Bengaluru, Sep 22 (PTI) The Karnataka Finance Department has cautioned against taking up major expenditure projects at this stage, citing limited fiscal space and the need for a “realistic and prudent” approach to funding.
The department made the observations while examining a proposal for the Chief Minister’s Rural Road Connectivity Scheme, estimated to cost Rs 10,000 crore.
In a note on the proposal, the department said the project was proposed to be executed over 2026-27 and 2027-28. It said starting a major project for which funds had neither been budgeted nor earmarked could create cash-flow and fiscal-management challenges.
Acknowledging the Finance Department’s advice, Chief Minister D K Shivakumar, who also holds the Finance portfolio, said on Tuesday that there was nothing wrong with the department cautioning the government, as it was acting in the government’s interest.
According to the department’s assessment, Karnataka’s fiscal deficit for 2026-27 is projected at 2.95 per cent, against the 3 per cent limit permitted under the Fiscal Responsibility and Budget Management framework.
The state is facing a revenue deficit of Rs 22,957 crore, while its cumulative liabilities-to-GSDP ratio has reached 24.94 per cent, close to the 25 per cent level referred to under the FRBM framework.
Consequently, the department observed that limited borrowing space was available to finance a new project of such magnitude without additional resources.
The Finance Department also pointed to the state’s existing commitments, noting that the balance cost of ongoing works exceeded Rs 2 lakh crore. Pending bills from four major departments—Public Works Department, Water Resources, Minor Irrigation and Rural Development and Panchayat Raj—alone amounted to Rs 36,136 crore, it said.
The department further noted that projects involving approvals of more than Rs 5,000 crore, including those under Supplementary Estimates-1, had already been cleared during the first six months of the financial year, with funding requirements extending beyond the revenues identified for 2026-27.
Several additional resource requirements from departments such as Water Resources, Energy, Commerce and Industries, Urban Development and Transport were also pending consideration before the Finance Department, it said.
The fiscal situation was further complicated by drought conditions in the state, with additional expenditure likely required for farmers’ livelihoods, rural areas, drought relief and drinking water.
The actual requirement would depend on the Centre’s response to the memorandum submitted by the state government, the department said.
The department flagged a likely increase of around Rs 4,000-5,000 crore in electricity subsidy requirements due to the drought.
Against this backdrop, the Finance Department said meeting even part of the funding requirement for the proposed project could necessitate cuts or reallocations from allocations already earmarked for other departments, potentially delaying or halting ongoing works.
It highlighted cash-flow pressures faced by transport and irrigation corporations and electricity companies, besides defaults in subsidy payments and delays in monthly disbursements.
“It would be prudent to be realistic regarding the funding envelope that is available and not to add further to the overhang of pending balance cost of works,” the department observed.
The Finance Department said funding a new project of the proposed magnitude would be difficult until additional resources were mobilised or funds were reallocated from already approved allocations.
It suggested waiting until there was greater clarity on the availability of resources and the funding arrangement for the project before proceeding.
However, following an order from the CM, the Administrative Department was asked to place the proposal before the Cabinet along with the Finance Department’s observations.
Speaking to reporters, Shivakumar said the Finance Department had been giving its opinion on government proposals.
“But, being the finance minister, I know what programmes must be cut and what is needed. We need to ensure livelihood,” he said.
Noting that the Congress government had rolled out the five ‘guarantee’ schemes, estimated to cost Rs 51,286 crore in the current fiscal, he said, “These schemes were implemented to help people deal with price rise. We’re trying to help people and farmers amid drought.”
The Finance Department had given its advice keeping the government’s interests in mind, he said.
“It’s not wrong. They have asked me to be careful,” he said.
The state’s five flagship Guarantee schemes are Gruha Lakshmi, Gruha Jyothi, Anna Bhagya, Shakti, and Yuva Nidhi.
Karnataka was the most progressive state in India, Shivakumar said, adding that his government would adhere to the legal limits on fiscal deficit.
“We’re in power. We know how to run the government. We will do it,” he asserted.
Targeting the government over the Finance Department’s observations, Leader of Opposition R Ashoka referred to “headline-hungry announcements made with empty coffers” and accused the Congress government of pushing Karnataka towards a “fiscal crisis”.
“The CM’s grand project announcements are nothing more than optics and hogwash. While the CM goes on an unbridled announcement spree, his own Finance Department has issued a reality check, urging him to be realistic as Karnataka faces an unprecedented liquidity crunch and financial collapse,” he added. PTI KSU SSK
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