Congress’ Karnataka Win Costs Rs 62,000 Cr

The recent Karnataka Assembly Election has handed Congress a decisive victory over the Bharatiya Janata Party (BJP), giving them the opportunity to establish their administration for the next five years.

The Congress party’s win can be attributed to various factors, but one significant influence may have been the attractive incentives they offered to the public. With the acquisition of 135 seats in the Assembly elections held on May 10, Congress managed to oust the BJP, which previously held control over the only southern state.

In recent media interactions, KPCC President DK Shivakumar and senior party official BK Hariprasad suggested that these benefits would primarily target the underprivileged and lower-middle-class segments of society, rather than benefiting the entire population as claimed. According to a Congress lawmaker, the annual cost of these giveaways is estimated to be around Rs 40,000 crore, equivalent to 15% of the state’s budget.

The Congress party has made several commitments to support various groups in society. Under their plan, female heads of households will receive a guaranteed monthly amount of Rs 2,000, while jobless individuals with a diploma will be entitled to Rs 1,500 per month, and graduates will receive Rs 3,000 per month. As part of their election promises, women will also have access to free transportation on state-run buses, and every family will receive 200 units of free electricity.

These incentives are in addition to previously announced benefits, such as 500 gallons of tax-free diesel per year for deep-sea fishing and a Rs 6,000 allowance for marine fishermen during the fishing break. The party has also committed to establishing compost/manure facilities in villages with the participation of rural women and youth, as well as purchasing cow dung at a rate of Rs 3 per kg.

The implementation of these initiatives is expected to involve approximately Rs 62,000 crore, which accounts for around 20% of the state budget. Consequently, these measures will have a significant impact on the state’s budget, potentially offsetting any previous fiscal year shortfalls. According to Karnataka’s Budget 2023–24, the projected budget deficit for the year is Rs. 60,581 crore, equivalent to 2.60% of the Gross State Domestic Product (GSDP).

Karnataka has witnessed a substantial surge in its revenue, as the outgoing BJP administration presented a budget that boasted a surplus in revenue. Among the larger states, Karnataka has recorded the highest growth rate in Goods and Services Tax (GST) collection.

The target for revenue collection in the fiscal year 2022-23 was set at Rs. 72,000 crores, but by the end of January, the state had already collected Rs. 83,010 crores (excluding GST compensation), surpassing the budgeted projection by 15%. However, the state’s increasing borrowing has become a cause for concern. Based on the latest budget, Karnataka’s total liabilities have surged by over 3.6 lakh crore in a span of five years, reaching 5.6 lakh crore.

It is estimated that the state will borrow an additional 1.7 lakh crore within the next three years, projecting an astonishing overall debt of Rs. 7.3 lakh crore by 2026-2027, which represents a 30% increase. Nevertheless, this debt could potentially be alleviated as income is expected to grow at a rate of approximately 30%, reaching Rs. 2.9 lakh crore by 2026-2027.

A recent article reported that during the winter session of the legislature held in December, it was revealed that based on the current borrowing rate, the state may need to acquire Rs 35,090 crore in 2023-24, Rs 38,629 crore in 2024-25, and Rs 47,899 crore in 2025-26. Additionally, in 2026-2027, the state’s interest burden alone is estimated to reach at least Rs. 50,300 crore, assuming a 30% increase over the next three years while holding all other factors constant.

Despite the projected growth of Karnataka’s economy in the coming years, fulfilling significant financial commitments, amounting to a total of Rs 62,000 crore could pose a challenge. The state budget will be impacted by campaign promises, including the Congress party’s commitment to generating 10 lakh jobs and filling 2.5 lakh vacancies in government ministries, which will increase the state’s wage expenditure.

Furthermore, despite the Congress’s assurance of free electricity supply, the power sector in Karnataka is facing difficulties. According to a TOI report from February of this year, the five power distribution companies have collectively incurred losses of Rs 14,401 crore, with Rs 4,581 crore being accrued this year.

The situation is worsening due to the mounting debt. As of February, the total liabilities of electricity supply companies reached Rs 20,250 crore. The failure of these companies to fulfil their payments to power-producing and transmission firms, such as Karnataka Power Corporation Ltd (KPCL) and Karnataka Power Transmission Corporation Ltd (KPTCL), has triggered a cascading effect.

These businesses still owe a staggering amount of Rs 16,722 crore. Furthermore, as of December 31, 2022, the collective debt burden of all companies, including KPCL and KPTCL, stands at an alarming Rs 72,114 crore. The primary defaulters are government agencies, panchayat Raj and rural development organizations, as well as urban local authorities, who still have an outstanding debt of Rs 8,363 crore. The government itself owes Rs 8,584 crore, primarily due to funding welfare programs like Bhagyajyothi and free electricity for irrigation pump sets.

The proliferation of freebies has become a significant issue in India, with Prime Minister Narendra Modi referring to it as a detrimental “revdi” culture for the economy. Following the victories of the Aam Aadmi Party (AAP) in Punjab and the Congress in Himachal Pradesh, both of which offered numerous freebies to voters, opposition parties have increasingly resorted to giveaways. With the recent Congress victory in Karnataka, it is unlikely that any party will refrain from providing giveaways during elections, which will have a long-term adverse impact on the economy.

Proofread & Published By Naveenika Chauhan