15th Finance Commission speaks of "enigma of two Karnatakas"

Bengaluru: There is an enigma of two Karnatakas with the existence of both high per capita income and high poverty numbers in the state at the same time, the 15th Finance Commission said on Tuesday, as it stressed on the need for closer attention on the matter.

Also, the debt to GDP ratio in Karnataka is rising and the state needs to be mindful of this going forward, the Commission cautioned, though it is aligned with the targets set as of now.

Commission Chairman N K Singh said it was somewhat ironic that as one speaks of Karnataka as India’s engine of growth, the home of technology and startup industries and where entrepreneurial instincts come naturally, per capita income was significantly higher than that of the nation, but poverty numbers were unacceptably high.

“In a sense as what many have said there is not one Karnataka, there are two Karnatakas,” he said.

One was a prosperousKarnataka and alongside it one far less prosperous and which really demonstrated how intra-state disparities could mask really the overall performance, he said, adding that was an area deserving closer attention.

Commission officials said that as per information shared with them, the poverty rate in Karnataka stood at 21 per cent.

The Commission, on a visit to Karnataka for the last two days, has held discussions with all stakeholders, panchayat institutions, Urban Local Bodies, representatives of all political parties and also interacted with Chief Minister H D Kumaraswamy, Ministers and government officials.

An official release said Karnataka had asked for special grants (state-specific) amounting to Rs 1,42,260 crore.

It also sought special funding for Bengaluru as the city plays an important role in employment generation for the country and as a growth engine to the national economy.

Singh said Karnataka represents an engine of India’s economic growth, contributing close to eight per cent of the national GDP and has spectacular records in terms of conformity on many components of financial discipline.

Noting that Karnataka was not only the first state, but preceded the national government in enactment of the Fiscal Responsibility Management Act, he said it has an exceedingly credible record of conforming to all important macro-economic parameters.

He said the government responded positively to concerns of a commission member that debt to GDP was rising and it would have to be ‘mindful’ of remaining aligned with the broad trajectory.

In 2018-19, per capita NSDP of Karnataka was Rs 2,07,062 against per capita income of Rs 1,26,406 for India,the release said, adding the state had the fourth lowest debt to GSDP ratio of 18.3 per cent in 2016-17 (after Chhattisgarh, Assam, and Maharashtra) among all 29 states.

Complimenting the Karnataka government, saying its fiscal numbers are more genuine and reliable compared to many states, the commission lauded it for management of overall finances.

“They have made credible progress with respect to most of the parameters of the sustainable development goals, exception education outcome and anemia in children, where there is still scope for improvement,” it said.

Noting that Karnataka faced eight years of droughtin the last 10 years, Singh said there is drought proneness, a need to do a lot to improve irrigation to complete many irrigation projects and improve agriculture production and productivity.

He noted that Karnataka also argued that notwithstanding its proneness to frequent droughts, the resources they received in the last finance commission, particularly for NDRF and SRDF, was “below” what it deserved and said it would be looked into.

Chief Minister Kumaraswamy, during his meeting with the Commission, said ‘injustice’ has been done to Karnataka in allocation under State and National DisasterRelief Fund and urged it to substantially increase allocations.

He also brought up the point of much deeper rationalization of centrally sponsored schemes.

Singh said Karnataka believes that sharing with respect to centrally sponsored schemes following the 14th Finance Commission’s award put an onerous burden on it and mitigates to a large extent, benefits of higher devolution of funds.

“…this is also an area of generic concern to many states,” he said.

The CM said the Commission should ensure that once the sharing formula is decided, the Central government should not reduce the funding under centrally sponsored schemes, both in terms of size and sharing pattern between Centre and State.

On off-budget borrowings, the release said it increased from Rs 1,853.62 crore in 2011-12 to Rs 13,173.44 crore in 2017-18.

Off-budget borrowings as a percentage of outstanding debt rose from 1.80 per cent in 2011-12 to 5.65 per cent in 2017-18.

In 2018-19, GST revenue shortfall was Rs 12,407.75 crore as compared to the protected revenue, which is more than 23 per cent shortfall, it added.

The Commission sought clarification from the state as whether they have a long term financially sustainable strategy to overcome agricultural distress and promote agricultural development in the State.