A Fiscal Nightmare? Karnataka Congress Government Announces Implementation Of 'Freebies' Worth Rs 60,000 Crore Annually

The Karnataka government headed by Chief Minister Siddaramaiah has announced the implementation of all five pre-poll guarantees stated in the Congress manifesto during the Karnataka Assembly polls earlier this year.

The Congress government had been facing opposition criticism regarding implementation of its promised guarantees, apart from the severe financial burden that the promised guarantees would pose on the State.

The pre-poll guarantees were, however, approved on 19 May, when Chief Minister Siddaramaiah and nine Cabinet Ministers, including the Deputy Chief Minister DK Shivakumar, took their oath of office.

The Karnataka government announced on Friday (2 June), following a post-Cabinet meeting, the launch of three social welfare schemes immediately, with the other two being launched in upcoming months.

The Shakti scheme, which provides free travel for women in the State, is scheduled to be launched on 11 June. Meanwhile, the Anna Bhagya scheme, which provides 10 kg of free foodgrain to BPL and Antyodaya cardholders, and the Gruha Jyothi scheme, which provides 200 units of free electricity, are set to launch on 1 July.

The registration window for the Gruha Lakshmi scheme, which provides a ₹2,000 monthly incentive, will begin on 15 June, with the government planning to start transferring payouts from 15 August, on the occasion of Independence Day.

The announcement for the Yuva Nidhi unemployment benefits scheme included broader contours, but no specific dates for application have been provided.

The five guarantees will be implemented in Karnataka this financial year, stated CM Siddaramaiah during a briefing with Deputy Chief Minister DK Shivakumar and other Cabinet members.

When asked about the criticism by the Opposition for delay in implementing guarantees, Siddaramaiah stated in defense that his party had fulfilled 158 out of 165 promises made during its previous term.

When further asked about the financial implications of the schemes, Siddaramaiah refused to disclose the total expenditure for implementing the five 'guarantees', stating that details and costs will be shared later.

However, as per reports, the  five guarantees given by the Congress are expected to cost around ₹60,000 crore annually.

As per government sources reported by The Hindu, the Gruha Lakshmi scheme alone, in which a monthly incentive of ₹2,000 will be given to women kartha, is estimated to cost ₹39,000 crore a year as women from both APL and BPL families are eligible to seek benefits.

The Shakti scheme has been calculated to cost around ₹4,800 crore annually. Further, the Anna Bhagya scheme is estimated to cost ₹9,800 crore annually.

The Yuva Nidhi unemployment benefit scheme for fresh graduates and diploma holders is estimated to cost about ₹1,274 crore per year. The cost has been calculated on the basis of around 4.7 lakh graduates and about 50,000 diploma holders passing in 2022-2023 academic year.

In addition, the State's Energy Department has estimated that the Gruha Jyothi scheme for APL and BPL families, including both fixed meter charges and consumption, could cost more than ₹12,000 crore annually.

This is considering that the consumption alone would come to around ₹8,700 crore. Notably, the Gruha Jyothi scheme being implemented provides 200 units of power for free.

However, in what could have far-reaching consequences for the stellar economic growth that Karnataka had been witnessing, sources in the finance department say that for meeting the financial requirements, the government is considering additional borrowings and rationalising expenditure by cutting funds to, or shutting down a few projects started by the previous BJP government.

This comes as detriment to the infrastructure and economic development of the State, and a great loss to its people.

Furthermore, the schemes have been promised with little economic foresight, and clearly as a pre-poll tactic to entice votes at the cost of the more concerning financial and budgetary implications.

For example, under the Gruha Jyothi scheme, there is no clarity on whether or not consumers have to pay fixed charges and taxes. To add it to it, another troubling ambiguity unaddressed is that there are 2.14 crore domestic power connections against 1.6 crore families.

There is clearly no rational foresight or planning with which the guarantees were promised or are being implemented, causing it to be left to the executive officials in the State machinery to rationalise them for implementation.

Not only does this jeopardise the existing trajectory of economic growth of the State, but clearly threatens to tumult it backwards to crisis.

According to a report in The Hindu businessline, CM Siddaramaiah, who is also in charge of the Finance portfolio, might be expected to deploy a three-pronged strategy to finance the budgetary burden of the promise freebies.

As part of this strategy, petrol prices may be hiked by Rs 5-7 a litre in the coming days and industrial power tariffs might be stepped up.

Adding to it, the government would also consider increasing property taxes and raising the guidance value — the minimum price at which a property transaction is registered — in all localities.

This, along with the possibility of shutting of other projects of the previous government, would have detrimental effects for not just the common consumer, but also the State's industrial sector and economic growth.

Notably, until now, Karnataka has been an economic powerhouse, being the third largest state economy in the country. The state has been one of the wealthiest in the entire country.

Further, it has had a substantial 66 per cent contribution to the economy by its services sector and 8.7 per cent to the national GDP in nominal terms. The state has had a robust revenue and tax profile, along with being fiscally well-managed.

It remains to be seen how the implementation of these pre-poll guarantees take a toll on Karnataka's stellar economic indicators, apart from the jeopardising effect on growth due to the throttling of projects initiated by the previous BJP government.