Borrowings keep Cong populism on track in Karnataka

THE Congress government in Karnataka under Chief Minister Siddaramaiah has charted a new course of social welfare politics in its approach to governance. The first Budget of the new government, presented by the CM in the Assembly last week, announced budgetary allocations to implement the party’s social welfare poll plank of the ‘five guarantees’.

The guarantees are: Gruha Lakshmi scheme of a monthly income support of Rs 2,000 to one woman head of the family; Gruha Jyothi scheme that provides free electricity to consumers who use less than 200 units per month; Anna Bhagya scheme, which offers an additional 5 kg rice free of cost per eligible person in addition to the already available 5 kg free supply; Shakti scheme, which promises free bus ride for women in designated state road transport service buses; and Yuva Nidhi scheme that promises a monthly unemployment allowance to graduates and diploma holders for two years at the rate of Rs 3,000 and Rs 1,500, respectively.

Sceptics had accused the Congress of wooing the voters by making misleading and unrealistic freebie promises in its poll manifesto. Many experts had raised serious doubts about the availability of budgetary space to fulfil the tall poll pledge in the form of the five guarantees. Privately, even Congress leaders were unsure whether the party, if elected to power, could indeed keep these promises.

There was, thus, talk about imposing stringent conditions to narrow down the list of people who would be eligible for these benefits, though an impression had been created during the elections that almost everyone would be included.

Even though the Siddaramaiah cabinet had given in-principle approval for implementation of the guarantees and a couple of them were also rolled out subsequently, people were waiting for the Budget to assess the efficacy of these initial moves. After all, the money had to be allocated to back the approval. As the Leader of the Opposition, Siddaramaiah had accused the erstwhile BJP government of Basavaraj Bommai of pushing the state into a debt trap by borrowing more and more.

But Siddaramaiah did exactly what he had accused the BJP government of doing — borrowing more to fund the implementation of the five guarantees. He had to do it because of the political pressure mounted on him from all corners to show sincerity about the implementation of the guarantees. There is also a more important short-term electoral compulsion. There is a general belief that the Congress’ Lok Sabha election prospects in Karnataka would improve if the state government is perceived to be sincerely implementing the five guarantees.

The Chief Minister has sought to do exactly as per the demands of the circumstances — try to implement the guarantees. It is, however, evident from his Budget speech and documents that his government continues to grapple with the challenges of implementation. The government lacks clarity about the number of the potential beneficiaries. It thus poses a critical question about the quantum of money required for these schemes. At the outset during his Budget speech, the Chief Minister made a general estimation that around Rs 52,000 crore would be required annually to implement all five guarantees. However, going into the details of implementing each of the five guarantees in the same Budget speech, he said annually around Rs 30,000 crore would be required for Gruha Lakshmi scheme,

Rs 13,910 crore annually for Gruha Jyothi, Rs 10,000 crore annually for Anna Bhagya,

Rs 4,000 crore annually for the Shakti scheme, and he did not specify any number for the Yuva Nidhi scheme. In other words, the money adds up to Rs 57,910 crore annually. This is almost Rs 6,000 crore more than the initial figure of Rs 52,000 crore the CM mentioned. The macro projection by the Chief Minister and the micro projections made by the government departments concerned betray the prevailing lack of clarity.

Going by the lowest projection of Rs 52,000 crore the Chief Minister gave, an estimated Rs 39,000 crore would be required for the implementation during the remaining nine-month period of the current fiscal. Against this, Siddaramaiah, who also holds the finance portfolio, allocated Rs 37,015 crore for the purpose — Rs 17,500 crore for Gruha Lakshmi, Rs 9,000 crore for Gruha Jyothi, Rs 7,465 crore for Anna Bhagya, Rs 2,800 crore for Shakti, and Rs 250 crore for Yuva Nidhi.

While there could still be questions about smooth implementation of the guarantees, the allocations make the intentions to implement with conditionalities clear for the current fiscal. However, the Chief Minister’s real challenges begin only now. Fortunately for him, there is fiscal buoyancy and he can hope for the tax revenue to grow impressively. Yet, the fact remains that to fund the five guarantees, Siddaramaiah has recorded the state’s highest-ever budgetary borrowings. At over Rs 86,000 crore of projected borrowing, it has surpassed the quantum of money borrowed during the Covid period two years ago.

But the unprecedented borrowing itself wasn’t enough to create the necessary fiscal space. The Chief Minister announced spending cuts over last year’s revised spending estimates in several critical areas to the tune of over Rs 15,000 crore to finance the guarantees. The sectors that bore the brunt of these cuts in the revenue and capital expenses are: irrigation, rural development and employment, crop husbandry, transport, urban development, education, and in the provisions made for relief and rehabilitation during natural calamities.

Actually, almost the entire projected increase in gross spending in the Budget (Rs 38,094 crore) over last year’s numbers is going for the guarantees. Seemingly, there is also no provision for the implementation of the 17 per cent interim relief announced earlier this year for government employees, pending finalisation of the 7th state pay panel report. Can this excessive reliance on borrowings and seemingly lopsided spending priorities be sustained? Only time will provide the answer.