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Pandemic to populist schemes: K’taka in fiscal soup

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3 years ago

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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.

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FIIs to resume equity purchases in India as bulls roar: Analysts

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6 hours ago

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May 12, 2025

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Mumbai, May 12: The ceasefire between India and Pakistan has paved the way for a sharp rally in the market and with this, foreign institutional investors (FIIs) are likely to resume their equity purchases in India, analysts said on Monday.

Sensex and Nifty surged more than 2.7 per cent in the morning trade.

According to market watchers, the prime mover of the rally will now be the FII buying, which has been sustained for 16 continuous days except last Friday when the conflict escalated.

“Domestic macros like expectations of high GDP growth and revival of earnings growth in FY26 and declining inflation and interest rates augur well for the resumption of a rally in the market,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

FIIs favour large caps like ICICI Bank, HDFC Bank, Bajaj Finance, L&T, Bharti, Ultratech, M&M and Eicher. Midcap IT and digital stocks are other segments to watch.

Pharma stocks may come under near-term pressure from US President Donald Trump’s latest announcement regarding reducing prices of drugs in the US.

“There are rumours of impending US deal with China on trade but details are yet to come. If a deal materialises that would be good for the global economy,” said Vijayakumar.

The hallmark of FPI investment in recent days has been the sustained buying by FIIs. FIIs bought equity through the exchanges consecutively for 16 trading days ending 8th May for a cumulative amount of Rs 48,533 crore.

“They sold for Rs 3,798 crore on 9th May when the India-Pak conflict got escalated. Now that ceasefire has been declared, FIIs are likely to resume their equity purchases in India,” said analysts.

It is important to understand that FIIs were continuous sellers in India in the first three months of this year. The big selling began in January (Rs 78,027 crore) when the dollar index peaked at 111 in mid-January.

Thereafter, the intensity of selling declined. FIIs turned buyers in April with a buy figure of Rs 4,243 crore.

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Centre approves reopening of 32 airports as tensions ease on India-Pakistan border

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7 hours ago

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May 12, 2025

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New Delhi, May 12: The Centre on Monday issued the NOTAM (Notice to Airmen) to reopen the 32 airports that had been shut down since May 9 due to the cross-border drone and missile attacks following heightened tensions between India and Pakistan in the wake of the Pahalgam massacre of 26 tourists by Islamabad-backed terrorists.

The airports that will gradually reopen include Chandigarh, Srinagar, Amritsar, Ludhiana, Bhuntar, Kishangarh, Patiala, Shimla, Kangra-Gaggal, Bathinda, Jaisalmer, Jodhpur, Bikaner, Halwara, Pathankot, Jammu, Leh, Mundra, Jamnagar, Hirasar, Porbandar, Keshod, Kandla and Bhuj.

The airports will be opened gradually as, although the ceasefire announced following the Pakistan DGMO’s (Director General of Military Operations) request is largely holding, the government does not want to take any chances.

“The night remained largely peaceful across Jammu and Kashmir and other areas along the International Border. No incidents have been reported, marking the first calm night in recent days,” according to a statement issued by the Indian Army on Monday.

The opening of these airports which are close to the Pakistan border reflects a de-escalation in the cross-border hostilities which saw India successfully launching ‘Operation Sindoor’ to avenge the Pahalgam killings.

The reopening of these airports will help to restore normalcy in flight operations which have undergone widespread disruption due to the conflict.

Meanwhile, Delhi International Airport Limited (DIAL) said on Monday that operations at the airport are “currently smooth,” however, due to changing airspace conditions and increased security measures, some flight schedules and security checkpoint processing times may be affected.

The airport management has advised passengers to follow updates and instructions from their airlines, allow extra time for security checks due to heightened measures and adhere to hand baggage and check-in luggage regulations.

Passengers have been advised to check the latest flight status through their airline or the official Delhi Airport website.

Although an agreement for a ceasefire was reached on Saturday, the government is not taking any chances on the security front.

Prime Minister Narendra Modi held a meeting on Sunday with the three service chiefs and the Chief of Defence Staff to take stock of the latest situation.

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SIP inflows hit all-time high of Rs 26,632 crore in April: AMFI data

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3 days ago

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May 9, 2025

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Mumbai, May 9: India’s mutual fund industry saw a historic surge in systematic investment plan (SIP) contributions in April, with investors pouring in a record Rs 26,632 crore last month, according to data by the Association of Mutual Funds in India (AMFI) released on Friday.

This marks the highest-ever SIP inflow for any month, the report said.

In April, 1.36 crore SIP accounts were either closed or matured as part of this process. However, investor interest remained strong. The number of active SIP accounts grew to 8.38 crore in April, up from 8.11 crore in March, showing that people are still keen on building long-term wealth through mutual funds.

April also saw the creation of 46 lakh new SIP accounts, higher than the 40.19 lakh new accounts opened in March.

AMFI said the spike in account closures was due to a planned clean-up and is likely to reduce sharply from May onwards.

“The sustained inflows underscore improving investor sentiment, supported by strong corporate earnings, resilient macroeconomic fundamentals, and a continued tilt towards equities as the preferred asset class,” said Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India.

Notably, the absence of any major new fund launches during the month indicates that investors largely allocated capital to existing schemes — a testament to their confidence in the long-term growth prospects of Indian equity markets, he added.

The record-breaking investment came even as the industry undertook a large clean-up of inactive accounts.

Despite a slight dip in inflows into equity mutual funds, the overall mutual fund industry continued to grow rapidly.

Total assets under management (AUM) reached an all-time high of Rs 70 lakh crore in April.

This is a big jump from Rs 65.74 lakh crore recorded in March — showing strong investor confidence in the market.

Large-cap mutual funds, which had faced outflows in recent months, bounced back with net inflows of Rs 2,671.46 crore in April.

This was a slight increase from Rs 2,479.31 crore in March. According to the report, this suggest that investors are regaining interest in these relatively stable funds.

Mid-cap funds attracted Rs 3,313 crore during the month, a minor drop from Rs 3,438.87 crore in March.

Meanwhile, small-cap funds continued to perform steadily, drawing Rs 3,999.95 crore in April, only slightly lower than the Rs 4,092 crore they received the month before.

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