Media reports over the past week have quoted Karnataka’s Deputy Chief Minister DK Shivakumar as having said he lacks funds to pursue development projects after the state government fulfilled the Congress party’s five poll promises which are thought to have been instrumental in helping it to a famous victory in the Assembly election. The Congress government has provided Rs 40,000 crore for an unemployment stipend, free electricity, free bus rides for women, cash handouts to women heads of families, and cash transfers equivalent to 10 kg rice per person, per month, over and above the centrally-sponsored 5 kgs. Supporters of the party as well as some independent experts assert that these benefits are not “doles” as the Opposition BJP and other experts term them, but steps required for social equity.
Further, goes the argument, given its access to substantial resources, Karnataka can afford these expenses. It is a fact that Karnataka is among the most developed states of India and a top destination for foreign direct investment (FDI). Care Ratings placed Karnataka in the top-five of its recently published States’ Ranking 2023 report, the criteria for which was based on performance in seven areas ~ economic, fiscal, financial inclusion, social indices, infrastructure, governance, and environment. Karnataka was ranked the second-best major state on the economic front and the environment, fourth on fiscal discipline and financial inclusion, ninth on social indices, 10th on infrastructure, and 14th on governance.Yet, when the politically weighty Mr Shivakumar’s water resources and irrigation department is not allocated funds in the state budget to initiate projects, there is perhaps a need to pause for thought. Especially, as the rollout of the subsidy schemes have just begun and expenses could go up exponentially in the years to come. Of the Congress’ five election guarantees, four are perhaps justifiable even if financially imprudent. But the outlier in this respect is the promise of 200 units of free electricity. Experts point out that Karnataka already foots a large power subsidy bill. In FY 2020-21, the State disbursed Rs 11,148 crore to DISCOMs, draining 11 per cent of its revenues.
The looming annual cost of the election guarantees has been estimated at Rs 65,082 crore. Of this, the free power guarantee comprises Rs 15,498 crore. This projected outflow threatens to derail the state’s recent efforts towards fiscal consolidation. Karnataka’s fiscal deficit had fallen to Rs 61,564 crore (3.26 per cent) in FY 2022-23, in compliance with the four per cent mandate under the Karnataka Fiscal Responsibility Act. Karnataka’s outstanding liabilities stood at 27.49 per cent as of March 2023, overshooting the 25 per cent target. Massive power subsidies are an example of how an