Despite Rs 18,000 crore loan, Karnataka could face funds crunch

BENGALURU: Despite the central government sanctioning compensation of Rs 18,100 crore via a loan for the financial year 2021-22, Karnataka could still face a huge funds crunch for a second year in a row due to increased spending on Covid-19 care arising from the second wave of infections and burgeoning committed expenditure.
Chief minister BS Yediyurappa has called a meeting of finance department officials on Monday to discuss ways to ramp up revenue and cut committed expenditure – primarily salaries and perks to government employees.
Sources say the finance department is likely to urge the CM to further lift lockdown curbs and allow economic activity to hit high gear, ensuring a steady stream of revenue.
“Besides taking stock of the state’s financial situation, the CM will also seek a comprehensive plan from officials to ensure adequate resources for Covid care,” said a senior official from chief minister’s office.
On Saturday, the GST Council approved a proposal to grant Karnataka Rs 18,109 crore loan to compensate for revenue losses suffered due to the lockdown. The loan is likely to be advanced on the lines of last year’s scheme, which entailed a special borrowing window for states where loans can be repaid with the cess collected on sin goods like tobacco and luxury cars from April 2022. The state received Rs 12,407 crore in 18 instalments under the 2020-21 scheme.
The fresh loan will also be released in tranches from the last week of this month or early next month. “Loan compensation will help us combat the pandemic,” said Basavaraj Bommai, law and parliamentary affairs minister who represents Karnataka at the GST Council. He said besides the loan, the state expects the Centre to release Rs 11,000 crore pending GST compensation for the last year.
However, finance department officials have raised alarms over committed expenditure remaining unchanged, while tax revenues continue to plummet.
Officials say government employees’ salaries is the biggest burden with about 5.2 lakh people drawing monthly payments. They say the government spends Rs 38,626 crore on salaries, Rs 23,413 crore on pensions and another Rs 10,000 crore on salary to outsourced employees.
On the other hand, commercial tax collection nosedived from a record Rs 10,300 crore in March to a mere Rs 4,304 crore in April.
“Tax collection for May and June is expected to be even less due to the lockdown,” an official said.
BT Manohar, member of Karnataka State GST Advisory Committee, said the best way is to open all sectors for business rather than cut corners. “We need to strike a balance between Covid control and quick economic recovery. This can be achieved by ensuring adequate funds for Covid care and wider vaccine coverage, while opening up all sectors with strict Covid protocols,” said Manohar.