Karnataka may see revenue deficit year

BENGALURU:  Despite facing severe financial distress due to cuts in devolution of funds, central funding, lesser GST compensation and a dip in growth rate, Karnataka Chief Minister BS Yediyurappa had presented a revenue surplus budget for 2020-2021 in March last year. As the fiscal year draws to an end, the state might see a revenue-deficit year for the first time in decades.

The national economic slowdown, worsened by the Covid-19-induced lockdown, is all set to take Karnataka into revenue deficit with liabilities exceeding 25 per cent and the fiscal deficit up to 5 per cent of the GSDP owing to additional borrowings to offset losses arising out of GST compensation loss. Given that the state’s financial worries have worsened over the year, the difference in budget outlay for 2021-2022 is expected to be wafer thin in comparison to the outlay for 2020-2021. Slow recovery and estimated shortfall in the collection of state’s own taxes has also added to the fiscal burden.

While a ‘one-time’ amendment was made to the Karnataka Fiscal Responsibility Act to allow increased borrowing for the 2020-2021 fiscal, the Finance Department now suggests that the amendment could be brought once again for the next fiscal year if need be. “The amendments were brought in to say fiscal deficit will be up to 5 per cent, liabilities will be higher than 25 per cent and we may face revenue deficit. That is how this fiscal year is likely to end.

The Union Government, in its budget for 2021-2022, has allowed states to borrow an additional 1 per cent over and above the 3 per cent of GSDP. Based on necessity, we have to bring an amendment again,” an official explained.In its estimates for the budget 2021-2022, the state Finance Department has taken note that there is a shortfall in revenue receipts. 

Recovery hasn’t been up to the mark: Official 

“While there were signs of recovery in the second quarter, it hasn’t been up to the mark. We usually take about 10-14 per cent over and above last year’s receipts as growth estimates, but this year, we are just about reaching collections of what we saw in the corresponding period of 2019-2020. This means February collections this year is basically what was in 2019-2020 in the same month. Technically, then 2020-2021 becomes a null year,” said an official. 

While the Excise Department is expected to achieve 95% of revenue targets, all other state revenues are expected to see a shortfall. But expenditures will remain unchanged, leading to a revenue deficit. Out of the capital receipts, the state will have to fund revenue expenditure. Apart from expenditure like salaries, funds for welfare schemes, the state has the added burden of additional principal and interest repayments on additional borrowings.