Edited By: Siya Kohli
Do the benefits that the 2023 Karnataka budget promises to reap outweigh the costs? How sustainable, really, are the plans it pitches? Does it forecast effective development?
In what has since become a politically loaded statement, Karnataka Deputy Chief Minister DK Shivakumar, on 26th July 2023, said that the newly established Congress government in Karnataka “cannot give funds for development this year”. He explained that this was in lieu of financial constraints caused by the government’s five promised guarantees. The ‘freebies’ referred to by the minister have attracted wide attention as the core of the government’s 2023 budget. They entail five guarantees that were a prominent feature of the Congress Party’s electoral campaign. Providing additional financial aid of Rs. 4,000 to Rs. 5,000 to each household, the guarantees cost the government approximately Rs. 52,000 crores annually and will benefit around 1.3 crore families.
The monthly promises include 200 units of free electricity, 10 kilograms of free food grains for the poor, Rs. 2,000 for each woman head of the family, and an unemployment benefit of up to Rs. 3000 for youth who have just graduated college. Additionally, free bus travel for women in non-premium RTCs has been instituted across the state. It is worthwhile to note that these guarantees are in addition to multiple other promised benefits to specific demographics. For example, the government has promised to provide marine fishermen Rs. 6,000 as allowance during the fishing holiday, and 500 litres of diesel tax-free annually for deep sea fishing.
According to various political analysts and election studies, these “populist” promises deeply resonated with the citizens, and were crucial in the leadup to the Congress Party’s landslide election victory. So, it is justifiable that they play a central role in the first budget presented since. However, it is worthwhile to question the trade-off that the prioritization of promises presents. What has been compromised to make these guarantees fundamental? As the Deputy Chief Minister himself has said, they come at the cost of other direct developmental schemes, particularly in the Public Works Department and Irrigation Department. Additionally, however, the Chief Minister, in the budget, announced not a single big-ticket infrastructure project.
Proportional - or not?
The estimated amount to be spent on the fulfilment of the promises, as The Economic Times notes, amounts to nearly 20% of the entire budget. Moreover, it is as large as the fiscal deficit of the last financial year, an aspect of governance that Congress repeatedly criticized. As per the budget itself, the fiscal deficit for 2022-23 was expected to be around Rs. 60,000 crore, which is 2.6% of the state’s GDP. Despite these figures, Randeep Surjewala, Karnataka Congress General Secretary noted that the promises would not make up more than 15% of the state budget.
However, he also said that the size of the budget is expected to increase over the next five years - a forecast that seems plausible enough. Karnataka has, in the recent past, observed high revenue growth rates. In fact, it observed the highest GST collection growth rates in the country. While this seems promising, the state’s borrowings have gathered equal widespread attention too. A staggering 30% jump in the state’s total borrowings is forecasted in the next three years.
Exacerbating the crisis
None of the government’s guarantees look too good for its deficit situation. For instance, Karnataka’s energy sector is likely to be affected by the free electricity promise. As per reports, electricity supply companies in the state already face significant liabilities and are bound to be impacted further as the burden increases. It is important to carry out poll promises with a perspective of the state’s long-term development. Academics have opined that it is not sustainable to continuously add to the state’s fiscal burden and deficit. It is important to question the means of financing the government’s plans, particularly as years progress. This must practically come from one of two sources: increased taxes or borrowings.
While Shivakumar’s words ring true, and the budget does not foster much infrastructural development, Chief Minister Siddaramaiah proposed two allocations for improving the Bengaluru transport network. The Namma Metro program was allotted 15 times last year’s amount towards increased lines and city coverage. Additionally, a new flyover is to be constructed in the center of the city, in a bid to ease traffic and improve metro road connectivity. It is expected to cost Rs. 263 crores. Other budgetary assignments also include the betterment of stormwater drains and scientific waste disposal mechanisms in the city. They all seem to come together to contribute to the Brand Bengaluru image and the government’s commitment to improving it. This, however, stands contrary to criticism that has arisen from certain economists, pointing out that Bengaluru, alone, is not Karnataka.
It is important to analyse the long term impact and cost of the plans the Karnataka government have laid out in their 2023 budget to try and answer the question: is it sustainable, really?