V. Sridhar

It is expected to fall short of set target

State's revenue boosted by sales tax on petroleum products, excise levied on liquor

Owing to shortfall, funding of specific schemes may suffer

Bangalore: The burden of a shortfall in revenue is likely to play a significant role in determining the shape of Chief Minister B.S. Yeddyurappa's third budget of his current tenure, which he will present as Finance Minister on Friday. It is widely believed that revenues mobilised by the Government in the current year will fall short of the target set in the last budget.

While presenting his budget last year, Mr. Yeddyurappa proposed to raise Rs. 40,367 crore as tax revenue. However, the last review of actual mobilisation by the State — undertaken at the end of December 2009 — indicated that revenues were likely to fall short of target. It is important to recall that revenues actually mobilised in 2008-09 were 10 per cent lower than the budgeted expectation, implying a revenue shortfall for the second consecutive year.

While presenting his budget last year, Mr. Yeddyurappa said he would increase the Plan outlay by almost 50 per cent — from Rs. 19,889 crore in 2008-09 to Rs. 29,500 crore in the current year. However, by December 2009, the Government had achieved only 42 per cent of the outlay. More significantly, in January, Mr. Yeddyurappa himself said Plan expenditure is “expected to reach Rs. 22,000 crore by March 2010”. In other words, Mr. Yeddyurappa acknowledged that the Plan outlay for the current year had shrunk by 25 per cent since he presented his last budget.

Fallout

There are three significant ways in which the revenue shortfall will affect the priorities of the Government in the forthcoming budget. First, the revenue shortfall means that Plan expenditures, which are aimed at funding specific schemes for either expanding the productive capacity in the State or to fund welfare schemes, are likely to be curtailed significantly.

The second aspect of the fiscal stress relates to what is perceived in some quarters as an excessive obsession with balancing revenue expenditures.

It is well known that expenditures in health and education, for instance, are mostly related to payment of salaries for teachers, doctors, paramedics and other staff, which are mostly from the revenue account. There is fear that a squeeze on the revenue account is likely to impact expenditures on social welfare programmes more than other kinds of expenditure, which is inefficient from a social equity standpoint.

The third aspect is that it reduces room for manoeuvre for Mr. Yeddyurappa. Given his penchant for announcing a large number of schemes — each with little funding — the revenue shortage makes a compelling case for reducing the number of schemes and undertake expenditure with greater focus in order to achieve a greater impact.

Position helped

It is likely that Karnataka's revenues would have been far worse if petroleum prices had not been increased twice in the last year. In effect, the State Government has benefitted from higher fuel prices because the tax rate is applicable on a higher price. In fact, taxes levied on two fluids — sales tax on petroleum products and the State excise levied on liquor — have spared the State from a far worse fiscal situation.

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