Bengaluru: The cash-strapped Karnataka government is likely to set up an investment trust (InvIT), issue bonds to raise funds to raise capital, and try to reduce the burden of borrowing from institutional investors at high interest rates. According to people aware of the developments, this is part of a new proposal mooted by Boston Consulting Group (BCG) that aims to offset the growing burden of bankrolling the five guarantee schemes implemented after Chief Minister Siddaramaiah came to power last year.
The pilot project will be through the Karnataka Power Transmission Corporation Ltd (KPTCL), the highest revenue-earning department in the state.
“They (KPTCL) will put their assets of around Rs 6,000-7,000 crores into the trust…the transmission lines are their assets which bring in revenues. Based on the strength of these assets, the investment trust will also have a steady stream of revenue and then we can float bonds,” a senior government official told ThePrint, requesting anonymity.
The main revenues for the KPTCL come from the transmission of power. Its revenues went up to Rs 4,931.36 crore as of 31 March 2023 from Rs 4,108.66 crore in 2021-2022, according to KPTCL’s annual report.
After all its expenditures, including repairs and maintenance, employee benefits and other expenses, KPTCL recorded profits of Rs 723.43 crore in 2022-2023 as against Rs 664.79 crore in the previous year.
All shares of the company are currently owned by the state government.
The current proposal includes selling bonds only to institutional investors. The government will review whether it can be opened to retail investors as well.
There are other states and agencies in the country that have resorted to floating bonds—or at least the idea of it—to raise funds.
The Union government-run Power Grid Corporation of India Ltd started the POWERGRID Infrastructure Investment Trust (PGInvIT) on 7 January 2021 and the sponsor’s equity shares are listed on the National Stock Exchange as well as the Bombay Stock Exchange.
In 2012, Kerala proposed the Pravasi Development Bond, which could be bought by non-resident Keralites. The money from this, it said, would be used to fund flagship projects in the state and the profits would be shared with shareholders. In 2019, it also became the first state to list Masala bonds (issued in Rupees) on the London Stock Exchange.
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‘Economic mismanagement’
Although among the most cash-surplus states in the country, the Karnataka government has claimed that its fortunes have dipped since the introduction of the GST regime, with a lower share of revenues from the Centre, forcing the state to borrow more to fund its welfare and development projects.
With the increased instances of floods and droughts over the years and the added burden of the government’s flagship five guarantees—estimated to cost around Rs 60,000 crore annually or nearly 20 percent of Karnataka’s budget of around Rs 3.71 lakh crore—the demands on its revenues have risen this year.
However, the Opposition has accused the government of economic mismanagement.
In a post on X, deputy leader of the Opposition and senior Bharatiya Janata Party (BJP) MLA Arvind Bellad said that the state’s plummeting growth rate was “a clear sign of economic mismanagement”.
He was reacting to the Gross State Domestic Product (GSDP) growth predictions made by the National Stock Exchange, in which Karnataka’s growth is projected to fall to 9.4 percent in 2025 from 13.1 percent in 2024.
Under the @INCKarnataka government, Karnataka’s GSDP growth has plummeted from 13.1% to 9.4%, falling behind the national average—a clear sign of economic mismanagement. @siddaramaiah, your leadership is driving a once-thriving economy into decline. North Karnataka and Kalyana… pic.twitter.com/dJ52c2cdeY
— Arvind Bellad (@BelladArvind) October 20, 2024
Siddaramaiah hit back, saying that Karnataka had achieved a higher growth rate than the national average “despite severe challenges, including the worst drought in a decade and a slowdown in global IT markets”.
“Initially, the National Statistical Estimate (NSE) had projected a modest 4 percent GSDP growth for Karnataka, but this was revised to 13.1 percent by the end of the fiscal year, indicating early underestimation of the state’s economic performance,” Siddaramaiah said in a statement, posted on X, Monday.
‘Continued cash outflow will drain us’
Despite this, according to Basavaraj Rayareddi, the economic adviser to Siddaramaiah, the guarantee schemes and other subsidies have taken a toll on state finances even though Karnataka continues to be well within the regulation of the Fiscal Responsibility Act.
“The cash flow is not bad but overall if this same trend of cash outflow continues for another six months, we may lose about Rs 12,000 crore,” Rayareddi told ThePrint.
The Yelburga MLA added that the discontinuation of the GST compensation scheme has reduced revenue inflows into Karnataka.
In his 2024-25 budget, delivered on 16 February, Siddaramaiah alleged that reduced fund releases to the state resulted in a loss of Rs 59,274 crore “due to unscientific implementation of GST over the last seven years” (2017-2024).
He further claimed that the reduced share of Karnataka in central taxes under the 15th finance commission in six years has led to a loss of Rs 62,098 crore. The budget further added that increases in cesses and surcharges are not shared by the Centre with the states, resulting in losses to Karnataka to the tune of Rs 45,322 crore in the last seven years.
However, the central government has previously denied these claims. In July, for instance, Finance Minister Nirmala Sitharaman, at a press conference in Delhi, said, “Central transfers to Karnataka have increased substantially…The government of today keeps telling people that oh, the central government doesn’t give Karnataka its due. Completely false.”
Rayareddi said that the total bill of all of the state’s subsidies and guarantees schemes had a bill of around Rs 90,000 crore and it was imperative to identify and monetise revenue streams at the earliest.
“Karnataka’s success demonstrates the synergy between economic growth and social progress, making it a key engine of India’s economy. With its innovative policies, business-friendly environment, and ability to adapt to challenges, Karnataka stands as a model for sustainable development,” Siddaramaiah said Monday.
With three bypolls to be held on 13 November and impending elections for zilla and taluka bodies and the Bengaluru corporation, the Siddaramaiah government is unlikely to risk starving or even revising the guarantee schemes to retain its momentum in Karnataka against the BJP-Janata Dal (Secular) alliance.
In July, the government roped in consultancy BCG to identify revenue mobilisation streams in the state.
Among other initiatives, the state hopes to attract investors and investments in the next edition of the Global Investors Meet, scheduled to be held in February next year. It is also drawing up plans to develop satellite cities around Bengaluru as a way to bring in much-needed capital, ThePrint had earlier reported.
(Edited by Sanya Mathur)
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