V. Sridhar

Bangalore: In normal times, the budget of a Government that has just assumed office uses the previous budget as a benchmark. However, Chief Minister B.S. Yeddyurappa cannot afford to do this for two reasons.

One, the budgetary numbers presented by Union Finance Minister P. Chidambaram, in February, have gone awry. Mr. Chidambaram assumed that the State’s economy would grow at nine per cent and inflation would be at a benign four per cent in 2008-09. Since inflation is currently in excess of 11 per cent, many of the projections and allocations made at the time he sought a vote on account are either way off the mark or grossly inadequate as they would have been eroded by inflation.

The other problem faced by Mr. Yeddyurappa is that he has many promises to keep while the resources at his command are limited. To make matters more difficult, the track record of maintaining a revenue surplus — Karnataka has had a revenue account surplus for the past few years — seems to be a millstone around his neck. Quite apart from the welfare schemes promised by the Bharatiya Janata Party in the run-up to the elections, the funding for the backlog of underdevelopment — whether in agriculture or in infrastructure — will be difficult to come by.

The budget presented during President’s Rule estimated that the total tax revenues of the State Government would amount to Rs. 38,790 crore in 2008-08, an increase of a little less than 16 per cent in nominal terms. However, since inflation is raging at almost 12 per cent, the increase in real terms amounts to less than four per cent.

The total revenue receipts of the Government in 2008-09 were estimated to increase at an even slower rate of 13 per cent, touching Rs. 46,189 crore. This means that there is hardly an increase in real terms, after accounting for what is lost to inflation.

Expenditure squeeze

The compulsion to keep the revenue account in surplus — in order to abide by the Karnataka Fiscal Responsibility Act, 2002 — in a year of raging inflation and slowing growth is likely to result in a squeeze on expenditure that is critical for the poor. For instance, allocations made for public health in the vote on account are projected to increase by less than the rate of inflation. So is the case with the provision for social security. Although the provision for education in 2008-09 rose by a healthy 27 per cent when compared to the Revised Estimate for 2007-08, it now stands substantially reduced because of inflation.