Karnataka’s share in both tax revenue and non-tax revenue with respect to GSDP has been declining.
“In the financial year (FY) 2012, Karnataka’s own tax revenue as a percentage of GSDP was 16 per cent which has declined to 11.1 per cent in FY 2017-18. Similarly, the share of non-tax revenue has declined from 10.7 per cent to 7.3 per cent during the same period,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India.
Market borrowings
“In the last three years, Karnataka has become overdependent on market borrowings to finance its fiscal deficit. The ratio of interest payment to Gross Fiscal Deficit has reached 46 per cent in FY19 from 42 per cent in FY17,” he added.
Ghosh, who has authored ‘A critical evaluation of Karnataka budget’ as part of the State Series: Our Exclusive series on state finances, said “the same can be figured out from the ratio of total liabilities to GSDP as in FY17 the share was 18.9 per cent is projected to reach 20.4 per cent in FY19.”
Revenue receipts
In the Budget 2018-19, the Karnataka government has estimated revenue receipts to be ₹1.63 lakh crore which is 11 per cent higher than the previous year.
The State’s own tax revenue, including GST compensation, is estimated to be at ₹1.03 lakh crore, an increase of 13 per cent over 2017-18. In non-tax revenue, it expects a collection of ₹8,163 crore, an increase of 20 per cent over the previous year.
“We believe both the estimates are over-ambitious, because if we look at the CAGR growth in the last five years prior to 2018-19, the growth rate was 10 per cent in tax revenue and 14 per cent in non-tax revenue. We believe the government is banking on better compliance and hence aggressive GST collections,” said Ghosh.
Talking about the budget, Ghosh said “Though the State budget has focussed on the farmers’ benefits and brought a universal health policy, in line with Modicare, for the social welfare sectors of the economy, our observation is two-fold. First, even though the announced Budget looks manageable on the deficit front, whether the estimated revenue receipt is achievable is doubtful considering the low GST collection at both national and State levels since its inception.”
Second, he said “These populist schemes may have impacted the capital expenditure that plays a defining role in creating long-term productive assets to the economy. We believe the government is banking on better compliance and hence aggressive GST collections.”