The Congress party has promised every female head of the family Rs 2,000 a month, every unemployed diploma holder Rs 1,500 per month, and graduates Rs 3,000 a month. According to the party’s pre-poll promises, women would also get to travel for free in the buses run by the state government. Also, every family would be provided 200 units of power for free.
These benefits are in addition to other promised benefits such as 500 litres of tax-free diesel every year for deep-sea fishing and Rs 6,000 to all marine fishermen as a lean period allowance during the fishing holiday. It also promised to purchase cow dung at Rs 3 per kg and establish compost/manure centres in villages involving rural women/youth.
Some calculations suggest the cash payments and power subsidy alone would cost Rs 62,000 crore a year, according to an ET story. This large outgo will certainly make a dent in the state budget.
The size of major freebies is close to the fiscal deficit in the previous financial year. In Karnataka’s Budget 2023-24, fiscal deficit was expected to be Rs.60,581 crore, which is 2.60% of the Gross State Domestic Product (GSDP). The amount to be spent on major freebies as promised by the Congress could make it a surplus budget.
The outgoing BJP government had presented a revenue surplus budget. Karnataka had recorded the highest growth rate in GST collection amongst big states. For 2022-23, the revenue
collection target was fixed at Rs.72,000 crore against which revenue collection of (excluding GST compensation) Rs.83,010 crore was achieved by January end. This was more than the Budget estimates by 15%. All this means the new Congress government won’t have to struggle too much to provide the freebies it promised.
Randeep Singh Surjewala, AICC general secretary in charge of Karnataka, had told TOI that these promises would not entail much since it would not cost more than 15% of the state budget. Besides, he had said,the size of the budget is expected to increase over the next five years. The estimate of 62,000 crore in the ET story amounts to 20% of the state budget.
However, state borrowings have been a matter of concern.
Karnataka, whose overall liabilities grew by over Rs 3.6 lakh crore in five years to touch Rs 5.6 lakh crore as per the latest budget, is estimated to borrow another Rs 1.7 lakh crore in three years at the current rate. The 30% jump will take the state’s total borrowings to a staggering Rs 7.3 lakh crore by 2026-27. However, the debt could be tempered as revenue receipts are also projected to grow at around 30% to touch Rs 2.9 lakh crore by 2026-27.
As per statements made in the winter session of the legislature in December, at the current rate of growth in borrowings, the state could require Rs 35,090 crore in 2023-24, Rs 38,629 crore in 2024-25, and Rs 47,899 crore in 2025-26, only to pay interest, TOI had reported. And, if the burden of interest also grows by 30% in the next three years with everything else constant, the state would require at least Rs 50,300 crore only for interest in 2026-27.
Despite Karnataka’s economy set to grow larger in coming years, funding the major freebies amounting to Rs 62,000 crore may still remain an issue. With the Congress’ another poll promise to provide 10 lakh jobs and to fill 2. 5 lakh vacancies across government departments, which will hike the state’s salary bill, the state budget will be impacted by the poll promises.
The Congress’ promise to provide free electricity may not bode well for the state’s power sector. Although Karnataka is energy-surplus, the sector is bleeding. Cumulative losses of the five electricity supply companies stand at Rs 14,401 crore of which Rs 4,581 crore was incurred this year, TOI had reported in February this year.
Exacerbating the crisis, debt is mounting. Electricity supply companies’ cumulative liability stood at Rs 20,250 crore in February. This has had a cascading effect, as supply companies have defaulted on payments to power generation and transmission companies such as Karnataka Power Corporation Ltd (KPCL) and Karnataka Power Transmission Corporation Ltd (KPTCL). The total outstanding owed to these companies stands at Rs 16,722 crore. And the total debt burden on all companies including KPCL and KPTCL is a staggering Rs 72,114 crore as on December 31, 2022.
The biggest defaulters are government departments, rural development and panchayat raj institutions and urban local bodies. Their outstanding dues amount to Rs 8,363 crore. The government itself owes Rs 8,584 crore for welfare schemes such as Bhagyajyothi and free power for irrigation pump sets.
The freebies have become a major issue in India after Prime Minister Narendra Narendra Modi termed them as “revdi” culture which was not good for the economy. The opposition parties doubled down on freebies, especially after the Aam Aadmi Party (AAP) victory in Punjab and the Congress victory in Himachal Pradesh where both parties had offered many freebies to people. Now with the Congress victory in Karnataka, no party will be able to refrain from offering poll freebies which will have a negative impact on the economy in the long term.
(With inputs from TOI)
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