From coronavirus to populist regimes: Karnataka in the tax soup

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Despite being the birthplace of startups and known as the Silicon Valley of India, Karnataka has taken a huge hit on financial resources from 2020-21 to date

Bengaluru: Karnataka, which has vibrant automotive, agro, IT, aerospace, textile, biotechnology and heavy engineering industries, is showing a worrying trend due to the impact of pandemic and natural calamities.

Despite being the birthplace of startups and known as Silicon Valley of India, Karnataka has taken a huge hit on financial resources from 2020-21 till date. The state’s public debt rose to 31.38% between 2019-20 and 2020-21, creating a precarious financial situation.

Impact of Covid on Karnataka Economy

The outcome of the pandemic has been such that according to the Finance and Appropriation Accounts Report 2020-21 issued by the Comptroller and Auditor General (CAG), the government recorded a decline of Rs 14,535 crore in collection taxes.

Total government debt rose from Rs 3.19 lakh crore to Rs 3.97 lakh crore, an increase of Rs 78,000 crore, forcing the government to suspend some ambitious and populist schemes.

Losses incurred in SGST, state excise duty, sales tax, stamps and registration and vehicle taxes. However, non-tax revenue increased slightly from Rs 7,681 crore to Rs 7,894 crore.

According to the Ministry of Statistics and Program Implementation, GSDP growth decreased by 9.28% in 2019-20 and 2.23% in 202-21, compared to 10.71% in 2017-18 and 11.50% in 2018-19.

The government faced a severe drought situation when it took power in 2019, and then adding other misfortunes, half the state was hit by the fury of the floods. Later, the Covid pandemic further complicated the state’s financial situation. During the tenure of Chief Minister BS Yediyurappa, no major populist programs could be distributed. Currently, his successor, Chief Minister Basavaraj Bommai, has a tough job ahead of him as he is due to present an election-year budget on March 4.

Loans in the Karnataka market

The CAG report also shows that the government had to increase its borrowing. Indeed, the resulting impact has pushed the interest component to Rs 22,666 crore or 14.6% of state revenue, which is placed at Rs 1.56 lakh crore. The CAG also noted that 13 irrigation projects, 41 roads, three bridges and one in the other categories have remained unfinished for more than five years.

Ashwathnarayan, the BJP’s state general secretary, told IANS that as political parties race to woo voters with welfare packages and handouts on the lines of Tamil Nadu and Andhra Pradesh, CM Bommai is middle class inclined and the upcoming budget is not going to be fancy budget.

When asked if the BJP was under pressure after Delhi Chief Minister Arvind Kejriwal provided free essential services to the people, he replied that Delhi is a mini-state, it does not does not include farmers, mass transportation system, irrigation projects, public order system and even medical education. It looks more like a municipal corporation area. Free electricity, free water and other populist schemes are virtually unachievable in a big state like Karnataka.

Basavaraj Tonagatti, SEBI RIA, Paid Financial Planner, CFP and Financial Blogger, told IANS that if you look at last year’s budget, you can notice that debt servicing has risen to 21% from 2019- 2020 to 2020-21. However, capital expenditure only increased by about 5 percent. This shows that the government is borrowing more but not diverting the same to capital spending. It also shows that the government is not spending to create assets, especially physical infrastructure like roads, railways, factories, ports, etc. “So hopefully this year they manage their debt and divert spending to capital spending,” he said.

Private investment in Karnataka

Although the government says everything is fine, private investment has been down for a long time, consumption is down, unemployment is high.

Abdul Azeez, Honorary Visiting Professor, Institute for Social and Economic Change (ISAC), Bangalore, said the pandemic has slowed economic growth, increased unemployment and heightened inflationary pressures, as a result of which social justice have taken a hit.

The objective is to encourage consumption. If consumption increases, inflationary pressure will remain high. Retail inflation has already risen to 6% and wholesale inflation to 11%, he said. The government should think about providing the necessary assistance to producers and ensuring their electricity and water supply, he added.

Pavan Srinath, independent policy researcher, said:

“We need a growth-oriented budget. We need to spend more. Also in the central budget, capital spending has been increased. There is rural distress, high unemployment, the government should use its ability to spend more.”

Free and populist programs

During the Congress regime, when Siddaramaiah was at the helm, he rained sops and gifts on people through bhagya programs. The gift blitzkrieg was so big that it sparked a debate about whether these gifts made people lazy.

Kannada writer SL Bhyrappa and Jnanpith recipient Chandrashekar Kambar strongly criticized the Siddaramaiah government over the Annabhagya project. Bhyrappa said it is not possible to empower the poor through programs like Anna Bhagya. The trend is very dangerous.

Chandrashekar Kambar argued that the gifts had a profound impact on the attitudes of workers and the agricultural sector. When you take care of almost all of people’s basic needs – be it food, clothing, shelter, health care, raising children, there is little motivation to work hard. Instead, the government should enable the poor to lead dignified lives, he said.

Dismissing criticism, Siddaramaiah said he would continue to implement programs aimed at bringing the poor into the mainstream. Only hungry people will understand what hunger is. However, he suffered defeat in the following general election.

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