Vivek Mallya
Karnataka, close to the elections seems to be in the grip of statistics and numbers. The Chief Minister’s posters on financial metrics of the state have not spared even Bengaluru Metopolitan Transport Corporation (BMTC) buses. Warranting a relook at the realities of this number crunching, it is imperative to review two key documents—the Karnataka Budget for 2018 and the preceding Economic Survey released by the Government of Karnataka.
Indebtedness
The total debt of the state is expected, as per the State’s Survey, is close to Rs 242,420 crore as at March 2018. This would mean that the state’s indebtedness would have increased by Rs 37,000 crore during the current year. Fiscal norms mandate that the State’s indebtedness would have to remain within 25 per cent of the State’s Gross Domestic Product (GSDP). In simple terms, like any other business man—the debt should remain within 25 per cent of the turnover/sales of any commercial organisation. The Survey pegs the Liabilities to be at 18.93 per cent of the GSDP, which would reflect a manageable debt position, at first glance—the number of Rs 14,158 crore being the Budget Estimate for interests during fiscal YE (year-end) March 2018 creates panic.
The problem which is not visible to the common man is the fact that the State has committed expenditure of Rs 10,508 crore (6th Pay Commission) towards increased payroll costs and Rs 8,165 crore towards farm waivers. Both these stated expenditures find no place in Budget 2018 and have to be financed through increased borrowings, give near deficit or small surplus in the Budget.
Karnataka having borrowed Rs 37,000 crore during YE March 2018 is able to fund accumulated repayment obligations of only Rs 8,175 crore. The Current year Debt Carry over itself would be about Rs 30,000 crore—add to this another deficit projected in the next year of about another Rs 46,000 crore (including pay commission and loan waiver), we would be looking at a record cumulative debt of Rs 318,000 crore for the YE March 2019. Just to add perspective the Debt of Maharashtra is about Rs 400,000 crore and its GSDP is about Rs 30 Lakh Crores, whereas Karnataka’s Debt of Rs 320,000 Crores would compare to only a GSDP of about Rs 13 Lakh crore.
Jugglery and Trickery
Constant complaints on Goods and Service Tax (GST) by the Congress have been exposed, as trickery, by their own numbers in the Karnataka Budget. The Budget estimated Commercial Tax collections of Rs 55,000 crore for YE March 2018 (in Feb 2017 itself, prior to GST)—the actual collections now appear to exceed this estimate by over Rs 2200 crore. GST glitches aside, the Karnataka Exchequer has benefitted in the first year of its implementation, being a consumption state.
The numbers for Pay Commission and Farm Waiver find no place in the Budget 2018, but the Government’s Order of March 2018 has crystallised the liabilities to the incumbent administration, post elections. The new Government has to find ways and means to ensure Revenue deficits are within range. Again, the buoyant GST Collections can be expected to come to the rescue of the State.
Claims by the CM of Karnataka being the Number 1 Foreign Direct Investment (FDI) State have been contested by both the Reserve Bank of India and the Department of Industrial Policy and Promotion. FDI into Maharashtra and NCR exceeds that of Karnataka both on monthly basis as well as cumulative basis. Details are available, based on actual filings, in the FIFP Portal.
Regional Disparity
Per Capita Income is a traditional benchmark of the common man’s access to survival basics. Karnataka, in its Economic Survey claims a Per Capita Income of Rs 174,551 as against a National Average of Rs 111,782. While prima facie this appears to reflect a healthy position, matters take a rough turn when we compare the same benchmark, district wise. Bangalore leads the Per Capita Income of Rs 320,346 and Kalaburagi lags at a Per Capita Income of Rs 65,493. 16 Districts of Karnataka including CM’s home districts of Mysore (Rs 100,939) and Chamarajanagara (Rs 99,998) are way below the National Average of a person’s earning per year.
Again, in Investment terms, the Government’s Project Approved Numbers in 2016 reveal only Rs 139 crore Investments into Mandya; Rs 193 crore in Chikkamagaluru; and abysmally low numbers of Rs 81 crores in Bidar and Rs 137 crore in Gadag. When compared with these numbers to Rs 30,008 crore in Bellary and Rs 16,994 crore for Bangalore Urban, the regional disparity and lack of focus on balanced growth becomes stark and real. Bellary has significant Steel and Power related commitments, else this Government has proven to be Bangalore Centric in its Investment pattern—no steps are taken, even by State PSUs to shore up investment in highly populated Districts.
Invisibles
Committed and drawn down debt is visible in the Budgets—the invisibles include State Guarantees given for major committed projects, such as Bangalore Metro, where the State and Central Governments are equal shareholders. This one project alone has a capital outlay of Rs 40,000 crore, the state’s guarantee obligations, being contingent ones— apart from other commitments, which State Finance Corporations have issues, also need visibility. Commitments to BBMP, KPTCL, DMA, etc and are all entities which add to the stress that would come to bear on our ability to increase development related borrowings.
Agriculture and Horticulture
Budget 2018 and the CM’s rhetoric of increasing allocation to Agriculture and dismantling of the Agriculture Budget sounds hollow in graphic terms, literally. Allocation, depicted in graphics as part of the Budget to Agriculture has increased from Rs 6601 crore (YE March 2018) to Rs 7301 crore (YE March 2019)—or a measly Rs 600 crore. The allocation seems to be a result of MS Excel Software rather than any application of mind, as it matches 3 per cent of the Gross Allocation in both years and the one crore over round numbers is a giveaway as well.
All Economic documentation issued by CM hasn’t covered the impact of Climate Change on the people and productivity; the trinity of challenges—population, water and the city of Bangalore. Karnataka’s effective population number used and its impact on metrics such as Per Capita Income, Per Capital Development Expenditure appear to be a State secret.
(The writer is a Fellow Chartered Accountant (FCA), CPA (USA) and a renowned Insolvency Resolution Professional)
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