This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.
When the manufacturer of a brand gives a guarantee to a consumer, she usually regards it with suspicion. “There has to be a hitch somewhere,” she thinks. However, when the Congress announced five poll guarantees just two months ago, it’s possible that the voter in Karnataka trusted that these would not come at a price, and hence gave a resounding victory to the party.
Now, after Siddaramaiah’s first budget, it is clear that these guarantees may have come at a price ― the price of slower growth and employment, sub-optimal education and healthcare, and the risk of depleting the treasury. While this impact would not have sunk in yet, it should be a concern for all citizens who want Karnataka and its people to progress and find well-being.
Out of a budget spend of Rs 327,000 crore, the five guarantees are going to cost the government Rs 52,000 crore (on an annualised basis), or about 16% of the total. To accommodate this, the CM has reduced spending in several key areas with very significant impact.
First of all, capital expenditure (capex), which is meant to stimulate growth, is being reduced from Rs 52,700 crore to Rs 51,000 crore, or 3%. Taking inflation into account, the real reduction could be up to 10%. Within this, capex on irrigation projects is down a massive 21%. Industry and transport have also been reduced. Capex is meant to build productive assets, to stimulate income and employment growth. Hence, this reduction will impact the growth of our state as well as future employment, unless it is overcompensated by private sector investment or efficiency in governance. However, key sectors like irrigation are unlikely to be compensated by private sector investment.
Secondly, large-scale budget reductions of 20-30% in agriculture and rural development will impact growth and employment. The stimulus that the agri-rural sector and other employment-generating sectors need is jeopardised by lower allocations, impacting peoples’ earning capacities and increasing their dependence on public support.
Thirdly, the outlay on education is coming down from 11.4% to about 10%. Considering the dire state of public education in Karnataka, where school pass rates and learning levels are critically low, this is a serious concern. It means that poor and middle-class parents will have to continue spending a high share of their incomes on sending their children to private schools and colleges (often run by politicians for revenue!).
The outlay on health, which was already very low, is down from 4.7% to 4.5%. Here, one option may be to improve efficiency by reducing rent-seeking by officialdom in the delivery of health services. Until then, the poor and middle-class will continue to have to continue to pay private clinics and hospitals for expensive diagnostic tests and treatment, instead of getting quality, free healthcare from the government. Reaching a basic level of health security through improved public health facilities will require significantly higher expenditure and more efficient use of current facilities.
Finally, this budget increases the risk of a depleted treasury. This is both due to aggressive assumptions and the increasing debt and interest repayment burden. For example, the budget assumes a massive 18% increase in GST collections. It assumes a marginal 3.7% increase in pension payments and a significant decrease in expenditure for “relief from natural calamities”. The state energy sector is already on oxygen and there is only lip service to address that issue. The spend on servicing debt will increase by 23% over the previous year. Indeed, the spend on these two heads which was about 13% five years ago has now ballooned to 18%! At this rate, eventually, the state will either be forced to increase taxes or lower developmental spend to avoid a debt trap!
A more balanced, sustainable approach was required. For example, when AAP came to power in Delhi, it gave free electricity and bus rides for women. However, it also transformed school education and healthcare. And it did all this while consistently delivering a surplus revenue budget and ensuring that interest and debt payments were manageable. The secret is to control waste and corruption and use the resources thus freed up for good public work. Some may argue that Delhi is unique as it is a small state and has always had ample resources, but some of the principles it adopted for improving social infrastructure are worth examining.
In Karnataka, the guarantees seem to be coming at a substantial price, as revealed in this budget. Siddaramaiah will need to go beyond budget accounting jugglery and find resources to fund these guarantees without compromising balanced, equitable growth and employment, or voters will feel justifiably duped. This is the real guarantee that this government must give to the people of Karnataka in the longer run.
Prakash Nedungadi is a former president of Madura Garments and stood for the Karnataka assembly elections from Central Bengaluru on an AAP ticket.
