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Karnataka running out of funds as cost of freebies soars

Siddaramaiah, CM Karnataka

Bengaluru: A day after Prime Minister Narendra Modi criticised the Congress governments in Karnataka and Rajasthan for “emptying the states’ treasuries on freebies” and warned that “such reckless spending would adversely affect development,” the Karnataka finance department said, the five freebies now under implementation “would prove disastrous” for the state.

Speaking at Pune after receiving the Bal Gangadhar Tilak award, the Prime Minister said, “Today the entire country is worried seeing how it (freebies culture) has negatively impacted Karnataka. When a political party for its selfish reasons empties the state’s treasuries, then it impacts the state’s people, its future and the youth.”

He said similar was the situation in Rajasthan. By offering the freebies, “these states are causing the states’ debts to pile up and will have little money for development projects.”

  Drain on exchequer

In Karnataka, while the Siddaramaiah government is “celebrating” the launching of free electricity up to 200 units to every household with full, front-page advertisements claiming “we have kept the promise,” the finance department pressed the panic button regarding the “drain” on the state exchequer.

Even as over 1.26 crore women across the state have registered to receive Rs 2,000 per month under the next-in-line ‘Gruha Lakshmi’ scheme scheduled to be launched on August 14, the finance department, in a note to the department of women and child welfare, the nodal agency for the scheme, said, “The Rs 31,423 crore required for the implementation of the scheme would push the state towards considerable revenue deficit, potentially violating the Karnataka Fiscal Responsibility Act.”

Further cautioning that “the scheme would result in substantial recurring liability and would necessitate significant reductions in budgetary provisions across all departments and accounts,” the note concluded that, “It is not possible to provide such an enormous amount of funds in every financial year.”

 Following ‘Karnataka model

The Congress leaders, along with a majority of Siddaramaiah’s cabinet ministers assembled in Delhi before Kharge and Rahul Gandhi to “strategise on winning at least 20 to 24 Lok Sabha seats in Karnataka”, offered a deaf ear to this dire prognosis on the state’s finances. In fact, Siddaramaiah was “Congratulated” on the “successful implementation of the freebies” and the discussion turned towards taking the “Karnataka model” to the other states as well before the Lok Sabha elections in May next year.

In the state budget presented on July 7, Siddaramaiah had offered an estimate of Rs 52,000 crore expenditure on the five freebies but made a financial provision of only Rs 35,410 crore. His plan was to recover that money with a 20% increase in the excise levy on liquor, 10% on beer and hikes in property tax and vehicle tax.

Siddaramaiah was clearly understating the cost of freebies. For instance, he has provided Rs 17,500 crore for ‘Gruha Lakshmi’ in the budget while the finance department’s calculation showed that Rs 31,000 crore was needed. One other freebie, ‘Yuvinidhi’, a Rs 3,000 per month stipend scheme for the graduate unemployed youth and Rs 1,500 for diploma holders for at least two years, finds no mention in the budget and Siddaramaiah himself has said, “We may try to implement it from December or so.”

 Focus on Lok Sabha polls

That the government is struggling to somehow fulfil its promises at least till the Lok Sabha elections is evident from the fact the free bus ride, the ‘Shakti’ scheme unexpectedly cost a whopping Rs 250 crore in the first month alone to the state transport corporations, but the government reimbursed only Rs 125 crore and has delayed the payment of salaries to the staff.

Taking the government to task for making “irresponsible election promises” and now pushing the state towards “financial bankruptcy”, former chief minister Basavaraj Bommai said the plight of the transport corporations was such that “the day is not far off when we will find buses abandoned on roads without petrol or diesel and lacking in manpower to repair them.”

There was a hue and cry as the opposition exposed the “surreptitious withdrawal” of Rs 11,000 crore from the Scheduled Castes and Scheduled Tribes fund. The government, however, claimed that it was only “a financial adjustment” which would be reimbursed later.

Economists have warned that Karnataka, which for a long time had maintained fiscal responsibility by keeping the deficit below 3%, was in danger of exceeding the deficit by another 2.38% if all the five freebies were implemented. “It will not only put the state in a debt trap, but there is the danger of the Central government “punishing” the state by withdrawing several concessions which are available to only those states which practice financial discipline,” one of the senior economists said.