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Plan expenditure cut by Rs 1,000 crore — Soft option to tackle revenue fall

C. Shivkumar

The cutback in Plan expenditure is attributed to slippages in revenue receipts collection. Internal revenue receipts collections so far this year have been only to the extent of 45 per cent of the budget estimates.


FACED with mounting fiscal crisis, the Karnataka Government has slashed Plan expenditure by Rs 1,000 crore for the current year.

The Plan expenditure estimated for the current year was Rs 6,842 crore. About Rs 3,900 crore of this expenditure was to be funded out of the revenue account, Rs 2,682 crore out of the capital account and another Rs 282 crore out of borrowings. Sources said that among the sectors likely to impacted by the cut in Plan expenditure were key infrastructure sector, including power, highways and irrigation sectors.

The sources attributed the cutback in Plan expenditure to slippages in revenue receipts collection. Internal revenue receipts collections so far this year have been only to the extent of 45 per cent of the budget estimates. These receipts include arrears collected. Besides, the sources said that the shortfall in Central revenue collection was likely to impact revenue receipts in the State.

Central devolution for the current financial year is estimated at Rs 2,925 crore. However, in view of the revenue shortfall at the Centre, estimated at Rs 13,000 crore, the quantum of devolution to the States, including Karnataka, is likely to drop substantially. The sources said that the cutback in capital expenditure was also likely to impact the tax buoyancy in the State in the coming years. This was in view of the reduced consumption levels.

The sources said that the Government was also not prepared to fund capital expenditure out of capital receipts. This would mean that capital receipts would have to be raised out of recoveries of loans made to public sector undertakings and departmental units. However, few of the PSUs including power utilities have been in a position to meet the debt servicing payments including loans taken from the Government. Consequently, the easy option that has been adopted is through a method of evergreening— method of extending new loans after netting repayments of past loans. Besides, fresh borrowings would result in escalating interest expenditure.

The sources said that revenue receipts this year had also been overstated considerably. The current practice in the Government is to estimate growth using the previous year's budget estimates as the base. " If the revised estimates or the actual receipts had been used as the base, it would have been easier to project far more accurate revenue receipts numbers," the sources added.

Besides, the sources said, the Government had taken the soft option of cutting back on capital expenditure, since it was less politically-sensitive. Cutting back revenue expenditure would have meant a considerable reduction in subsidies across various sectors, including the power sector. Administrative sector comprises at least about 45 per cent of the revenue expenditure. These options had not been exercised, the sources said, in view of the fact that these components were explosive.

For instance, non- Plan expenditure, which includes salaries, has not been touched by the Government. Besides, subsidies account for at least 20 per cent of the gross revenue receipts and have been consistently rising. This subsidy reduction has so far not been effected despite pressures from the bank. In fact, subsidies to the power sector alone during the current year is expected to top Rs 3,000 crore as against the estimated Rs 2,400 crore in the budget estimates and at least 250 per cent since 2000-01 when fiscal correction was initiated.

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