The recent report by the Comptroller and Auditor General (CAG) has unveiled significant financial challenges faced by the Karnataka government. The report, presented in the Legislative Assembly, highlights the financial implications of the five guarantee schemes implemented by the state.
These schemes accounted for a substantial 15% of the state's revenue expenditure for the fiscal year 2023-24. To finance these guarantees, the Karnataka government resorted to borrowing an additional Rs 37,000 crore compared to the previous year, which has had a cascading effect on the state's fiscal health.
The CAG report underscores that the implementation of these schemes led to a 12.54% increase in expenditure growth from the previous year. This surge in spending was a primary contributor to the revenue deficit of Rs 9,271 crore. Consequently, the fiscal deficit of the state ballooned from Rs 46,623 crore in 2022-23 to Rs 65,522 crore in 2023-24. To bridge this gap, the state availed net market borrowings amounting to Rs 63,000 crore, which was Rs 37,000 crore more than the previous year's net borrowings.
The report also details the financial allocations for the five guarantee schemes during 2023-24, with a total budget of Rs 36,537.96 crore. The Gruha Laxmi scheme, which provides Rs 2,000 monthly to the woman head of a family, accounted for Rs 16,964 crore. The Gruha Jyothi scheme, offering free power, required Rs 8,900 crore. The Anna Bhagya scheme, which provides free rice, cost Rs 7,344.68 crore. The Shakti scheme, offering free travel for women, was allocated Rs 3,200 crore, and the Yuva Nidhi scholarship scheme received Rs 88.88 crore.
Impact on State's Fiscal Health
The CAG report highlights a critical issue: while the state's revenue grew by a mere 1.86% over the previous year, its expenditure surged by 12.54%. This mismatch between revenue and expenditure growth was primarily due to the guarantee schemes, leading to a revenue deficit of Rs 9,271 crore. The report further warns that this financial strategy could lead to increased repayment burdens in the future, placing additional pressure on the state's resources.
The reduction in capital expenditure (Capex) towards infrastructure by approximately Rs 5,229 crore compared to the previous year is another significant concern. This reduction has resulted in a 68% increase in incomplete projects, which could hinder future growth prospects. The CAG report emphasizes that the compression in gross capital formation could prove detrimental to the state's long-term economic health.
The government's Medium Term Fiscal Plan for 2024-28 projects a revenue deficit of Rs 27,354 crore, with borrowings expected to rise to Rs 1.05 lakh crore. During an Exit Conference held in January 2025, the state finance department acknowledged the facts presented in the CAG report but argued that the five guarantees had boosted the local economy, reduced economic disparities, and supported human capital development.
The CAG report on Karnataka's financial situation serves as a cautionary tale for other states and countries. It underscores the importance of balancing welfare schemes with fiscal prudence. While such schemes can provide immediate relief and support to vulnerable populations, they must be implemented with a clear understanding of their long-term financial implications.
The Karnataka government's financial strategy, as highlighted by the CAG report, presents a complex picture of balancing welfare initiatives with fiscal responsibility. The state's experience underscores the need for careful planning and execution of welfare schemes to ensure sustainable economic growth and financial stability.
