Can Karnataka govt deliver its welfare schemes? Economists weigh in

Economists say that as long as the Karnataka government makes an effort to identify the right beneficiaries for the five schemes and plug leakages, the expenditure can be easily met.
Congress's five guarantees and CM Siddaramaiah
Congress's five guarantees and CM Siddaramaiah
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As the Congress romped home to a thumping victory in the Karnataka Assembly elections that concluded earlier this month, the first issue it raised was the implementation of the five guarantees it had promised during the campaign. The party, in its manifesto, promised 200 units of free power to all households (Gruha Jyothi), Rs 2,000 to every woman head of households (Gruha Lakshmi), free bus travel for women in all state-run buses (Gruha Shakti), Rs 3,000 to unemployed graduates (aged between 18-25 years) and Rs 1,500 to unemployed diploma holders for two years (Gruha Nidhi), and Rs 10 kg of rice to every member of a Below Poverty Line (BPL) family (Anna Bhagya).

In his press conference after the first cabinet meeting on May 20, Chief Minister Siddaramaiah said the government would have to spend almost Rs 50,000 crore annually to fulfil the guarantees. "I am confident we can implement the schemes without pushing the state into bankruptcy. We plan to cut down on wasteful expenditures and decrease the loan amount. I don't think our government can't raise the amount,” he said, also adding that the government was paying Rs 56,000 crore annually as interest on loans and that they would surely be able to raise Rs 50,000 crore for the schemes. Consequently, the cabinet gave in-principle approval for all five schemes.

Economist and former director of the Institute for Social and Economic Change, RS Deshpande says that the state has three major sources of income they could consider to raise this money. “One is the excise taxes. The second is entertainment tax and the other thing the government should consider is increasing rent for its property,” he elaborates.

He further says that the state government needs to chalk about its source of revenue because there is no logic in the Chief Minister saying that the state’s share of compensation for GST (goods and service tax) collection should be higher as it does not make economic sense. “In that case, Maharashtra, which has the lion’s share of GST collection will have to get more compensation as well. The state must consider bringing in a marginal increase in the rate of taxation in both excise and entertainment. Where it has to seriously consider increasing taxes is in the property sector. The government has leased out so much prime property. When was the last time that property rates were revised? Many properties are paying rent that was fixed 25 years ago and at a meagre 6%. That should be increased to at least 10%. The trick is to find additional revenue streams and increase taxes not prohibitively, but to just skin the upper layers,” he says.

So far, Siddaramaiah and Deputy Chief Minister Shivakumar have not held serious discussions with the Finance Department with the exception of one meeting where the two conveyed to the Department that they were fully committed to implementing the scheme.

A source in the Finance Department says they are looking at rationalising some of the existing schemes. “How this will work out depends on what the government’s priorities are. As of now, there is not great scope for increasing taxation as we do not have much leeway in this. With GST in place, we do not have much scope for this. But in excise, while the premium brands are already heavily taxed, lesser brands have some scope for additional taxation. We will be looking at increasing guidance value for properties. We are also looking at a more robust collection and strengthening enforcement for collecting existing taxes. As of now, this is still under discussion, but we will be able to offer more concrete ideas, once we get a better understanding of how the new government wants it done,” they say. A meeting is expected to take place in the coming week to discuss the modalities of implementing the schemes with the Finance Department.

What everyone agrees is that implementing the guarantees is not impossible. Karnataka will not be the first state to have offered such schemes on similar lines. Jyotsna Jha, Director of the Centre for Budget and Policy Studies, says the assessment of Rs 50,000 crore per year is slightly on the higher side. “If they prioritise their spending, then this is very much possible. This government might not carry everything announced in the March budget forward. There are existing subsidies that are unproductive. A reassignment and realignment of funds will generate resources for these projects. Though not enough, it will be substantial.

Additionally, a good filtering process (to identify the beneficiaries) will also help. In the long run, if it is done well, it will also generate social security,” she says.

She also points out that it is wrong to see it as a dole. “A free bus pass for women is something that enables greater mobility that will help their education and work. We did a macroeconomic impact study on the Nyay scheme (rural landless agricultural labourers are provided Rs 6,000 every year) in Chhattisgarh. We found that it played a role in sustaining demand for food and even for manufacturing. So programmes like these can also help in generating demand which is something our economy needs at the moment,” she explains.

But there is a considerable challenge in identifying the correct beneficiaries for these schemes. Delhi and states such as Rajasthan, Madhya Pradesh, Maharashtra, Chhattisgarh, and Tamil Nadu are already implementing schemes with beneficiaries in large numbers. Deshpande says the government will have to ensure the money is going to the right beneficiaries and that the criteria should have been released early because the rolls cannot be cleaned immediately.

NR Bhanumurthy,  Vice-Chancellor of Dr BR Ambedkar School of Economics University in Bengaluru, feels that Karnataka has the advantage of having a better digital public infrastructure and matching with multiple databases will help them ensure there are fewer leakages. "Many people are apprehensive of such schemes because of the leakages. Subsidy is not a bad word. It is just badly implemented. Karnataka has a better implementation rate of schemes compared to other states. So the cost of implementing the schemes can be met by the government. If done properly, then the expenditure of Rs 50,000 crore per year will be on the higher side,” he says.

Commenting that the fiscal situation of Karnataka is not as bad as popular opinion seems to suggest, he says the state can restructure its expenditure. “Post the 14th Finance Commission recommendation (increase in state’s share in the net proceeds of the Union tax revenues to 42%), many of the states have huge public finances without proper projects and many states don't have the capacity to utilise those funds effectively. States are spending so much on publicity and advertising every day because they do not have good projects to implement at the state level for the money that is being transferred. If they have a serious project like these five guarantees, then the money is certainly there for Karnataka. Schemes that benefit the people must be implemented,” Bhanumurthy adds.

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