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Karnataka is heading towards debt trap: Siddaramaiah

Our Bureau Bengaluru | Updated on September 25, 2020 Published on September 25, 2020

Leader of the Opposition Siddaramaiah   -  THE HINDU

Siddaramaiah blasts State govt for choosing option 1 GST compensation plan

Karnataka is under severe economic crisis and is heading towards a debt trap due to mismanagement by the BJP-led State government, said Leader of the Opposition Siddaramaiah.

Speaking on the Karnataka Fiscal Responsibility Amendment Bill 2020, moved by the Chief minister BS Yeddiyurappa, the Opposition leader said “Due to Covid-19, Budget estimates are no longer applicable and the government has to adopt prudent fiscal measures.”

“To tide over the difficult times it should take tough measures. State government should adopt stringent measures to cut down on unwanted expenditures. Administrative reforms have to be adopted to trim committed expenditure and make room for capital expenditure. Non-tax revenue should be increased,” he suggested.

GST options

Referring to the Fiscal Responsibility Budget Management Act (FRBM), he said it was enacted to bring in financial discipline in the State and Central government, it mandated revenue surplus, fiscal deficit below 3 per cent of GSDP and total debt below 25 per cent of GSDP for States. “However, Sec 4(3) of FRBM Act allows the government to deviate from deficit targets under certain circumstances. The Central government has, under this escape clause, allowed States to increase the fiscal deficit from 3 per cent to 5 per cent only if the States choose their Option 1 GST compensation plan.”

Blasting the BJP government for opting Option 1, Siddaramaiah said, “There are two issues with respect to the Option 1 of GST compensation plan which is accepted by the state government. One is reckless relaxation of fiscal deficit targets and the other is the immoral transfer of burden on the States.”

He further said, “The Central government should honour their promise to pay GST compensation, in accordance with GST Compensation Act. The projected GST compensation to all the states is ₹2,35,000 crore and ₹30,000 crore to Karnataka till January 2021.”

“Now with this option, the State government is ready to take an additional loan of ₹33,000-plus crore because the chief minister is forced to take the burden of the Central government’s failure to compensate for the GST gap. The current year liabilities may increase from ₹46,072 crore to ₹93,682 crore due to relaxation in fiscal deficit targets,” he cautioned.

Highlighting the danger for Karnataka, Siddaramaiah said, “Due to step-motherly treatment by the BJP government at the Centre, it is at many levels. The GST gap compensation will end in 2022 and this will push Karnataka from revenue-surplus State to revenue-deficit State. Revenue deficit may reach ₹30,743 crore in 2022-23 and any additional loan borrowings now will further increase revenue deficit due to interest obligations.

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Published on September 25, 2020
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