Karnataka Budget: Rising Committed Expenditure Pushes State To Revenue Deficit

Karnataka Chief Minister Basavaraj Bommai presented the state budget for 2022-23 on March 4. Due to the economic impact of the Covid-19 pandemic, Karnataka recorded a revenue deficit in 2020-21 and the current financial year. This is expected to continue in 2022-23 as well.

For the next financial year, Karnataka expects to observe a revenue deficit of 0.78% of the gross state domestic product.

The Fiscal Management Review Committee (set up under the 2002 Karnataka Fiscal Responsibility Act) has suggested that a roadmap should be started to get Karnataka back to a state of revenue surplus. The Committee also recommended the government rationalise its expenditure.

However, Karnataka's rising committed expenditure and the discontinuation of the GST compensation grants could pose a challenge for the state's finances in the next financial year.

Rising Committed Expenditure

While the revenue receipts for the state are projected to register a negligible increase (0.1%), the committed expenditure is expected to rise by 6%.

Committed expenditure items include salaries, pensions and interest, and are difficult to cut back. Interest payments for the next year are estimated to increase by 8% over the revised estimate of 2021-22 to Rs 29,395 crore. The salaries and pension are estimated to increase by 7% to Rs 41,288 crore and 3% to Rs 24,016 crore, respectively.

GST Compensation Grants

The GST compensation grants given to Karnataka doubled in the three-year period from 20% in 2018-19 to 40% in 2020-21. In the current financial year, Karnataka is estimated to receive Rs 25,267 crore in the form of GST compensation grants, which is about 23% of its own tax revenue.

Beyond June 2022, when the GST compensation grants are discontinued, Karnataka might see a decline in the level of revenue receipts.

Key Announcements

The budget speech announced the launch of the Raitha Shakti scheme for farmers to boost agricultural productivity. A budget of Rs 500 crore has been set aside for the scheme in 2022-23, and a diesel subsidy of Rs 250 per acre will be provided to encourage the use of farm machinery.

The government also proposed to roll out 468 Namma Clinics in major cities and all parts of Bengaluru to provide services of detection of non-communicable diseases and referral for higher treatment to specialists. Separately, the honorariums of the ASHA workers and the Anganwadi workers have been increased.

Read the full article on the Karnataka budget on the PRS Legislative Research website.