Karnataka takes steps towards fiscal prudence

Move to offer tax exemptions, freeze key subsidies hailed

The move by the Karnataka government to freeze key subsidies and announcing tax breaks amounting to about Rs 1,250 crore to the industry has been hailed by various stakeholders for the fiscal prudence. These key proposals are listed in the Medium Term Fiscal Plan 2013-17 which outlines the government’s fiscal strategy. MTFP 13-17 was presented to the legislature as required under the Karnataka Fiscal Responsibility Act (KFRA), 2002 and Karnataka Fiscal Responsibility Rules, 2003.

M Lakshminarayan, President, Bangalore Chamber of Industry and Commerce (BCIC), said: “The state is at cross roads where the twin challenges of fiscal consolidation and adequate investment in core sectors are both equally important. Inclusive growth is an outcome of focused policy initiatives which target the priority sectors with large potential for creation of opportunities, both social and economic. However the immediate challenge for the state is to find steady sources of revenues to provide for the enhanced outlays in the essential socio-economic sectors. The tax breaks announced by the state government will incentivise the industry to not only expand the existing capacity, but also expect new Capex pouring into the state.”

Venkataramani, Co-Chairman of the Indirect and State Taxes Expert Committee, BCIC, said: “The state is at present fully dependent on revenues from commercial taxes for growth and sustainability. Going forward, it is anticipated that this area of revenue can slow down as the revenues from services has been on the rise. The thrust must be towards newer tax reforms like GST to augment revenues.”

Overall, industry stakeholders feel that the state has to balance requirements of providing adequate funds to critical sectors while adhering to fiscal prudence norms vis-à-vis including low non-tax revenues; limitations on the use of borrowed funds for capital formation; fiscal impact of official pay committee recommendations; fnancing the impact of the co-operative short term crop loan waiver scheme; large budget size and supplementary requirements; ensuring effective targeting of the subsidy net; plan commitments under the XII Five Year Plan; Fourteenth Finance Commission and efficient management of public expenditure.