While the speculation about the impending Union Budget is rife and the states are busy preparing their own budgets, it is time to take a long term view of budgets, performances and reforms. In Karnataka, this is most opportune moment as Sri S Siddaramaiah, the current Chief Minister of Karnataka, is about to complete 1000 days in office. After assuming office on May 13, 2013 he has throughout retained the Finance portfolio with himself showing his love for the subject and perhaps also his lack of trust in other colleagues when it comes to money matters!
He has held this portfolio earlier as well and in fact has the distinction of presenting 10 budgets of Karnataka with the last three as chief minister. He was the finance minister who introduced the VAT in 2004-05, a first in the country. Immediately after assuming the office as Chief Minister, Siddaramaiah fulfilled the poll promises by announcing measures such as Anna Bhagya, providing food grains to poor at Re one/kg, waiving off the loans of SC/ST and minorities and providing the loans up to Rs. 2 lakh to farmers at zero percent interest. In his budget speeches he has repeatedly asserted his commitment to social justice and inclusive growth. Here, we examine his decisions and performances as viewed through budgets and expenditure, from the perspective of social justice. In normal fiscal parlance, most measures meant for poor and vulnerable become ‘populist’ or ‘doling out’; while this is not a correct way of assessing expenditure for the poor, everything done in the name of social justice also cannot be justified till it really has improved people’s lives.
Budget is as much about revenue as about expenditure. First of all, let us examine whether he able to raise the revenue as estimated? A perusal of the last three budgets indicates that the fiscal position of the state is good and the state’s own revenue grew by 16 percent in 2013-14 and 12 percent in 2014-15; this growth is higher than the national average and also higher than the inflation, and therefore signifies real increase. Karnataka has achieved the highest tax to GSDP ratio, over 10%, since 2010-11, in the country. High revenue mobilization in the last three years has been achieved through a combination of measures including rationalization of taxes and duties, use of technology to enhance the compliance and prudent increases in the rates for taxes and fees; supported by an economy that withstood the ill effects of global recession better than most other states. An increase in the state excise duties and enhancement of VAT on tobacco products as well as hiking the license fee for liquor shops have resulted in higher revenue; tapping areas where the demand is rather inflexible and raising the rates is seen as politically correct, are prudent ways of revenue mobilization. The revenue collections have been close to the estimates; a sign of good budgeting practice.
High revenue mobilization helped Siddharamaiah to maintain revenue surplus, something that every government has achieved in the state since 2006. This is also because the state, first in the country, had enacted the Fiscal Responsibility and Budget Management Act in 2002 making it mandatory to maintain the zero revenue deficit and to contain the fiscal deficit to be under 3 percent of estimated GSDP. The Act was brought by the Congress government under S M Krishna but Mr. Siddharamiah was not in Congress then!
Table 1: Budget Estimates and Actual Expenditure of Karnataka (Rs. in Crore)
|Devolution and Grants from GOI||26447||31484||36695||34709||20456||22908||29259|
|Miscellaneous capital receipts||299||335||168||166||191||197||94|
|Loans and Advances||2086||753||477||733||1102||695||576|
The increased revenue, however, has not necessarily translated into increased capital expenditure; capital expenditure grew at a much slower pace as compared to revenue expenditure. It seems that the increased revenue expenditure funded the increased revenue expenditure while internal debt was used for repayment of loans and interest, rather than for augmenting the capital expenditure. Does this indicate that the expenditure on social sector and social protection is taking the major share of expenditure as compared to what is traditionally referred to as capital formation? Does that mean that Siddhramaiah’s budgets are meant to promote social justice and hence if not capital formation oriented, these are human development oriented? The answer is not an unambiguous yes as yet.
Table 2: Internal Debt and Interest Payments of Karnataka (Rs. in crore)
|Receipts from Internal Debt||12116||16132||20509||21225|
|Repayment of GOI loans and Market borrowings||3727||3817||4812||5788|
|Repayments as percent of internal debt||87||72||69||78|
The last two years have witnessed two major shifts in union-state transfer modes. The UPA government in its last year, 2014-15, started routing the funds for major centrally sponsored flagship programmes such as Sarva Shiksha Abhiyan (SSA) and National Health Mission (NHM) through the state budget instead of transferring directly to the respective Societies. This did not effectively mean more money but made the state budgets look bigger. The Fourteenth Finance Commission’s recommendation of increasing the states’ share in the divisible pool of taxes from 32 to 42 percent came next. This meant that the states had access to greater amounts of untied funds but it came with huge cuts by the union government in major flagship programmes. It was expected that the states with more untied funds in hand will meet the shortfall. But most states including Karnataka have used the increased control over resources to contain the fiscal deficit rather than to maintain the expenditure on flagship schemes. This effectively meant a decline in total allocations for schemes that are to do with early childhood (ICDS), education (SSA and RMSA), health (NHM) and housing (IAY). There are contradictions when it comes to positions taken regarding particular expenditure and committing its own funds for the same; for instance, though the state government in its memorandum to 14th finance commission had argued for building 10000 anganwadis on a priority basis at the cost of Rs.1500 crore, the state allocation during 2015-16 was reduced to Rs. 44 crore from previous year’s allocation of Rs.72 crore.
Anna bhagya, perceived as Siddaramaiah’s baby and aimed at providing foodgrains to poor (BPL) families at 1 Re/kg in 2013-14 was revised in 2014-15 to make it free of cost. But this too saw a fall in the allocations and use over the last three years: from Rs.3400 crore budget and the actual expenditure of Rs. 3046 crore in 2013-14, and a budget of 4365 crore and actual expenditure of 2590 crore in 2014-15, the allocation in 2015-16 came down to Rs. 2022 crore. Anecdotal reports suggest that the poor quality of grains distributed is one major reason for the low uptake; the threshold for the quality even for the poor has to be upped!
Shri Siddharamaiah took a bold decision when he passed the Karnataka Scheduled Caste Sub plan and Tribal sub plan (planning, allocation and utilisation of financial resources) Act in 2013 pegging the plan allocations for dalits and adivasis to their population proportion. The allocations for SCP and TSP have been increasing in the last three years but the inclusion of heads under these appears to be arbitrary and it is difficult to track these in absence of any compulsion to present the expenditure against allocations. While the allocations aimed at individual beneficiaries are clearly understood, the allocations for heads like construction of dispensaries, education extension and research, regional transport authority, rejuvenation of tanks, and the like do not seem to have any clear basis regarding why these are meant for SC/ST population. This is similar to gender budget where also the allocations in many cases belie any logic, and there is no reporting made in the following years about expenditure and impact.
Talking of gender, this seems to be a grossly neglected area in the present chief minister’s budgets. The recently released National Family Health Survey (NFHS-IV) is an indictment on Karnataka where it shows that the sex ratio for the entire population has declined form 1028 in 2005 to 979 in 2015. The corresponding decline for children born in the last five years is from 922 to 910, making it clear that the decline cannot be attributed to single male in-migration alone. Bhagyalakshmi, started by the earlier government, is the only scheme clearly targeting this issue has seen a recovery in 2015-16 with an allocation of Rs. 473 crores after successive reductions during 2012-13 to 2014-15. Women’s participation in non-agriculture sector has remained stagnant at about 21 percent between 2005 and 2015, and one cannot see any policy response addressing this issue. For issues that need behavior change, there is a need to get out of schematic approach and think of programmes that could be more holistic in nature and long term in impact.
Even in case of SC/ST allocations, there is ample room for reforms that could make the schemes more effective, implementation efficient and administration easier. For instance, the state has several schemes of building and running hostels for SC, ST, Backward classes and Minority boys and girls at different levels and most of these have different norms for food provisioning. Any change in the norms for these hostels is presented separately in the budget and corresponds to the original. It is high time that these schemes are rationalized and the disparities in the norms are removed. It is also time to assess whether several separate departments should be running the schools parallel to each other, especially in view of the issue of quality in education becoming more important.
Housing for the poor has been a priority area for Siddharamiah. The housing schemes have witnessed an increase of rate in terms of subsidy to poor for building the house and also in terms of total allocation in these three years. However, this increase is largely for the housing societies and the assistance to GPs has not seen any increase during 2015-16. The poor would have perhaps benefited more had the allocations been made to gram panchayats rather than the housing societies.
The highest amount of subsidy during these three years has gone to the agriculture sector, either directly or indirectly. The provision of interest free loan, started by earlier government, has been continued with the enhanced limit of Rs 3 lakh while also retaining the 3percent interest for loans of Rs 3-10 lakh. One does not know whether such provisions are being accessed largely only by richer farmers. The impact of subsidies in sectors such as power and irrigation remain unclear while absence of measures to make the monitoring more diligently makes it suspect whether there is any interest in gauging the impact. For instance, micro irrigation subsidies that is administered directly through suppliers do not even make it mandatory to maintain the records for both the social background and gender – the declared preferred targets for the scheme – for the release of the subsidy to these companies. This also raises the issue of vendor driven delivery of subsidies: from food, milk and kits in ICDS to micro irrigation equipment in irrigation, and makes one suspicious about the motives. It is also not clear why the improvement on land carried out through measures such as micro irrigation or cheaper loans for borewell, drip, etc. are not recorded on the RTC (Record of Tenancy and Cultivation rights) so that the same land is not eligible again for the same subsidy if bought by another SC/ST. Power subsidy is also believed to have led to indiscriminate use of ground water without any norms for its regulation despite deep concerns expressed from the environmental groups, especially in over exploited areas.
Table 3: Budget Estimates and Actual Expenditure under Social and Economic Sectors (Rs. in Crore)
|Type of Expenditure||Sector||
Budget Estimates (BE)
|Actual Expenditure (AE)||
AE as % of BE
What emerges is that even though Siddharamaih’s budgets have apparently been directed somewhat towards social justice, in reality a fair proportion of the expenditure seems to be guided by vested interests, and enough measures to check these vested interests are not in place. Siddhramaiah’s government has performed well in generating surplus revenue but the need to stretch the reforms to the expenditure side of the delivery is urgent now. He has been a bold finance minister, he also needs to be a bold chief minister when it comes to taking radical reforms that the state needs including those that could result in making the budgeting process more transparent and monitoring of the expenditure more outcome oriented.
Jyotsna Jha and Madhusudan B. V.
Centre for Budget and Policy Studies, Bangalore
This was published in Prajavani on 16 February 2016. The link to the Prajavani article is:
[Disclaimer: Views presented above are those of the author and do not necessarily reflect those of CBPS]