In order to fund loan waiver, Karnataka hikes tax on liquor, petrol, diesel

Karnataka Chief Minister, H D Kumaraswamy, did a balancing act with the state's resources by announcing a mega farm loan waiver on the one hand while raising tax rates on key commodities to ensure that state's fiscal health remains in a good shape.

Announcing the budget of a total size of Rs 2.13 trillion, the state has set aside Rs 340 billion towards the farm loan waiver, accounting for 16 per cent of the total budgetary estimates.

According to the budget document, fiscal deficit is pegged at Rs 407.53 billion, or 2.89 per cent of the Gross State Domestic Product (GSDP). Similarly, the state's total liabilities have increased from Rs 2.86 trillion to Rs 2.92 trillion, constituting 20.75 per cent of the GSDP.

"All the three fiscal parameters are within the mandate of the Karnataka Fiscal Responsibility Act and this reflects fiscal prudence of the state," the Chief Minister said.

For fiscal 2018-19, the state presented a revenue surplus of Rs 1.06 billion with revenue receipts of Rs 1.663 trillion and revenue expenditure of Rs 1.662 trillion during this period.

In order to raise resources to fund the loan waiver scheme, the budget has increased the rate of tax on petrol from the present 30 per cent to 32 per cent, hiking petrol prices by Rs 1.14 a litre and the rate of tax on diesel from the present 19 per cent to 21 per cent, which will raise the cost by Rs 1.12 a litre.

The budget also hiked power tariffs from six per cent to nine per cent. “The tax rate on consumption of energy will increase from 10 paise per unit to 20 paise per unit,” Kumaraswamy announced.

The CM also proposed an increase in the existing rates of excise duty on Indian Made Foreign Liquor (IMFL) by four per cent on all 18 price slabs. 

In the space of mega project, the budget commissioned a Detailed Project Report (DPR) worth Rs 530 billion named “Jaladhare”, which involves drawing water from various rivers and reservoirs and supply after purification to villages for drinking purposes. The budget also announced expansion of phase-3 of the Bengaluru metro, apart from construction of six elevated corridors at a cost of Rs 158.25 billion.

"Under the circumstances, he’s balanced the budget as much as he could and if you have to address the real burning issues like farmers’ death, then I think he’s done a good job. Because the only thing you can balance it with is to raise tax on liquor and petrol," Shaw said.

The announcement of the peripheral ring road around Bengaluru is also a big positive along with the proposal for elevated road corridors to decongest roads, she added.

However, Mohandas Pai, former CFO of Infosys, and Chairman of Aarin Capital said that the budget would dampen the development of Karnataka for the next two or three years, because most resources would flow to fund loan waivers.

He also said that though the project allocation for Bengaluru looked large, but the financial allocations were very small. 

Highlights

•  Gross budget size stood at Rs 2.13 trillion for 2018-19
•  Fiscal deficit is estimated to be 2.89% of GSDP in FY19
•  State will have a revenue surplus of Rs 1.06 billion
•  Budget proposes to hike tax on petrol to 32% from present 30%
•  Excise duty on Indian Made Foreign Liquor (IMFL) raised by 4%