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Pandemic to populist schemes: K’taka in fiscal soup

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4 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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Pakistan, Bangladesh face mounting economic risks as prolonged US-Iran conflict fuels oil price surge

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10 hours ago

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August 2, 2026

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New Delhi, Aug 2: Pakistan and Bangladesh are among the Asian economies most exposed to the fallout from the prolonged US-Iran conflict, as surging global oil prices threaten to push up inflation, strain public finances and intensify pressure on already fragile economies, according to economists and research firms.

Both countries depend heavily on imported fuel, making them particularly vulnerable to sustained increases in crude oil and diesel prices, according to a report by South China Morning Post.

Analysts warn that limited fuel inventories and weak economic buffers could allow higher global energy costs to feed quickly into domestic prices, raising the cost of transport, electricity and food for millions of households, the report said.

Jamus Lim, Associate Professor of Economics at ESSEC Business School Asia-Pacific cited by the report, said Pakistan and Bangladesh are likely to face significant inflationary pressures in the near term.

He noted that limited inventory buffers mean the impact of higher oil prices would be transmitted relatively quickly through their economies.

Oil markets have already reflected growing concerns over the conflict. Brent crude has climbed sharply over the past month, while US benchmark West Texas Intermediate (WTI) has recorded similar gains.

Diesel and other refined fuel products have also posted double-digit increases, adding to concerns over rising energy costs worldwide.

The risks have extended beyond the Gulf region after a drone strike targeted gas vessels at Egypt’s Mediterranean port of Damietta, heightening concerns over shipping routes linked to the Suez Canal, one of the key pathways for Saudi oil exports.

For Pakistan and Bangladesh, another energy-price shock could place renewed pressure on currencies, fiscal balances and government subsidy programmes.

Both countries are implementing International Monetary Fund (IMF)-supported economic reform programmes that emphasise fiscal discipline, limiting their ability to cushion consumers from higher fuel prices through subsidies.

The conflict, now in its fifth month, has added to uncertainty after US President Donald Trump weighed further military action following Iranian attacks on American military assets in Jordan, Kuwait and Bahrain.

Oxford Economics has warned that several emerging markets, including Pakistan, Egypt, Mozambique, Nigeria and Kenya, face a combination of geopolitical risks, political uncertainty and rising debt-servicing costs.

According to the research firm, countries such as Pakistan, Mozambique, Kenya, Ghana and Tunisia, which have relatively thin foreign exchange reserve buffers, could experience the sharpest deterioration if the conflict intensifies.

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West Bengal’s tea, fisheries and handicrafts sectors to gain from 9 landmark FTAs: Piyush Goyal

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12 hours ago

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August 2, 2026

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New Delhi, Aug 2: Union Commerce and Industry Minister Piyush Goyal on Sunday said that West Bengal is set to benefit significantly from the nine landmark Free Trade Agreements (FTAs) concluded under the leadership of Prime Minister Narendra Modi, with enhanced market access expected to boost the state’s exports and economic growth.

In a post on social media platform X, the minister said the FTAs would provide greater opportunities for tea growers, fisherfolk, artisans engaged in traditional handicrafts, as well as the state’s youth and women.

“West Bengal stands to gain significantly from the 9 landmark Free Trade Agreements concluded under PM Narendra Modi,” the Union Minister mentioned.

“Enhanced market access will benefit tea growers, fisherfolk, artisans engaged in traditional handicrafts, and the state’s youth and women,” Goyal added.

According to Goyal, improved access to international markets will help increase production, expand exports and create sustainable livelihood opportunities across multiple sectors in West Bengal.

He said the benefits arising from the trade agreements would contribute to strengthening the state’s economy while advancing the vision of a Viksit Bharat, or developed India.

“This will drive higher production, boost exports, and generate sustainable livelihoods, furthering the vision of Viksit Bharat,” the minister explained.

Meanwhile, earlier this year, a State government insider said that at least 42 industrialists have contacted State Commerce and Industries Minister Tapas Roy, expressing their desire to invest in West Bengal.

According to the official, the minister has assured them of cooperation in this regard. The insider added that several announcements regarding investment in the industrial sector may be made during the current budget session of the State Assembly.

After coming to power, the Suvendu Adhikari government said there would be development in the State’s industrial sector, and that he himself would intervene in this regard.

After the Bharatiya Janata Party (BJP) first came to power in West Bengal, the Centre asked NITI Aayog to prepare a long-term blueprint to revive West Bengal’s industry and economy.

That work has already started under the leadership of NITI Aayog Vice-Chairman Ashok Kumar Lahiri.

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RBI policy, Q1 earnings and global cues likely to drive Dalal Street after strong weekly rebound

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15 hours ago

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August 2, 2026

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Mumbai, Aug 2: Indian equity markets will enter the new trading week with investors closely tracking the Reserve Bank of India’s (RBI) monetary policy decision, a fresh round of June quarter earnings, global geopolitical developments, crude oil prices and foreign institutional investor (FII) flows after benchmark indices staged a strong recovery in the previous week.

The market snapped its recent losing streak as easing crude oil prices, improving geopolitical sentiment, strong corporate earnings for the April-June quarter and renewed buying by foreign institutional investors lifted investor confidence.

The decline in crude oil prices from recent highs helped ease concerns over imported inflation, pressure on corporate margins and India’s external account, providing support to equities.

The Nifty advanced 2.59 per cent during the week to close at 24,383.60, while the Sensex gained 2.68 per cent to settle at 78,094.64. Both benchmark indices also recorded their second consecutive monthly gain in July.

Commenting on Nifty technical outlook, experts said that a decisive close above the 24,500–24,600 zone could extend the rally towards 25,200.

“On the downside, 24,100 is expected to provide immediate support, followed by a stronger support zone in the 23,600–23,800 range,” an analyst stated.

The RBI’s Monetary Policy Committee (MPC) meeting will be the key domestic event this week. The three-day meeting will begin on August 3, with the policy decision and RBI Governor’s statement scheduled for August 5.

Investors will closely monitor the central bank’s commentary on inflation, economic growth and the future interest rate trajectory for cues on market direction.

Corporate earnings will remain another major driver as several heavyweight companies are set to announce their financial results for the first quarter of FY27.

Global developments will also remain on investors’ radar amid persistent tensions in the Middle East. US President Donald Trump warned of additional strikes on Iran as Washington stepped up efforts to reopen the Strait of Hormuz.

Crude oil prices will continue to be closely monitored after ending Friday more than $1 per barrel higher and registering their strongest monthly gains since March amid concerns over global supply disruptions following reports that some oil tankers had reversed course in the Strait of Hormuz.

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