If the Congress needed to demonstrate that the guarantees it offered in the elections last year were a part of its longer-term strategy for Karnataka, Chief Minister Siddaramaiah’s Budget does so quite unequivocally. Instead of just trying to squeeze out funds for the guarantees promised at that time, he has added fresh welfare measures, including 430 free medical laboratories to be set up in Bengaluru. And the Budget reflects a financial thinking that would, if it works, make the guarantee-led model financially sustainable.
The radical part of this strategy lies in its approach to the revenue deficit. Conventional wisdom has it that the government should strive for a surplus on the revenue account that would help finance capital expenditure. The Budget breaks out of this thinking with the Chief Minister stating that a revenue surplus is meaningless if the State cannot aid the poor and the needy in times of distress. He has gone on to concretise this approach with a budgeted revenue deficit of ₹27,354 crore, nearly 1% of Karnataka’s GSDP. At the same time, he has made it clear that this is not a sign of fiscal profligacy. He has kept the fiscal deficit at 2.95% of GSDP, which is below the level mandated by the Karnataka Fiscal Responsibility Act, 2022.
A strategy that allows the revenue deficit to increase while keeping the overall fiscal deficit in control puts pressure on capital expenditure. The Chief Minister hopes to ease this pressure by mobilising private capital through a variety of measures. The Budget makes all the usual noises about foreign investment, including a Global Investors Meet, but what is worth watching are the innovative steps it takes on mobilising domestic capital.
The move to help small and medium industries launch IPOs is a particularly interesting one. While the success of a company like Infosys in Karnataka’s growth story is well recognised, the various steps it took in the early stages of its existence are often forgotten. It was at one time little more than a small company that used an IPO to raise capital. This is a model that is not open to many current small and medium industries due to the very high cost of an IPO. The budget provides a path for the State government to help by offering financial assistance to small and medium companies of up to 50% of the costs of an IPO. With a ceiling of ₹ 25 lakhs it may not seem like a major initiative, but if even a couple of these companies follow the paths laid out by those who rose from similar beginnings to become corporate giants, the impact on Karnataka’s economy would be very significant.
The budget also suggests a fresh look at the idea of public-private partnerships. The Karnataka State Warehousing Corporation has been facing a severe financial crisis. The budget proposes using the unutilized storage facilities to develop cold storages through the PPP route. Making this and other initiatives effective would call for a fresh look at the entire PPP strategy of the state government, something that the budget promises to do.
The overall strategy of enabling private sector investment while concentrating the State’s resources on the poor and needy is one that provides opportunities even as it has its risks. More than three decades after liberalisation, the private sector should be in a position to take care of itself with just a little help from State governments. The risks lie in the fact that the private sector has multiple locations across the world that it can invest in. Chief Minister Siddaramaiah has bet that Karnataka has no reason to fear that competition. The coming year will provide the first indications of whether he is right.
