Business
Pandemic to populist schemes: K’taka in fiscal soup
Karnataka, which has vibrant automobile, agro, IT, aerospace, textile, biotech and heavy engineering industries, is showing a worrying trend due to impact of pandemic and natural calamities.
Despite being the cradle of startups and known as Silicon Valley of India, Karnataka took a huge hit on the financial resources from 2020-21 till date. The state’s public debt rose to 31.38 per cent between 2019-20 and 2020-21, creating a precarious financial situation.
The result of the pandemic has been such that, according to the 2020-21 finance and appropriation accounts report published by the Comptroller and Auditor General (CAG), the government recorded a drop of Rs 14,535 crore in tax collection.
The total debt of the state went up from Rs 3.19 lakh crore to Rs 3.97 lakh crore, an increase of Rs 78,000 crore, forcing the government to put some ambitious and populist programmes in abeyance.
Losses incurred in SGST, state excise duty, sales tax, stamps and registration and vehicle taxes. However, the non-tax revenue increased marginally from Rs 7,681 crore to Rs 7,894 crore.
According to Ministry of Statistics and Programme Implementation, the growth of GSDP has decreased by 9.28 per cent in 2019-20 and 2.23 per cent in 202-21 from 10.71 per cent in 2017-18 and 11.50 per cent in 2018-19.
The government had to deal with a severe drought situation when it assumed power in 2019, and then adding more woes, half of the state was affected by flood fury. Later, the Covid pandemic further complicated the financial situation of the state. During the tenure of Chief Minister B.S. Yediyurappa, no major populist programmes could be doled out. Presently, his successor Chief Minister Basavaraj Bommai has a tough job in hand as he is to present an election year budget on March 4.
The CAG report also shows that the government had to increase its borrowings. Effectively, the resultant impact has pushed the interest component to Rs 22,666 crore or 14.6 per cent of the state’s revenue receipts which is placed at Rs 1.56 lakh crore. The CAG has also noted that 13 projects of irrigation, 41 of roads, three of bridges and one in others category remained incomplete for over five years.
Ashwathnarayan, state BJP General Secretary, told IANS that as political parties are in the race to woo voters with social welfare schemes and freebies on the lines of Tamil Nadu and Andhra Pradesh, CM Bommai is inclined towards middle class and the upcoming budget is not going to be a fancy budget.
When asked whether the BJP is not under pressure after Delhi Chief Minister Arvind Kejriwal delivered free essential services to people, he said that Delhi is a mini state, it does not include farmers, mass transport system, irrigation projects, law and order system and even medical education. It is more like a municipal corporation area. Free electricity, free water and other populist programmes are not practically feasible in a large state like Karnataka.
Basavaraj Tonagatti, SEBI RIA, Fee-Only Financial Planner, CFP and Finance Blogger, told IANS that If you look at last year’s budget, you can notice that debt servicing increased to 21 per cent from 2019-20 to 2020-21. However, the capital expenditure increased just by around 5 per cent. This shows that the government is borrowing more but not diverting the same towards capital expenditure. It also shows that the government is not spending on creating assets, in particular physical infrastructure like roads, railway lines, factories, ports, etc. “Hence, I hope this year they manage their debt and divert the spending towards capital expenditure,” he said.
Though government is saying everything is fine, private investment has been going down for a long time, consumption is down, unemployment is high.
Abdul Azeez, Honorary visiting Professor of Institute for Social and Economic Change (ISAC), Bengaluru said that the pandemic has decelerated economic growth, increased unemployment and strengthened inflationary pressures, as a result of which the programmes of social justice have taken a hit.
The focus is to encourage consumption. If consumption increases, inflationary pressure will remain high. Already retail inflation has gone up to 6 per cent and wholesale by 11 per cent, he said. The government should think of providing necessary assistance to producers and they should be ensured of supply of electricity and water, he added.
Pavan Srinath, Independent Policy Researcher, said, “we need a growth oriented budget. We need to spend more. In the central budget also, capital expenditure has been increased. There is rural distress, high unemployment, the government should use its capacity to spend more.”
During the Congress regime, when Siddaramaiah was at the helm, he rained sops and freebies on people through bhagya schemes. The freebie blitzkrieg was so much that raised a debate whether these freebies are making people lazy.
Kannada writer S.L. Bhyrappa and Jnanpith recipient Chandrashekar Kambar came down heavily on Siddaramaiah government on Annabhagya scheme. Bhyrappa said, it is not possible to make poor people self-reliant through schemes like Anna Bhagya. The trend is very dangerous.
Chandrashekar Kambar maintained that freebies have made a deep impact on labour attitudes and the farming sector. When you take care of almost all the basic needs of the people — be it food, clothing, shelter, healthcare, children’s education, there is little motivation for work hard. Instead, the government should enable poor people to lead a dignified life, he said.
Rubbishing the criticism, Siddaramaiah said he will continue to implement schemes to bring poor people into the mainstream. Only hungry people will understand what is hunger. However, he suffered defeat in the following general elections.
New Delhi, Dec 24: Recent reforms under GST 2.0 show that simplification and tax moderation can coexist with strong revenue growth, a report said on Wednesday, calling for freezing peak tax rates and expanding tax base through technology.
The white paper from Think Change Forum said that recent GST reforms proved wrong the long-held belief that higher tax rates are necessary to boost collections as gross GST collections rose 4.5 per cent (on-year) to Rs 1.95 lakh crore in October 2025.
The report argued that the rise in tax collection validated the principle that in high‑informality economies compliance elasticity outweighs rate elasticity. The report, however, flagged that India’s tax‑to‑GDP ratio of around 17 per cent masks a narrow direct tax base and heavy reliance on regressive indirect levies.
“High taxes — whether direct or indirect — always encourage evasion and corruption. Lower taxes widen the base and improve compliance. GST collections are rising because the economy is formalising — but we must avoid creating a new 40 per cent peak rate that undermines compliance. Ideally, GST should be restricted to just 5 per cent and 18 per cent,” said Yogendra Kapoor, author and public speaker.
The forum called for prioritising freezing peak direct tax rates, expanding the direct tax base through technology, avoiding MRP‑based taxation and completing the GST credit chain in the upcoming Union Budget.
As the compensation cess sunsets, the MRP-based taxation is prone to manipulation in a cash-heavy economy and the government should rely instead on clean, specific duties that are easier to enforce.
The Budget should outline a phased roadmap to bring petroleum, electricity and other excluded inputs under GST to restore tax neutrality and reduce cascading costs for industry, it added.
It also listed other priorities including incentivising productive reinvestment and aggressively curtailing the parallel economy.
“The Budget must strengthen enforcement against smuggling, illicit trade and tax evasion so that non-compliance becomes costlier than compliance and honest taxpayers are no longer penalised,” the report noted.
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Mumbai, Dec 24: Indian benchmark indices made moderate gains early on Wednesday amid positive global cues, as the stock market appears to be in a consolidation phase.
As of 9.30 am, Sensex advanced 105 points, or 0.12 per cent to 85,630 and Nifty gained 40 points, or 0.16 per cent to 26,217.
Main broad-cap indices outperformed benchmark indices in terms of gains, with the Nifty Midcap 100 advanced 0.31 per cent, while the Nifty Smallcap 100 added 0.53 per cent.
Hindalco Industries, Axis Bank and Cipla were among the major gainers in the Nifty Pack, while losers included Tech Mahindra, TCS, Titan Company, Dr Reddy’s Labs and Tata Consumer.
Among sectoral indices on NSE, Media, Metal and Realty were the major gainers — up around 0.82 per cent, 0.58 per cent and 0.78 per cent respectively. Nifty IT was leading losses down 0.49 per cent.
The Nifty could extend its advance toward resistance levels at 26,202 and 26,330, while 26,000 is expected to provide near-term support, said experts.
Analysts said that the market appears to be consolidating upward as CY2025 ends. Strong domestic macros and earnings growth expectations in Q3 and Q4 of FY26 and FY27 will support the market.
The market will be resilient due to domestic inflows and DII buying but FIIs may sell rallies, preventing a sharp breakout. The revival of the AI trade in US might impact sentiments in favour of a ‘non-AI trade’ in markets like India, they added.
An additional Rs 2 lakh crore OMO by the RBI will boost liquidity and lower yields, providing positive momentum to credit growth and bank stocks. The RBI on Tuesday announced a fresh set of steps to inject a large amount of money into the banking system to ease tight liquidity conditions.
Asia-Pacific markets traded flat with a positive bias, with several indexes set to close early in lieu of the Christmas Eve holiday.
In Asian markets, China’s Shanghai index advanced 0.24 per cent, and Shenzhen edged up 0.31 per cent, Japan’s Nikkei added 0.06 per cent, while Hong Kong’s Hang Seng Index gained 0.08 per cent. South Korea’s Kospi added 0.12 per cent.
The US markets ended mostly in the green zone overnight, as Nasdaq advanced 0.57 per cent, the S&P 500 edged up 0.46 per cent, and the Dow moved up 0.16 per cent.
On Tuesday, foreign institutional investors (FIIs) sold equities worth Rs 1,795 crore, while domestic institutional investors (DIIs) were net buyers of equities worth Rs 3,812 crore.
Mumbai, Dec 23: Indian benchmark indices opened in the red zone on Tuesday, weighed down by losses in the IT stocks after artificial intelligence (AI) stocks in the US showed revival.
As of 9.30 am, the Sensex declined 159 points, or 0.19 per cent to 85,407 and the Nifty lost 32 points, or 0.13 per cent to 26,139.
Main broad cap indices showed divergent trends, with the Nifty Midcap 100 down 0.18 per cent, while the Nifty Smallcap 100 added 0.07 per cent.
ONGC, Tata Steel and NTPC were among the major gainers in the Nifty Pack, while losers included Max Healthcare, TCS, Tech Mahindra, Asian Paints and ICICI Bank.
Sectoral indices on NSE were trading in the mixed zone, with IT leading losses down 1.21 per cent. Oil and gas as well as metal were the major gainers, up around 0.43 and 0.41 per cent, respectively.
Immediate resistance for Nifty is placed at 26,300–26,350, while key supports are located at 26,000–26,050 zone, said analysts.
Market watchers found two factors to affect the market in the near term, including positive macros or fundamentals and AI trade revival. Positive macro indicators may embolden bulls to push Nifty and Sensex to new highs. But the strong AI trade revival is a mild negative externally which may delay the anticipated FII outflow reversal, they said.
Defence stocks are seemingly recovering, with more room for growth in the segment, while the IT sector has also turned resilient, analysts said.
Asia-Pacific markets showed moderate gains on Tuesday, after AI trade lifted major Wall Street indexes overnight.
In Asian markets, China’s Shanghai index advanced 0.34 per cent, and Shenzhen edged up 0.65 per cent, Japan’s Nikkei added 0.02 per cent, while Hong Kong’s Hang Seng Index gained 0.33 per cent. South Korea’s Kospi added 0.45 per cent.
The US markets ended mostly in the green zone overnight, as Nasdaq advanced 0.52 per cent, the S&P 500 edged up 0.64 per cent, and the Dow moved up 0.47 per cent.
Investors are keen on rising geopolitical tensions between the US and Venezuela and delays in the Russia-Ukraine peace negotiations. The killing of a Russian army general in a bomb attack on Monday raised concerns over the peace process, lending support to crude oil prices.
On Monday, foreign institutional investors (FIIs) sold equities worth Rs 516 crore, while domestic institutional investors (DIIs) were net buyers of equities worth Rs 3,898 crore.
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