The Hindu : Karnataka / Bangalore News : State unlikely to utilise relaxation in deficit norms

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Thursday, Jun 18, 2009
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Karnataka

Karnataka - Bangalore

State unlikely to utilise relaxation in deficit norms

V. Sridhar

Bangalore: It is unlikely that the Karnataka Government will utilise the opportunity to run up a higher fiscal deficit to provide an impetus to the economy, say senior government officials.

This contradicts the stance adopted by the State Government at the meeting of State Finance Ministers with the Union Finance Minister in New Delhi last week.

Karnataka was represented by S. Suresh Kumar, Minister for Law and Parliamentary Affairs, in the absence of Chief Minister B.S. Yeddyurappa, who holds the Finance portfolio.

At the meeting, Karnataka reportedly suggested that the Centre should consider relaxing the limit on the extent of the States’ fiscal deficit as mandated by the provisions of the Fiscal Responsibility and Budgetary Management (FRBM) Act.

It said the Plan expenditure might have to be cut by about one-fifth of earlier estimate, mainly on account of a 10 per cent decline in State taxes in the last six months.

Other States wanted the cap to be relaxed by between 1 and 2 percentage points of their GSDP. The cap on the deficit was increased from 3 per cent to 3.5 per cent of each State’s Gross State Domestic Product (GSDP) when Mr. Mukherjee presented the vote-on-account in February.

Senior officials in the Finance Department confirmed that the State had not yet moved to amend the State FRBM Act to relax the cap on the extent of the deficit.

The Karnataka budget for 2009-10 had forecast the fiscal deficit at 2.88 per cent of the State’s GSDP, lower than the 3.5 per cent deficit that it ran in 2008-09. A one percentage point increase in the headroom for the deficit would give the State an additional opportunity worth Rs. 2,950 crore — assuming that Karnataka’s GSDP in 2009-10 would reach the budget forecast of Rs. 2.95 lakh crore.

A senior official in the Finance Department told The Hindu that it was “too early to say whether the Government faced a fiscal stress.”

The official explained that the nature of State finances was different from those of individuals. “It is not as though the Government first gets the money and then spends it. That is the difference between private finances and State finances” .

Moreover, some payments could be staggered so that payments spill over to the next year. He denied that the State faced “fiscal stress” but said expenditures and schemes could be “moderated” later in the year if there was stress.

Asked if the Government was awaiting “cues” from the Union Budget, which might warrant a supplementary budget, the official said the Government was not “expecting any fundamental changes” in the Union Budget. He did not rule out the introduction of supplementary demands for grants during the year.

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