Bengaluru: Flagging concern about Karnataka’s burgeoning market borrowings to implement its guarantee schemes, the Comptroller & Auditor General (CAG) has said that this trend would increase the state’s repayment burden.
“The State Government spent Rs 52,120 crore on capital account. This was around 17 percent of the total expenditure in the year 2023-24. The borrowings exceeded the Capital Expenditure by Rs 38,160 crore and the amount was utilised for meeting the expenses towards five guarantee schemes,” the CAG said in its report on the state’s finances (2023-24).
“The State in order to finance the Guarantee Schemes and the deficits arising thereof, availed net market borrowing of Rs 63,000 crore which was Rs 37,000 crore more than the last year’s net borrowings (Rs 26,000 crore).”
It added that the gap between total expenditure and total non-debt receipt results in a fiscal deficit, which increased from Rs 38,166 crore or 2.36 per cent of Gross State Domestic Product (GSDP) in 2019-20 to Rs 65,522 crore or 2.55 percent of GSDP in 2023-24.
The guarantee schemes helped the Congress not just win in Karnataka but reshape the party’s welfare-based politics across other parts of the country, making it not just a staple in its manifestoes but also forcing the Bharatiya Janata Party (BJP) to follow suit.
The BJP has targeted its rival party over its guarantee schemes, stating how these “unreal promises” had impacted development in the Congress-ruled states like Himachal Pradesh, Karnataka and Telangana.
‘Shortsighted’ report?
But economists have termed the CAG report as ‘shortsighted’ since there are other tangible benefits from such welfare schemes.
The Congress government, according to Karnataka Chief Minister Siddaramaiah, has spent Rs 96,000 crore to fulfil the five guarantees–Gruha Lakshmi (Rs 2,000 for women head of household), Yuva Nidhi (financial assistance for job seekers), Anna Bhagya (free rice), Shakthi (free bus rides) and Gruha Jyothi (free electricity)—since May 2023.
“If household finances are under stress and this is the way that governments have found to alleviate some of that burden, then as a short-term response, it (guarantee-like model like Gruha Lakshmi) makes sense. It’s a rational response for a democratically elected government,” Amit Basole, Professor of Economics and Head, Centre for Sustainable Employment, Azim Premji University, told ThePrint.
The BJP, however, accuses the Siddaramaiah government of straining the state’s finances further.
R.Ashoka, the Leader of the Opposition, accused the government of ‘squandering’ money but has little to pay salaries and has been defaulting on payments to contractors and other pending bills.
He added that the rising debt, lowering expenditure on creating assets and sluggish economic conditions will dent the state’s growth trajectory. “Unless existing subsidies are rationalised, these schemes will strain Karnataka’s economy, increase debt stress, and drag down growth for years to come. In short, guarantees today are nothing but a guaranteed crisis tomorrow.”
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‘Rationalise spending’
Basole says that there is always a question on if the same money can be spent on other infrastructure, physical or otherwise, that is seen to have long-term impact. “The difficult question is whether there is a trade-off between this kind of spending versus more long term policy solutions to increase productivity and incomes. Opinions may be divided on this and clear evidence is hard to come by.”
In his Independence Day speech, Siddaramaiah cited studies to highlight that women’s participation in the workforce was up by 23 percent as a result of schemes like Shakthi.
Moreover, the state government commissioned several studies to study the larger impact of the welfare schemes.
Even the CAG report makes a mention of the larger impact like boosting the local economy, reducing economic disparities and supporting human capital development.
“Though the cash transfers such as Yuva Nidhi and Gruha Lakshmi empowered the youth and women and also gave security and enhanced their purchasing power, these cash transfers along with the other three subsidy schemes without rationalisation of existing subsidies would strain the Financial economy of the State,” it adds.
The focus on rationalising is something that even the Karnataka government acknowledges and has been trying to weed out ineligible beneficiaries to bring down the total cost of funding these schemes.
A study by the finance department showed that the demand for the subsidy escalated from Rs 10,118 crore in 2016 to Rs 22,387 crore in 2023, registering a staggering 121 percent increase over seven years.
While the numbers of farmers have more or less remained the same, the number of irrigation pump electric connections expanded from 20 lakh in 2012 to 34.17 lakh in 2023, registering a 70.85 percent spike, according to government data.
Similarly, data from the Department of Food, Civil Supplies & Consumer Affairs (as of 20 September 2024) shows that over 1.25 crore households and 4.34 crore people were identified as beneficiaries of the Antyodaya Anna Yojana and the Priority Households, respectively—both central schemes part of the National Food Security Act (NFSA), The Print reported.
‘Guarantees as an investment’
As the guarantees have led to higher borrowings, the CAG states, Karnataka’s total liabilities have seen a sharp increase when compared to its GSDP.
At the same time, the CAG report shows that debt as a ratio of the GSDP has not gone up by much and that Karnataka remains one of the few states that remains one of the most financially prudent in the country.
In 2019-20, Karnataka’s total liabilities were Rs 3,37,520 crore or 20.89 percent of the GSDP. A sharp jump was seen the following fiscal (2020-21) under the BJP, as it rose to Rs 4,15,926 crore or 24.58 percent. Though the total liabilities did go up in the next two fiscals, the ratio came down to 23.24 percent and 23.03 percent in 2021-22 and 2022-23, data shows.
The total liabilities stood at Rs 6,65,095 crore in 2024-25 .
In the ongoing fiscal, Karnataka’s total liabilities are expected to reach Rs 7,64,655 crore on account of higher borrowings but even then it remains below the 25 percent threshold at 24.91 percent.
One economist says that if the government had the money to spend Rs 40,000 crore on one single infrastructure project in Bengaluru (tunnel road), then spending a similar amount for a larger welfare did not seem like much.
Analysts say that the Congress government should project the guarantees as a socio-economic argument and not defend it under politics.
A.Narayana, political analyst and faculty at the Azim Premji University, says that there appears to be no clear vision on how to communicate the benefit of the guarantees rather than just packaging it as a political tool.
Economists say that Karnataka has a rich tradition of investing into education and development of other capital that has given it a competitive edge over the decades. They cite the example of the patronage extended by the Wadiyars.
Narendar Pani, JRD Tata Chair at the National Institute of Advanced Studies (NIAS), says that the investments into education made it easier for public sector units like HAL, NAL, ITI, BEML and others to seek out Bengaluru as there is an ecosystem and talent pool.
The dividends of this can be seen even with the IT revolution, he adds. “These (sustained nvestments into education and human capital) are critical parts of Karnataka’s growth. Since 1991, we (Karnataka) have pushed education more into the private sector that has made access to education more unaffordable. And the guarantees are a way of ensuring that you recreate that base.”
The guarantees are enabling people to tap into education as basic pressures of other expenditures like on food, travel and electricity are being borne by the state, he asserts.
The CAG report mentions the higher borrowings, economists say, but the larger picture is often not taken into account.
“Why is this Rs 35,000 crore additional? You should understand that in tax devolution, between the 14th and 15th Finance Commission, Karnataka has lost around Rs 60,000-85,000 crore. Because of the BJP-led central government..they have not given our share,” Karnataka industries minister M.B.Patil told reporters Wednesday.
He added that during the BJP rule, lakhs of crores of unsanctioned or untendered works were taken up that did not have the cabinet’s sanction, piling the burden on their successors.
Siddaramaiah has championed the cause of states who feel slighted by the Centre, which has reduced revenue inflows forcing them to depend on borrowings to fund its schemes. In his Independence Day speech, the CM said that 10 percent of India’s population held 80 percent of the country’s wealth. He went on to state how the 10 percent only contributed to just 3 percent of the Goods and Services Tax (GST) and argued that such income inequalities could be reduced with the guarantees.
(Edited by Tony Rai)