Congress President Mallikarjun Kharge’s recent remarks have reignited tensions between Congress and the BJP. Kharge, 82, urged state Congress units to prioritize financially feasible promises, which led to a sharp rebuke from Prime Minister Narendra Modi. Modi accused Congress of making unrealistic promises, to which Kharge responded, calling the Prime Minister’s comments a “cheap PR stunt” aimed at the NDA’s 100-day plan.
Karnataka Chief Minister Siddaramaiah and Deputy CM DK Shivakumar also weighed in, accusing Modi of spreading false narratives and mimicking their governance approach. Shivakumar remarked, “Who says we are facing financial problems? Our financial strength exceeds the country’s.”
For months, Karnataka has been vocal about its grievances with the NDA-led Centre, which it claims has ignored the state’s needs. Recently, a Karnataka delegation approached Union Finance Minister Nirmala Sitharaman, requesting Rs 5,400 crore as recommended by the 15th Finance Commission. In July, Siddaramaiah had skipped a NITI Aayog meeting led by Modi, citing the Centre’s disregard for the state’s fiscal concerns.
Economic Strain from Welfare Schemes
Karnataka’s finances are increasingly burdened by the state’s wide-ranging welfare programs, championed by CM Siddaramaiah as key to his administration. However, the fiscal realities are now forcing difficult decisions. Economic advisor Basavaraj Rayareddi previously raised concerns, noting that Rs 60,000 crore of the state’s annual budget is committed to welfare guarantees, leaving limited resources for crucial development initiatives.
Slowdown in Karnataka’s Economic Growth
Karnataka’s economic growth has been slowing, with the state’s GDP growth, which had previously outpaced the national average since 2019-20, now projected to fall below it for 2023-24. While the national GDP is expected to grow at 7.3%, Karnataka’s growth rate is estimated at 6.6%.
The state’s fiscal deficit is also a growing concern, with the deficit increasing from 2.14% of GDP in 2022-23 to 2.67% in 2023-24, and possibly rising to 2.95% by 2024-25. As economic growth slows, Karnataka may struggle to maintain welfare programs, leading to decreased tax revenue and greater demand for financial assistance.
Declining Tax Revenue and Central Grants
Karnataka is grappling with shrinking fiscal stability, marked by a decline in tax revenue and reduced central grants. Tax collections dropped from 7.54% of GDP in 2021-22 to 6.24% in 2023-24, while central grants have plummeted from 1.22% to 0.55%. Additionally, the state’s Economic Survey revealed a broader reduction in central tax allocations, from 2.55% of GDP in 2018-19 to 1.45% in 2023-24.
Rising Debt Liabilities
Karnataka’s debt liabilities are set to grow, with projections showing an increase from 22.6% of GDP in 2023-24 to 23.97% by 2027-28. As debt obligations rise, the state will face greater challenges in funding welfare schemes, with limited budget flexibility due to mounting liabilities.
Declining Foreign Investment in Karnataka
Foreign Direct Investment (FDI) inflows into Karnataka have also seen a decline, as Gujarat becomes more favorable to investors. FDI dropped from $22 billion in 2021-22 to $10.4 billion in 2022-23 and further to $6.57 billion in 2023-24. This decline in FDI could limit Karnataka’s ability to fund welfare initiatives, as FDI typically boosts economic growth and tax revenue.
With decreasing FDI and growing debt liabilities, Karnataka may face difficulty in sustaining its welfare programs. The state may need to prioritize essential services over freebies, impacting the residents who rely on these programs.
