Karnataka budget divides more than it unites

As the fine print of the Karnataka government's budget begins to sink in, contrary assessments are available.

One view, the official line, is that the state is the national leader in consolidating fiscal correction and taking it forward. This is the second consecutive budget with a revenue surplus.

But some experts have a contrary view. They feel that there is excessive revenue optimism in a year when VAT is to be introduced and the path ahead is unknown.

Along with this revenue optimism, actual details about VAT are thin. The silences on VAT speak more than what is being trumpeted. Despite the long preparation undertaken to introduce VAT, the fear is that intellectual comprehension on the subject is thin.

These sources say that the "over-calculation of tax receipts has been resorted to in order to keep up the pretense of fiscal correction." VAT worldwide initially dampens revenue. Prudence in revenue forecast is necessary in the first VAT year. The Centre is unlikely to compensate on the basis of exceptional growth, they fear.

Secondly, much of the revenue growth is out of entry tax and cess. As VAT is anathema to cess, it is not clear how the additional allocations for infrastructure projects like the new international airport and the Bangalore metro are being made in a year when the VAT regime is being introduced, these sources further argue.

The sources are particularly upset over the goodies which have been promised to the undeserving. Subsidies to motorised boats (meaning subsidised petrol for well off Mangalore fishermen) is a case in point.

They also see in a negative light the additional allocations to regional boards which should have been the first to suffer if spending integrity was attempted.

On the other hand official sources say that not only has the budget per se shown a surplus, there has even been a fall in off budget borrowings to less than Rs 700 crore, compared to last year's Rs 1,200 crore. They go so far as to say that the government is enjoying a comfortable cash position.

This happens when you go in for "revenue-led budgeting". In an atmosphere of scarcity everyone wants to hike demands. When you know that you will get what you want in time, the urge to inflate demand is limited.

Perhaps the greatest and till now unsung achievement of the government is in the area of interest payment. By swapping debt, there will be an interest saving of Rs 400 crore.

Plus, it is being whispered, there will a big saving of Rs 1,200 crore as a result of the carrot that the 12th Finance Commission has offered to states practising fiscal prudence.