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C. Shivkumar

BANGALORE, April 18

KARNATAKA'S fiscal correction, supported by the World Bank, is in jeopardy due to the escalating subsidy bills.

According to the State Government data, subsidies have maintained a growth rate of over 20 per cent since initiation of fiscal correction in 1999-2000. Subsides amounted to just Rs 1,324.05 crore in 1999-2000, but it have grown to about Rs 2,957 crore during the current fiscal.

This implies that during the four-year period, subsidies have actually more than doubled. The subsidies provided by the State Government are mostly for power, food, transport, industries and other sectors including housing. Subsidies are estimated to account for about 16 per cent of the gross revenue receipts during the current fiscal, up from 10.26 per cent in 1999-2000.

As a percentage of the Gross State Domestic Product (GSDP), the same tempo is evident where the subsidies have doubled. These estimates are way above the prescribed norms in the State Government's medium term fiscal adjustment plan (MTFP). The MTFP had restricted the subsidy bill to just 1.8 per cent of the GSDP, though the current year's estimate is about 2.5 per cent.

Sources said that one of the major risks facing fiscal correction was the inability to control subsidies to the power sector. Subsidies to the sector this year were estimated at Rs 2,339 crore or over 12 per cent of the State Government's revenues, they added. In fact, power sector subsidies account for almost 85 per cent of the State Government's revenue deficit and 40 per cent of the State fiscal deficit.

But sources said that the power subsidy bill had factored in the 30 per cent tariff hike proposals submitted by the Karnataka Power Transmission Corporation Ltd. However, these tariff proposals hinge on clearance from the State Electricity Regulatory Commission (SERC).

Moreover, the proposals also have not taken into account the possibility of the impact of international oil prices on the liquid fuel-based power projects in the state. Any fuel cost escalation is treated as pass through and consequently directly pass on to KPTCL.

Consequently, the power sector's subsidy bill escalating beyond the budgeted estimates was a possibility, the sources said, if international naphtha prices maintained the present clip.

Another key factor for the escalating power subsidy also was the failure of the State Government to address the high transmission and distribution (T&D) losses. T&D losses are about 35 per cent currently, which in turn translates into a severe revenue deficit for KPTCL.

These loss figures are again not very accurate, and actual losses are well over this figure. In fact, a clearer picture of the losses is expected to emerge only after potential bidders conclude their due diligence on the four distribution circles to be taken up for privatisation during this year.

For the current financial year, deficit in revenues of KPTCL is estimated at Rs 3157.59, which is being bridged with subsidies from the State Government. This inflow is what is expected to help the power utility to maintain the statutory 3 per cent rate of return.

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