Over the years, Karnataka has been praised for maintaining fiscal discipline, although there have been concerns about indiscipline in budget spending by successive governments, but over the past three years the state failed on both counts. The state has always been proud of the fact that it has always limited its borrowing to less than 3% of the state’s gross domestic product (GSDP), as mandated by the 2002 Karnataka Fiscal Responsibility Law. The law was changed some time ago to allow the state to borrow up to 5% in view of the Covid situation, which is understandable. But such has been the mismanagement of finances in recent years that the Comptroller and Auditor General (CAG) pointed out in his finance and audit report that the state had in fact borrowed more than its needs in 2019-2020, open market borrowing amounting to 59% of total tax liability. This excess borrowing resulted in an increase in the State treasury of 57% compared to the previous year. In other words, the government resorted to borrowing more than necessary, on which interest must be paid, and then left the money unused, without making use of it. The CAG correctly noted that maintaining an unused cash balance is not prudent financial management and that the government should limit its borrowing in the market to its needs. Debt sustainability analysis also shows that the growth in public debt has exceeded the growth in MSRP.
Also Read: Karnataka Budget Allocations Not Spent: CAG Report
What is even more shocking is that although funds have been available, budget allocations have remained unused year after year for the past three years, indicating the non-achievement of planned financial expenditures. The budgeting exercise, it seems, was so casual that the allocations were made without even taking into account the expenses of previous years. Even though large sums were not spent, the government requested additional grants and credits without justification. Noting that 11% of the total provisions made in 2019-2020 remained unused, the CAG urged the government to be more practical in its budget. It is also a sad commentary on the lack of control of the legislature, which blindly approves the additional grants requested by the government periodically.
The CAG report shamed Karnataka, which until recently boasted of being one of the best-managed states financially. Excessive borrowing, not using available funds and then holding money in hand and getting nothing out of it, is evidence of insensitive bureaucracy and political leadership. Chief Minister Basavaraj Bommai, who also holds the finance portfolio, is expected to ensure tight budget control and adherence to established financial practices to save the state from financial disaster.