tall order, especially when existing capacities available in the State are insufficient to meet the demand.

Besides, new capacities are not likely to be added before 2006-07, even assuming that they receive immediate clearance, both in the hydel or thermal sectors.

It is also interesting to observe the absolute consistency of the State Government figures. In the Medium Term Fiscal Plan for the period 2003-04 to 2006-07, the GSDP estimate mentioned was Rs 1,30,678 crore. This understandably was also the figure adopted in the budget estimates.

However, this figure has not undergone even a rupee's change in the revised estimates. This was despite the fact that last year was a drought year in the State, with severe shortfalls in power availability and industrial output.

The peaking deficit was 12.5 per cent and the energy deficit was close to 15 per cent in the last financial year. The State Government officials privately admitted that the figures were a major deviation. But the State Government has used the figures to show fiscal compliance. Estimates now available indicate that the actual GSDP in 2003-04 is Rs 1,27,000 crore.

This figure has been kept under the wraps for two reasons. This would imply a nominal growth of just 7 per cent in 2003-04 or a real growth of 2 per cent net of inflation, way below the national average. Besides, once the GSDP figures are brought down, some fiscal estimates also undergo a change.

For instance, the consolidated fiscal deficit (inclusive of off-budget borrowings) for the last financial year now changes to 6.1 per cent of GSDP, way above the 4.98 per cent projected by the Government. The State Government officials said that Karnataka was not alone in inflating numbers. In fact, all States have routinely resorted to similar techniques for inflating growth. The purpose of this padding is to become eligible for higher grants in aid from the Centre, which is linked to fiscal compliance.