Karnataka gets Rs 72.8 cr revenue surplus Budget

In keeping with his reputation for fiscal conservatism, Karnataka Deputy Chief Minister and Finance Minister S Siddaramaiah projected a dramatic improvement in the state's fiscal health by presenting a surplus Budget here on Monday.

The Budget for 2004-05 projects a Rs 474 crore surplus in a dramatic reversal of the situation in the previous year, which clocked up a deficit of Rs 471 crore, according to the revised estimates.

Even more remarkably, the Budget projected a revenue surplus of Rs 72.8 crore, the first time in eight years, the deputy chief minister said.

The turnaround is due to the sharply hiked central devolution, by Rs 350 crore more, and the additional resource mobilisation by the state of Rs 450 crore, compared to Rs 250 crore achieved last year.

Officials say if the projections in the Budget are actually achieved, the state will be meeting the key targets set for 2005-06 in the medium term fiscal policy ""elimination of revenue deficit and restricting the fiscal deficit to 3 per cent of the gross state domestic product""one year ahead of schedule.

A major way in which the deficit will be reined in is by putting a cap on the power subsidy. According to finance ministry sources, in the last year (2003-04), net cash outgo on account of power subsidy amounted to Rs 1,670 crore.

For the current year, the government has provided for Rs 1,400 crore subsidy, and an additional incentive of Rs 400 crore, if the distribution companies are able to improve their operational efficiencies.

The most politically significant move by Siddaramaiah is to initiate a new policy on arrack in an attempt to plug revenue leakages, which alone should rake in an additional Rs 300 crore in revenue. The state excise duty on arrack has been dropped from Rs 20 to Rs 2 per bulk litre in an attempt to remove the incentive for tax evasion.

The state will also make a major saving in interest payments by going in for debt swaps well beyond what is offered by the central government to all states.

Nabard loans amounting to Rs 790 crore have been repaid. The state's interest bill will go up by only 6 per cent this year, compared with 12.2 per cent, which would have happened without the prepayments. As a result interest outgo in the current year will be Rs 360 crore less than what it would have been otherwise.

In 2003-04 central loan repayment went up more than four times, from Rs 639 crore (Budget Estimate) to Rs 2,916 crore (Revised Estimate). Simultaneously, net open market borrowing went up from Rs 974 crore (BE) to Rs 2,170 crore (RE).