Karnataka Chief Minister Basavaraj Bommai on Thursday said the state government was looking at new resource mobilisation measures to offset any shortfall in the state Budget that will be announced in the Assembly session starting February 10. It remains to be seen how a fund-strapped Karnataka government raises money in an election year for any populist schemes it may be planning to unveil. The Bommai government cannot raise taxes just months before the Assembly elections are held and the money available to it will also take a hit since the Centre has discontinued Goods and Service Tax (GST) compensation starting last July. Karnataka was one of the biggest beneficiaries of GST compensation but it was stopped after the five-year transition period that began following the introduction of the tax regime. Asked about the discontinued GST compensation, the CM said at a press conference held to discuss the Union Budget, “But, we have made sure that there wasn't any shortage of funds via resource mobilisation. So, we will make sure that there is no effect on the resource kitty (of the state).” The quantum of funds through GST devolution saw a sizable increase from around Rs 29,000 crore in the 2022-’23 financial year to Rs 37,200 crore in FY 2023-’24, bringing it on par with the fund devolution in FY 2019-’20. The discontinuation of GST compensation will have a bearing on the coming Budget, according to sources in the finance department. They added there were “severe constraints for resource mobilisation at the state level" and that “duties or registration fees for properties, among others, cannot be hiked, especially ahead of elections”. Among other issues related to its finances, Karnataka faces a reduction in funds allotted to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The state is among the best-performing states when it comes to the scheme, mainly owing to the demand for it since the start of the Covid-19 pandemic. In the 2021-’22 financial year, for instance, the state completed its annual target of 13 crore person-days — to provide guaranteed work — in December and requested the Centre for an additional three crore person-days. A similar trend has been observed in the 2022-’23 financial year. As of January 31, Karnataka had 11.22 crore person-days at a cost of Rs 6,047 crore. Defending the reduction in MGNREGS funds, Bommai said all projects had a lifecycle. “Though funds are less, it won't affect asset creation in our state," he said, adding that MGNREGS projects were implemented in coordination with other projects. The state government has resorted to taking loans to fund various projects. However, growing the committed expenditure of the state – including debt servicing – remains a major hurdle. Sources said the state had yet to receive the share of central funds under various heads, including pending GST compensation dues and funds for other schemes. According to Budget estimates for 2022-’23, the state revenue receipts are estimated to be Rs 1.89 lakh crore. The state is expected to raise Rs 1.37 lakh crore – about 73 per cent – through its resources while the Centre is expected to give Rs 52,064 or about 27 per cent. The Centre’s resources will be in the form of the state's share in central taxes (16 per cent of revenue receipts) and grants (12 per cent of revenue receipts). A PRS Legislative Research report on the 2022-’23 Karnataka Budget noted, “The state recorded a revenue deficit in 2020-21 and 2021-22 due to a fall in revenue receipts during Covid-19. According to the projections provided, Karnataka is likely to have a revenue deficit up to 2025-26.” The fiscal deficit in 2022-’23 is estimated at Rs 61,564 crore or 3.26 per cent of the Gross State Democratic Product (GSDP). This is within the four per cent limit permitted by the Union government. The state's outstanding liabilities at the end of this fiscal are estimated to be 27.49 per cent of the GSDP. The limit on total liabilities to GSDP ratio, however, is 25 per cent as per the Karnataka Financial Responsibility Act, 2002. The limit was also breached in 2021 to compensate for the drop in revenue receipts during the Covid-19 pandemic. The financial management regulation committee recommended measures to reduce total liabilities – to below 25 per cent of the GSDP – in the next two to three years.
