The Price of a Promise

WITH MONTHS TO go for the General Election, the Karnataka Congress is once again banking on its five welfare guarantees to carry much cachet. Having taken over the reins of the state in May 2023 after putting up its best electoral performance in over 30 years, the Congress government has spent about ₹20,000 crore (of the ₹38,000 crore budgeted for the guarantees in the current financial year) to de­liver benefits to over 40 million people of the state. Now, as the party fortifies itself for the election season ahead, it not only hopes that the benefits will persuade voters to back its candidates but is also intent on using them to re-energise its own cadre. On January 10, Chief Minister Siddaramaiah announced the government’s decision to form three-tier committees, at the state, district, and Assembly constituency levels, to monitor the implementation of the five guarantee schemes by nominating party workers. The state-level committee, headed by a president who would be given cabinet rank, will comprise 31 members. District committees will comprise 21 members each and Assembly-level committees will have 11 members. The committee office bearers will be eligible for honoraria, expected to cost the state about ₹4 crore annually. The announcement has left Bharatiya Janata Party (BJP) leaders, including former Chief Minister Basavaraj Bommai, fuming. “Is Siddaramaiah the chief minister of Karnataka or the Congress chief minister? Does the government require Congress workers to supervise the implementation of the guarantee schemes? The people have given powers to you, not to your workers. If the chief secretary allows this, it will amount to nepotism and a complaint will be made to the governor. We will also launch a legal battle,” he said, speaking to the media.

On January 10, Siddaramaiah announced the decision to form three-tier committees to monitor the implementation of the five guarantee schemes by nominating party workers. Committee office bearers will be eligible for honoraria, expected to cost the state about ₹4 crore annually. The announcement has left BJP leaders fuming

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Amidst the opposition’s protests against the pitfalls of popu­lism, the Siddaramaiah government rolled out its fifth and fi­nal election promise on January 12. Yuva Nidhi, which offers a monthly unemployment benefit of ₹3,000 to graduates and ₹1,500 to diploma holders, is expected to cost the state exchequer ₹1,200 crore a year. As such, it is the least controversial of the schemes, which include Gruha Jyothi (up to 200 units of free power to households), Gruha Lakshmi (monthly allowance of ₹2,000 for women heads of families), Anna Bhagya (extra five kilograms of rice to ration-card holders) and Shakti (free bus rides on state-run buses for women). Each of these schemes has encountered stinging indictments on social and economic grounds. Over 15 million households have registered for Gruha Jyothi and over 10 million bills amounting to zero have been generated amid power shortfalls, long-pending dues to electricity supply com­panies, and protests by industries. Recent news reports have pointed out an unintended consequence of the scheme—a dip in domestic solar installations in the state. Likewise, the free bus ride scheme, while it has reached the one billion tickets milestone, is not without its faults: buses are more crowded than ever, with over 1.5 million passengers riding every month, weighing down transport corporations that are already in the red financially. Siddaramaiah, who holds the finance portfolio, allocated ₹13,910 crore for Gruha Jyothi in the budget he presented in July 2023. The Gruha Lakshmi scheme, for which ₹24,166 crore has been allocated for the current fiscal, is billed as a milestone on the path to universal income and covers not only over 10 million women but even goddess Chamundeshwari of Mysore.

While the chief minister has repeatedly asserted that the state is financially stable and “not bankrupt, as Prime Min­ister Modi claimed we would be after implementing the five schemes,” the stress that the guarantees have put on the state is visible. In fact, the chief minister’s newly appointed economic adviser, former state Higher Education Minister Basavaraj Rayareddy, has admitted that “the five guarantees have become a huge financial burden for our government because as much as ₹58,000 crore has been earmarked for these.” Speaking to Open, he clarified that while it would be a challenge to finance the schemes, the state is in no way straying from the path of fiscal pru­dence. “We are looking into ways to expand our tax base. Tax collection has increased by over 19 per cent since we came to power but there is a lot that can yet be done. A lot of small merchants are evading GST, for instance. If we plug these gaps, we can generate as much as ₹10,000 crore,” he said. “I agree that ₹58,000 crore is a lot of money, but it is being spent towards the welfare of the poor. We spend much more on government employees who constitute just 1.5 per cent of the population. We are paying ₹92,000 crore in salaries and ₹24,000 crore in pensions this year.” Rayareddy added that while southern states like Karnataka and Tamil Nadu are the economic engines of India, their “fuel has been cut off and states like Uttar Pradesh and Bihar which are political engines are able to influence the Centre to allocate more funds to them.” Karnataka contributes about ₹4 lakh crore in taxes every year, of which it gets back 15-18 per cent in Central invest­ments and grants. The state’s share in tax devolution declined from 4.7 per cent under the Fourteenth Finance Commission to 3.6 per cent under the Fifteenth. It hopes for a better deal from the Sixteenth Finance Commission and has demanded that at least two representatives from southern India be appointed to it.

Karnataka’s total outstanding liabilities stood at ₹5.35 lakh crore as of March 2023 and are expected to reach ₹5.72 lakh crore by the end of the current fiscal. The revenue deficit for 2023-24 is estimated at ₹12,523 crore and fiscal deficit at ₹66,646 crore, which is 2.6 per cent of GSDP

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With Karnataka’s GSDP projected to reach ₹27-28 lakh crore in 2024-25, from ₹25 lakh crore this fiscal, the state government will be able to borrow over ₹1 lakh crore in the com­ing year without the debt-to-GSDP ratio breaching the upper limit of 25 per cent. So far, as far as borrowings go, Karnataka has performed marginally worse than Odisha, Gujarat and Maharashtra, which have debt-GSDP ratios below 20 per cent. Karnataka’s total outstanding liabilities stood at ₹5.35 lakh crore as of March 2023 and are expected to reach ₹5.72 lakh crore by the end of the current fiscal. The revenue deficit for 2023-24 is esti­mated at ₹12,523 crore and fiscal deficit at ₹66,646 crore, which is 2.6 per cent of GSDP. “There is nothing wrong with borrowing up to 25 per cent of GSDP to finance capital expenditure. Our fiscal deficit is well under the limit and it will remain so. The state has only violated the fiscal responsibility act twice (in 2008-09 and 2021-22)—and both times a BJP government was in power. We are trying to fix the mess that the Bommai government left behind. For instance, they allocated ₹2,000 crore to minor irrigation works but issued tenders worth ₹12,000 crore for the same year. There is a lot of indiscipline in the budgetary system,” says Rayareddy.

Credited with presenting several revenue-surplus budgets in the past, Siddaramaiah has succumbed to the pressures of competitive populism with an eye to the Lok Sabha polls. The state has had to cut down on capital expenditure from 2.4 per cent in 2022-23 (revised estimate) to about 2 per cent in the budget estimate for the current year. Rayareddy acknowledged that the government was experiencing “starting troubles” with devel­opment outlays. “One has to start slow, one cannot hit 120km speed from the outset. We are at 80-90km now. Projects are on track and development is proceeding apace. Things will only get better from here on,” he said.

With the state’s total tax revenues estimated at ₹1.7 lakh crore, the government’s efforts to shore up revenues by way of taxes has not gone down well. An amendment allowing the government to collect lifetime tax from already-registered medium vehicles weighing up to 12 tonnes and passenger vehicles costing between ₹10 lakh and ₹15 lakh had to be repealed in response to widespread protests. Another proposal to impose a lifetime tax on electric ve­hicles costing over ₹20 lakh was also rolled back. While the Fiscal Management Review Committee, which has the state’s top bureau­crats as members, has pointed out that there is scope to increase tax revenues, the government will focus on raising non-tax revenues, for obvious reasons, according to Additional Chief Secretary (Fi­nance) LK Atheeq. The state has, for instance, hiked stamp duties and registration fees and will keep a close eye on illegal mining.

The opposition alleges that Congress’ strident argument for redistribution and social justice is a strategic machination to sway voters. “Like a zamindar’s son squandering his family’s wealth, Karnataka has started to spend irresponsibly on freebies, justify­ing it by saying that it is the third richest state in the country and second in GST collections. It is obvious to the common man that all this expenditure is only targeted at votes in the Lok Sabha polls. We have no problem with schemes that are targeted properly at deserving people,” says Samir Kagalkar of BJP’s economic cell.

A revenue department official told Open that an overly strict targeting exercise could backfire and has therefore been put on hold. “Right now, the goal is to cover as many beneficiaries as we can,” he said. Chief Minister Siddaramaiah and Deputy Chief Minister DK Shivakumar have appealed to the ‘haves’ to give up the guarantees to help reduce the financial burden on the govern­ment. The fact remains that Karnataka’s revenues cannot support the high cost of the schemes and it will have to rely on additional borrowing to finance the burgeoning revenue expenses in a departure from its record of relative fiscal prudence.

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