Karnataka CM Strikes a Fine Balance

Bengaluru, March 13, 2015: Chief Minister Mr Siddaramaiah's 2015-16 Budget for Karnataka is, quite predictably, dominated by the consequences of the strategy of decentralisation followed in the Union Budget. Union Finance Minister Mr Arun Jaitley was quite clear that even as he raised the states' share of resources from 32 per cent to 42 per cent he would simultaneously cut the funding of central schemes, including important ones like Jawaharlal Nehru National Urban Renewal Mission, mid-day meals and drinking water.

This situation has been worsened for Karnataka by the change in the way the GDP is now being measured. The change in the method has, for the country as a whole, raised the growth rate quite substantially. But the new method has also altered the share of sectors in the GDP, with some sectors recording a more rapid growth than others. Among the sectors that now find themselves accounting for less is the information technology industry. And states like Karnataka that have a substantial IT industry find their state GDP lower. This in turn affects their ability to raise funds. The combined loss from Mr Jaitley's adjustments and the new GDP calculation is as much as `1,987 crore.

Faced with this unexpected addition to the deficit, Siddaramaiah may well have been tempted to leave the deficit uncovered. Fortunately for the long-term financial health of the state, he has resisted that temptation.

The revenue surplus, the fiscal deficit, and the total liabilities are all within the norms set by the Karnataka Fiscal Responsibility Act. And more significantly he has used the Budget speech to confirm Karnataka's commitment to support the target for the implementation of the Goods and Services Tax set in the Union Budget.

This mature financial position has been made possible by tapping the main sources where a tax cannot be openly opposed: cigarettes, bidis and liquor. He has also tapped resources from registration of properties, though the amounts here are relatively moderate.

With the effects of the changes brought about in Delhi out of the way, Mr Siddaramaiah has found room to introduce schemes targeting a wide range of objectives. As is typical of the Budgets of most state governments the schemes are too large in number to list in a single article. There is also no overriding scheme that can be treated as the symbol of his Budget. All that can be seen are glimpses of his approach to development.

Contrary to the popular image of the CM there is a great deal of emphasis on the science and technology dimension of the development process. Some of it is in forms that are associated with the techie way of life, like the promise to extend wi-fi to the public across the whole of Bengaluru and district headquarters.

But the more promising initiatives are where the benefits of technology are to be taken to areas that are not normally associated with the hi-tech community, such as genome sequencing for new varieties of ragi.

Even as the Budget has stepped up allocations to Bengaluru, there are enough signs that the government is considering the potential of other centres. The development of the National Investment and Manufacturing Zone in Vasanthanarasapura should tap the large number of workers who are moving out of agriculture in Tumakuru district. There are also the more ambitious attempts to set up industrial areas in some of the most backward parts of the state in Chamarajanagar and Yadgir.

Mr Siddaramaiah's 10th Budget for Karnataka has laid out a path that would appear to address the concerns of almost all sections of the state's population. But whether the state actually follows this path would depend on the CM living up to the promises he has made in the Budget, including traditionally difficult ones like changing the state's archaic labour laws.