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C. Shivkumar

Interest payments on small savings, borrowings from the Centre, financial institutions and the market, account for about Rs 4,000 crore per annum, or over 20 per cent of the revenue expenditure.

BANGALORE, May 27

KARNATAKA has agreed to wipe out its revenue deficit by 2005-06 by adopting a slew of measures, which includes subsidy reduction, in compliance with the World Bank's norms for releasing the remaining tranches of the structural adjustment loan.

Sources said that Karnataka was well on its way to wiping out its primary deficit by the end of the next financial year. Primary deficit is measured by netting interest payments from the revenue deficit figures. For the current fiscal, the State has actually estimated a small primary surplus of Rs 1,495 crore, though this number would depend on Central receipts and the State's ability to meet revenue mobilisation targets.

Currently, Karnataka runs a large revenue deficit in view of huge interest payments on various loans, estimated at about 2 per cent of the State Domestic Product. Measures for wiping out the revenue deficit have already been taken through the debt swap route. The debt swap route allows for shedding of some of the high-cost Central Government loans to States with low-interest State development loans.

Besides, the State Government has also initiated moves to shed some of the high-interest State development loans placed with the banks as SLR (statutory liquidity ratio) securities. Interest payments on small savings, borrowings from the Centre, financial institutions and the market, account for about Rs 4,000 crore per annum, or over 20 per cent of the revenue expenditure. Subsidies, wages and pension liabilities account for 60 per cent of the total revenue expenditure.

Consequently, the thrust would be on containing this component of expenditure. The State Government hoped that interest liabilities would be substantially down during the current financial year, when the debt swap goes through, to less than 10 per cent of the revenue expenditure. However, the grey areas are over the issues of containing pension liabilities, wages and subsidies. Sources said pension liabilities, had actually increased for the Government during the last few months on account of enhanced dearness allowance payments (pension payments are indexed to the consumer price index).

Besides, subsidies have also been rising at a 35 per cent per year, the bulk of it from power sector and only a small component by way of food subsidies. The Bank has insisted that power subsidies be contained as a measure to rein-in the revenue deficit, complete privatisation of the distribution network and through enhanced revenue mobilisation. In the last fiscal none of these objectives were achieved. As a result, the Bank had withheld disbursement of the third tranche of the loan.

Subsidies, the sources said, are unlikely to show any substantial reduction during the year and revenue deficit correction was expected to be achieved mainly through enhanced revenue mobilisation and better tax buoyancy.

Tax buoyancy is measured by ascertaining revenue growth rate for every percent increase SDP. In States such as Karnataka, tax buoyancy has been very low, as low as two per cent. In fact, last year, it turned negative due to the negative growth in revenue receipts and despite the Government's claim of 6 per cent real growth rate in the SDP.

Sources said that this year while the focus would be to raise revenues, any failure in the monsoons could completely alter the revenue deficit projections.

Already, the continuing drought in large parts of the State, which has seen dry spells for three consecutive years, has triggered worries.

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Karnataka Govt initiates measures to wipe out revenue deficit — To comply with World Bank norms for fund release

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