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Karnataka passes Bill to increase borrowing limit

The Congress party staged a walkout after its demand for restricting the fiscal deficit increase to 3.5 per cent and to curb administrative costs for the current fiscal was ignored by the ruling BJP.

The Karnataka Assembly on Friday passed an amendment to the Karnataka Fiscal Responsibility Act, 2002, which will enable the B S Yediyurappa government to increase its fiscal deficit limit from the current 3 per cent to 5 per cent in order to facilitate borrowing to the tune of Rs 33,000 crore to compensate for revenue losses due to the pandemic.

The Congress party staged a walkout after its demand for restricting the fiscal deficit increase to 3.5 per cent and to curb administrative costs for the current fiscal was ignored by the ruling BJP.

State Law Minister J C Madhuswamy said, “It is considered necessary to amend Section 4 of the Karnataka Fiscal Responsibility Act, 2002 to raise the fiscal deficit to 5 percent of the estimated Gross State Domestic Product (GSDP) for the year 2020-21 as a one-time relaxation.

“The central government has permitted an increase in borrowing limits up to 5 per cent of GSDP due to the Covid-19 crisis. The state will be able to borrow Rs 36,000 crore under the amended law but we have decided to borrow Rs 33,000 crore,” the minister said.

Leader of the Opposition and senior Congress leader Siddaramaiah, along with his party colleagues H K Patil and Krishna Byre Gowda accused the BJP government of pushing the state into a debt trap, where the government may not be in a position to finance development or even pay the salaries of government employees in the future.

“Difficult times call for difficult measures. Government should adopt stringent measures to cut down on unwanted expenditure. Administrative reforms have to be adopted to trim committed expenditure and make room for capital expenditure. Non-tax revenue should be increased,” Siddaramaiah said.

“The state government is ready to take an additional loan of Rs 33,000 crore because the chief minister is forced to take the burden of the central government’s failure to compensate the GST gap. The current year’s liabilities may increase from Rs 46,072 crore to Rs 93,682 crore due to relaxation in fiscal deficit targets,” he said.

Siddaramaiah said the Fiscal Responsibility Budget Management Act, 2002 was enacted to “bring in financial discipline in the state and central governments. It mandated revenue surpluses, fiscal deficit below 3 per cent of GSDP and total debt below 25 per cent of GSDP for states”.