Karnataka Budget 2022 Part II

In the previous article (read here https://simplifiedlaws.com/economy/karnataka-budget-2022/), we have seen that the Government of Karnataka is estimated to spend Rs.2,61,977 Crores, of which, Rs.1,89,977 Crores comes from Revenue sources and the balance of Rs.72,000 comes from loans/borrowings.

On what does the Government spend the money? For our easy understanding, let us categorize the expenditure as –

Part A – Revenue Expenses

The government spends Rs.2,04,586 Crores on running expenses like salary, pension, interest, subsidy, rent, traveling, etc., This constitutes around 78% of total expenditure.

The major constituents of Revenue outflow are –

Expenses which can’t be reduced and postponed; namely Salary to the employees, Pension to the retirees. Whether Government collects tax or not, they can’t stop paying their employees. That is committed expenditure. Total Salary and pension account for 25% of the total outlay i.e., Rs.65,304 Crores.

Loan and interest payouts Rs.40,293 Crores – another committed spending. The Karnataka Government has a total outstanding loan and liabilities of Rs.5,14,838 Crores (equal to 2.5 years revenue!)  This can’t be reduced or waived.

Subsidy to various sectors Rs.26,113 Crores. The government is supporting the poor and needy citizens, including farmers by providing subsidies in energy (Rs.12,000 Crores), free or subsidized ration (Rs.2810 Crores), Housing and Co-operation (Rs.2800 Crores), milk (Rs.1200 crores), Agriculture, and horticulture (Rs.3554 Crores) etc. Again, this sort of expense can’t be reduced due to the social commitments of the government.

Part B – Capital Expenditure

What will impress taxpayers like you and I is how much money is going to be spent on building infrastructure like flyovers, dams, canals, markets, hospitals, roads, institutions, etc., right? For this, the Government has allocated Rs.43,572 Crores. (of which, Rs.8409 Crore is allocated for the development of Bangalore)

In all fairness to the government, the capital outlay is good enough money for developmental activities. The problem comes when the above sum is divided among 30+ ministries, such as Education, healthcare, Agriculture, Rural Development, Public works, Home, etc., each one will get a smaller slice of the pie! The fund allocation is so much fragmented, it’s like a stretch of work that needs Rs.10 Lakhs, but gets only Rs.2 Lakhs; thereby no visible development takes place in any area! Obviously, the taxpayers get frustrated!

Before concluding, I am bringing up three compelling questions which the citizens are pondering over the years –

# 1 The Government tax collections are increasing year on year, resulting in a bigger hole in our pocket. We are not seeing them being spent on infrastructure. Where does this money go?

The above analysis has an answer to this question. The government collects around Rs.1,89,000 Crores through taxes and other revenue but spends over Rs.2,04,000 Crores to run its day-to-day affairs. This means Rs.15,000 Crores are borrowed to meet regular and recurring expenses. Secondly, these expenses like salary or pension increase every year! Thus, the increased tax collections will barely be sufficient to meet the increased running costs. (Remember a popular Kannada saying – ಭೀಮನ ಹೊಟ್ಟೆಗೆ ಕಾಸಿನ ಮಜ್ಜಿಗೆ)

# 2 Why Government Projects don’t complete on time?  The Government necessarily has to spend on revenue expenses. Usually, tax collections fall short of their targets. So, the Government is left with the only choice of reducing the capital expenditure.

Shortage of Capital is one of the main reasons for many projects stopping at the Foundation stone laying ceremony, some projects are started and halted halfway, a few projects are completed with a lag of 2 – 3 years delay, certain work moves at a snail’s pace.

#3 – Why Government sells its Assets? They are constantly in deficit financing. They are unable to meet both revenue and capital expenses. Therefore, in the recent past, the government is trying to get the funds through unconventional routes such as disinvestment or selling the assets, Public-Private Partnership, etc., to augment the income. Hope we will see world-class public facilities ASAP.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at simplifiedlaws20@gmail.com

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