Karnataka is looking at a potential drop in revenue of Rs 65,459 crore in the current financial year, and the state government has been forced to resort to huge borrowings to tide over the shortfall, according to a former GST Council member.
In an interaction with ET on Thursday, Congress MLA Krishna Byre Gowda said the state’s GST shortfall this year is expected to be between Rs 25,000 crore and Rs 27,000 crore. The Centre has promised Rs 18,000-19,000 crore to plug the shortfall, which will still leave a hole of Rs 7,000-8,000 crore.
While the estimated grant from the Centre was Rs 31,570 crore, the State would get a meagre Rs 17,372 crore, the Bengaluru MLA added. The former minister also estimated that Karnataka would get Rs 50,000 crore less than last year from the Centre.
Karnataka’s budget has estimated revenue of Rs 1,80,217 crore for this fiscal year, but that is expected to slip to about Rs 1,14,758 crore, triggering a financial crisis. The GST compensation issue has split states along party lines, with BJP and allies on one side and the Congress and others arraigned against them.
Gowda said the BJP government at the Centre has structurally weakened states’ ability to raise resources and has reduced the pool of funds to be shared with states. Karnataka, according to him, strictly followed fiscal prudence for 15 years regardless of the party in power. The state, he said, met revenue surplus, fiscal deficit and cumulative liability conditions each year. “A state with an exceptional legacy is now being coerced towards a very precarious future,” he alleged.
Karnataka has accumulated debt of Rs 3.27 lakh crore over the past decades. “Just this year, we are compelled to borrow between Rs 90,000 crore and Rs 1,00,000 crore. In other words, Karnataka will borrow during just this one year nearly a third of our total borrowings of several decades,” he said.
“This has been thrust upon the state because the Centre is neither giving our rightful share of central taxes, nor compensating the GST shortfall in full,” he said. Karnataka will soon run out of funds for development and welfare programmes because of its debt servicing commitments. Expenses such as salaries, pension, and loans make up 70% of revenue expenditure.
“Some of the robust revenue streams like excise are reaching a plateau. The expiry of GST compensation in 2022 will shatter any semblance of the state’s fiscal capacity,” Gowda said.