The Karnataka’s Medium Term Fiscal Plan (MTFP) for 2022-26 has cautioned the State Government against launching new schemes as the revenue receipts are almost fully used to fund the committed expenditure and only a small amount is available for undertaking developmental activities.
It also recommended to the Government to take timely measures for containing the revenue expenditure.
Salaries, pensions
The Government’s non-scheme committed expenditure includes salaries, pensions, interest payments, and administrative expenses. About 57% of the revenue receipts was spent on meeting these four types of expenditure. A sum of ₹1,08,457 crore was committed to this expenditure as per the revised estimate (RE) in 2021-22.
The Government’s scheme-based committed expenditure goes to providing subsidies, social security pensions, financial assistance, grant-in-aid-non salaries, devolution of funds to local bodies etc. About 32% of the revenue receipts (₹60,695 crore as per the RE) is spent on these five types of expenditure, almost every year.
The MTFP said that nearly 89% of the revenue receipts go to the revenue expenditure and this would provide little room for availing funds for capital expenditure for undertaking development projects and assets creation.
Reduced capital expenditure
The capital expenditure was ₹44,237 crore in the 2021-22 Budget and later it was reduced to ₹42,366 crore owing to increase in revenue expenditure. Chief Minister Basavaraj Bommai increased it to ₹46,955 crore in 2022-23 and the actual expenditure would be known only in March 2023.
“As the growth in revenue receipts in the immediate future may not deviate much from the existing trend, it is important that timely measures are taken by the State to contain the revenue expenditure”, MTFP said.
Containing revenue expenditure was imperative as there is a statutory requirement for the State to maintain revenue surplus as per the Karnataka Fiscal Responsibility Act.
Good balance earlier
From 2004-05 to 2019-20, the State has well managed this delicate balance between revenue receipts and revenue expenditure by attaining revenue surplus over these years. However, COVID-19 during 2020-21 and 2021-22 impacted tax collection resulting in decreasing revenue receipts. Moreover, the State borrowed loans to meet the revenue expenditure during the pandemic years. The Government was not able to use borrowings fully for capital expenditure, MTFP said.
The Fiscal Management Review Committee, which met last month, reviewed the current and projected revenue situation. It suggested that “a roadmap may be started so that the State becomes revenue surplus and brings its total liabilities below 25% of the GSDP in the next 2-3 years. The total liabilities at the end of 2022-23 have been estimated at ₹5,18,366 crore (27.49% of GSDP).
