Editorial: Congress’ Karnataka promises could strain the fisc

As the newly elected Congress government in Karnataka assumes office soon, the big concern is — how will the expansive poll promises made by the Congress party, amounting to well over ₹60,000 crore, impact the State’s finances? This sum is more or less equal to Karnataka’s annual fiscal deficit, which is over 2.5 per cent of the GSDP. Unless these extravagant promises are modified, the State’s finances will come under strain.

Growth and tax buoyancy cannot be relied upon to keep the fiscal situation in balance. According to the State’s Medium Term Fiscal Plan 2023-27, the State’s own tax revenue is expected to grow by just 7 per cent in FY24 to ₹1.64-lakh crore over the revised estimates for FY23. SGST growth is pegged at 11.5 per cent, and this could be over ₹75,000 crore. Given Karnataka’s strong linkages with the global economy (the State accounts for 40 per cent of software exports of over $150 billion), as well as indications that demand for properties and motor vehicles might have peaked, there are indeed downside risks to growth as well as tax collections, as indicated by Karnataka’s Economic Survey 2022-23. On the other hand, as the Survey has observed, committed expenses by way of pensions, salaries and interest payouts are on the rise, while the debt to GSDP ratio is nearly 28 per cent (the latter at about ₹23-lakh crore). Clearly, there isn’t the money to go around for ‘freebies’ such as ₹2,000 monthly transfer to the woman head of every family; ₹3,000 monthly for graduate youth; ₹1,500 for diploma holders; and free bus travel for women. Karnataka’s fiscal deficit to GSDP ratio may go well beyond the projected 2.6 per cent for FY24 and later years. Such transfers, which do not create assets, can add to inflation in a State where consumer price and food inflation are ruling above the national average.

The government should redesign its policies in a State where the results of economic growth have not percolated across its regions. Some structural shifts are in order, given that industry’s share is at just 21 per cent, while the over-reliance on services (64 per cent) is pronounced. This absence of manufacturing explains high poverty levels in a wealthy State.

While Karnataka’s per capita income at over ₹3 lakh (77 per cent higher than the national average of ₹1.7 lakh ) ranks it as the fourth richest State, 13 of its 30 districts have a per capita income less than the national average. Bengaluru Urban district accounts for 36 per cent of the State’s GDP, its per capita income being five times more than the poorest district, Kalaburagi. These huge disparities call for structural reforms to boost industry. Welfarism is surely necessary to provide succour to the poorest, but schemes should be well conceived and implemented such as community kitchens, mid-day meals at schools or even MGNREGS that creates assets. Freebies are no solution.

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