Karnataka Budget Analysis 2022-23

The Chief Minister of Karnataka, Mr. Basavaraj Bommai, presented the Budget for the state for the financial year 2022-23 on March 4, 2022.

Budget Highlights

• The Gross State Domestic Product (GSDP) of Karnataka for 2022-23 (at current prices) is projected to be Rs 18,85,750 crore.  This is a growth of 9.6% over the revised estimate of GSDP for 2021-22 (Rs 17,21,336 crore).   In 2021-22, GSDP is estimated to contract 4.6% over the previous year (at current prices).
   
• Expenditure (excluding debt repayment) in 2022-23 is estimated to be Rs 2,51,541 crore, a 5% increase over the revised estimates of 2021-22 (Rs 2,38,600 crore).   In addition, debt of Rs 14,179 crore will be repaid by the state in 2022-23.  In 2021-22, expenditure (excluding debt repayment) is estimated to be 3% higher than the budget estimate.
   
• Receipts (excluding borrowings) for 2022-23 are estimated to be Rs 1,89,977 crore, which is a marginal increase over the revised estimates of 2021-22 (Rs 1,89,710 crore).  In 2021-22, receipts (excluding borrowings) are estimated to exceed the budget estimate by Rs 17,308 crore (an increase of 10%).
   
• Fiscal deficit for 2022-23 is targeted at Rs 61,564 crore (3.26% of GSDP).   In 2021-22, as per the revised estimates, fiscal deficit is expected to be 2.84% of GSDP, lower than the budget estimate of 3.44% of GSDP.
   
• Revenue deficit for 2022-23 is estimated to be Rs 14,699 crore, which is 0.78% of the GSDP.  In 2021-22, the state is estimated to observe a revenue deficit of 0.36% of GSDP, lower than the revenue deficit of 0.88% of GSDP estzmated at the budget stage.

Policy Highlights

• Agriculture: Raitha Shakti scheme will be launched to encourage the use of farm machinery by giving diesel subsidy of Rs 250 per acre.  Yashashwini scheme will be re-introduced to provide medical facilities to farmer families of rural areas.  Ksheera Samruddhi Sahakara Bank will be established for giving loans to milk producers.   Existing veterinary clinics will be strengthened and 100 new such clinics will be commended in phases.
   
• Industry: Karnataka Special Investment Region Act will be formulated for the establishment, operation, control, and management of mega industrial regions.  Initially, Tumakuru and Dharwad districts will be notified as Special Investment Region.
   
• Health: Namma Clinics will be established in major cities of Karnataka and in all wards of Bengaluru.   These clinics will provide testing facilities for non-communicable diseases.   

Karnataka’s Economy GSDP:  Karnataka’s GSDP (at constant prices) is estimated to grow by 9.5% in 2021-22, as compared to a contraction of 0.5% in 2020-21. In 2021-22, agriculture, manufacturing, and services sectors are estimated to grow by 2.4%, 7.5%, and 9.2% respectively. In 2021-22, India’s GDP (at constant prices) is estimated to increase by 8.9% (against a contraction of 6.6% in 2020-21).   Sectors:  In 2021-22, at current prices, agriculture, manufacturing, and services sectors are estimated to contribute 15%, 19%, and 66% of the economy respectively.   Per capita GSDP:  The per capita GSDP of Karnataka in 2020-21 (at current prices) was Rs 2,49,947; 1.4% higher than the corresponding figure in 2019-20.  In 2020-21, per capita GSDP of Karnataka was higher than the per capita GDP at the national level (Rs 1,46,087 at current prices).

Figure 1: Growth in GSDP and sectors in Karnataka at constant (2011-12) prices    Note: These numbers are as per constant prices (2011-12) which implies that the growth rate is adjusted for inflation. Sources: Karnataka Budget Documents 2022-23; PRS.

Budget Estimates for 2022-23

• Expenditure (excluding debt repayment) in 2022-23 is targeted at Rs 2,51,541 crore.  This is an increase of 5% over the revised estimate of 2021-22 (Rs 2,38,600 crore).   This expenditure is proposed to be met through receipts (excluding borrowings) of Rs 1,89,977 crore and net borrowings of Rs 57,821 crore.  Receipts (excluding borrowings) for 2022-23 are expected to increase marginally from the revised estimate of 2021-22.  In 2021-22, receipts are estimated to be 10% higher than the budget estimates.
   
• In 2022-23, the state is estimated to observe a revenue deficit of Rs 14,699 crore, which is 0.78% of its GSDP.  This is higher than the revenue deficit of 0.36% of GSDP in 2021-22 as per revised estimates.
   
• Fiscal deficit in 2022-23 is estimated to be 3.26% of GSDP which is within the limit of 4% of GSDP permitted by the central government in Union Budget 2022-23 (of which, 0.5% of GSDP will be made available upon undertaking power sector reforms).  In 2021-22, the state has estimated a fiscal deficit of 2.84% of GSDP, which is lower than the limit of 4.5% of GSDP permitted by the central government (of which, 0.5% of GSDP becomes available upon undertaking power sector reforms).  

Table  1 : Budget 2022-23 - Key figures (in Rs crore)

Items	2020-21 Actuals	2021-22 BE	2021-22 RE	% change from BE 21-22 to RE 21-22	2022-23 BE	% change from RE 21-22 to BE 22-23
Total Expenditure	2,35,145	2,46,207	2,53,165	3%	2,65,720	5%
(-) Repayment of debt	11,016	14,565	14,565	0%	14,179	-3%
Net Expenditure (E)	2,24,129	2,31,642	2,38,600	3%	2,51,541	5%
Total Receipts	2,41,559	2,43,734	2,57,042	5%	2,61,977	2%
(-) Borrowings	84,528	71,332	67,332	-6%	72,000	7%
Net Receipts (R)	1,57,032	1,72,402	1,89,710	10%	1,89,977	0%
Fiscal Deficit (E-R)	67,098	59,240	48,890	-17%	61,564	26%
as % of GSDP	3.72%	3.44%	2.84%	3.26%
Revenue Deficit	19,338	15,134	6,235	-59%	14,699	136%
as % of GSDP	1.07%	0.88%	0.36%	0.78%
Primary Deficit	45,177	32,079	21,729	-32%	32,170	48%
as % of GSDP	2.50%	1.86%	1.26%	1.71%

Note: BE is Budget Estimates; RE is Revised Estimates.
Sources: Karnataka Budget Documents 2022-23; PRS.

Table  2 :  Expenditure budget 2022-23 (in Rs crore)

Items	2020-21 Actuals	2021-22 BE	2021-22 RE	% change from BE 21-22 to RE 21-22	2022-23 BE	% change from RE 21-22 to BE 22-23
Revenue Expenditure	1,76,054	1,87,405	1,95,814	4%	2,04,587	4%
Capital Outlay	45,406	41,358	39,482	-5%	43,573	10%
Loans given by the state	2,669	2,879	2,884	0%	3,382	17%
Net Expenditure	2,24,129	2,31,642	2,38,180	3%	2,51,541	6%

Sources: Karnataka Budget Documents 2022-23; PRS.

Committed expenditure: Committed expenditure of a state typically includes expenditure on payment of salaries, pensions, and interest.  Allocation of a large portion of the budget for committed expenditure items limits the state’s flexibility to decide on other expenditure priorities such as developmental schemes and capital outlay.  In 2022-23, Karnataka is estimated to spend Rs 94,699 crore on committed expenditure items, which is 50% of its revenue receipts.  This comprises spending on salaries (22% of revenue receipts), interest payments (15%), and pension (13%).  Committed expenditure in 2022-23 is estimated to increase by 6% over the revised estimate of 2021-22.  Interest payments are estimated to increase by 8% while salaries and pension are estimated to increase by 7% and 3%, respectively.

Table  3 : Committed Expenditure in 2022-23 (in Rs crore)

Items	2020-21 Actuals	2021-22 BE	2021-22 RE	% change from BE 21-22 to RE 21-22	2022-23 BE	% change from RE 21-22 to BE 22-23
Salaries	31,849	38,626	38,430	-1%	41,288	7%
Pensions	18,936	23,413	23,413	0%	24,016	3%
Interest Payment	21,920	27,161	27,161	0%	29,395	8%
Total Committed Expenditure	72,706	89,199	89,004	0%	94,699	6%

Sources: Karnataka Budget Documents 2022-23; PRS.

Sector-wise expenditure: The sectors listed below account for 61% of the total expenditure on sectors by the state in 2022-23.  A comparison of Karnataka’s expenditure on the key sectors with that by other states is shown in Annexure 1.

Table  4 : Sector-wise expenditure under Karnataka Budget 2022-23 (in Rs crore)

Sectors	2020-21 Actuals	2021-22 BE	2021-22 RE	2022-23 BE	% change from RE 21-22 to BE 22-23	Budget Provisions 2022-23 BE
Education, Sports, Arts, and Culture	25,483	29,100	29,607	32,018	8%	Rs 17,184 crore has been allocated towards elementary education. Rs 960 crore has been allocated for Mid-Day Meal Programme.
Irrigation and Flood Control	19,968	19,367	18,391	20,652	12%	Rs 15,984 crore has been allocated for investments in public sector and other undertakings.
Agriculture and allied activities	17,328	14,976	15,429	17,039	10%	Rs 2,000 crore has been allocated towards Pradhan Mantri Kisan Samman Yojana. Rs 927 crore has been allocated towards crop insurance.
Social Welfare and Nutrition	14,672	13,651	15,242	15,528	2%	Rs 3,885 crore has been allocated towards pension under social security scheme. Rs 1,956 crore has been allocated for distribution of nutritious foods and beverages.
Health and Family Welfare	11,868	12,235	14,632	14,368	-2%	Rs 2,375 crore has been allocated for Urban Health Services – Allopathy. Rs 1,039 crore has been allocated to Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana.
Energy	14,927	12,579	12,398	12,226	-1%	Rs 9,419 crore has been allocated for subsidies to Karnataka Power Transmission Corporation Limited.
Transport	15,562	12,736	12,282	12,105	-1%	Rs 1,327 crore has been allocated towards assistance to public sector and other undertakings.
Rural Development	9,231	9,191	9,434	9,295	-1%	Rs 1,283 crore has been allocated towards MGNREGS.
Welfare of SC, ST, OBC, and Minorities	7,457	8,686	8,596	9,180	7%	Rs 3,818 crore has been allocated for welfare of scheduled castes.
Police	6,306	7,235	7,263	8,007	10%	Rs 5,675 crore has been allocated for district police.
% of total expenditure on all sectors	64%	61%	61%	61%

Sources: Karnataka Budget Documents 2022-23; PRS.

Receipts in 2022-23

• Total revenue receipts for 2022-23 are estimated to be Rs 1,89,888 crore, a marginal increase over the revised estimate of 2021-22.  Of this, Rs 1,37,824 crore (73%) will be raised by the state through its own resources, and Rs 52,064 crore (27%) will come from the centre.  Resources from the centre will be in the form of state’s share in central taxes (16% of revenue receipts) and grants (12% of revenue receipts).  Note that grants from the centre is estimated to increase 48% in 2021-22 as compared to the budget stage. 
   
• Devolution: In 2022-23, the state estimates to receive Rs 29,783 crore in the form of share in central taxes, an increase of 10% over the revised estimates of 2021-22 (Rs 27,145 crore).  In 2021-22, the devolution from the central government is estimated to be 12% higher than the budget estimate.
   
• State’s own tax revenue: Total own tax revenue of Karnataka is estimated to be Rs 1,26,883 crore in 2022-23, an increase of 14% over the revised estimate of 2021-22.  The state’s own tax revenue as a percentage of GSDP is estimated to increase from 5.4% of GSDP in 2020-21 (as per actuals) to 6.7% of GSDP in 2022-23 (as per budget estimate).
   
• State’s non-tax revenue: In 2022-23, the state is estimated to earn Rs 10,941 crore in the form of state’s own non-tax revenue, a 22% increase over the revised estimates of 2021-22.  In 2021-22, state’s own non-tax revenue is estimated to register an increase of 9% as compared to the budget estimates.

 

Table  5 : Break-up of the state government’s receipts (in Rs crore)

Sources	2020-21 Actuals	2021-22 BE	2021-22 RE	% change from BE 21-22 to RE 21-22	2022-23 BE	% change from RE 21-22 to BE 22-23
State's Own Tax	97,053	1,11,494	1,11,498	0%	1,26,883	14%
State's Own Non-Tax	7,894	8,258	9,000	9%	10,941	22%
Share in Central Taxes	21,694	24,273	27,145	12%	29,783	10%
Grants-in-aid from Centre	30,076	28,246	41,936	48%	22,281	-47%
Revenue Receipts	1,56,716	1,72,271	1,89,579	10%	1,89,888	0%
Non-debt Capital Receipts	315	131	131	0%	89	-32%
Net Receipts	1,57,032	1,72,402	1,89,710	10%	1,89,977	0%

Note: State’s Own Tax and Grants from Centre figures have been adjusted to account for GST compensation grants as Grants from Centre. BE is Budget Estimates; RE is Revised Estimates.  
Sources: Karnataka Budget Documents 2022-23; PRS.

In 2022-23, SGST is estimated to be the largest source of own tax revenue (42%).  SGST revenue in 2022-23 is estimated at Rs 53,220 crore, which is a 16% increase over the revised estimates of 2021-22.  While there is no change in the estimates of SGST revenue from the budget to the revised stage in 2021-22, GST compensation is estimated to increase from Rs 12,708 crore at the budget stage to Rs 25,267 crore at the revised stage.  Note that Karnataka has not estimated any proceeds from back-to-back loans in lieu of GST compensation in 2021-22 according to budget documents. However, the budget speech specified that the state will get Rs 18,109 crore as GST compensation loan and Rs 7,158 crore as GST compensation grants in 2021-22.   In 2022-23, revenue from State Excise and Sales Tax/VAT are estimated to increase by 18% and 5% respectively over the revised estimates of 2021-22 (Table 6).

GST Compensation ends in June 2022 When the GST was introduced, the central government guaranteed states a 14% compounded annual growth in their GST revenue for a period of five years.  Any shortfall in a state’s GST revenue from this level is covered by the Centre by providing compensation grants to the state.  This guarantee ends in June 2022. During 2018-22, Karnataka has relied on GST compensation grants to achieve the guaranteed SGST revenue level. In 2021-22, Karnataka is estimated to receive Rs 25,267 crore in the form of GST compensation grants, which is about 23% of its own tax revenue. Hence, beyond June 2022, Karnataka might see a decline in the level of revenue receipts.

Table  6 :  Major sources of state’s own-tax revenue (in Rs crore)

Taxes	2020-21 Actuals	2021-22 BE	2021-22 RE	% change from BE 21-22 to RE 21-22	2022-23 BE	% change from RE 21-22 to BE 22-23
State GST	37,711	45,947	45,947	0%	53,220	16%
State Excise	23,332	24,580	24,580	0%	29,000	18%
Sales Tax/VAT	16,028	16,791	16,791	0%	17,640	5%
Stamps Duty and Registration Fees	10,576	12,655	12,655	0%	15,000	19%
Taxes on Vehicles	5,607	7,515	7,515	0%	8,007	7%
Taxes and Duties on Electricity	2,434	2,708	2,712	0%	2,823	4%
Land Revenue	184	271	271	0%	43	-84%
GST Compensation Grants	13,789	12,708	25,267	99%	5,000	-80%
GST Compensation Loans	12,407	-	-	-	-	-

Sources: Karnataka Budget Documents 2022-23; PRS.

Deficits and Debt Targets for 2022-23

The Karnataka Fiscal Responsibility Act (KFRA), 2002 provides annual targets to progressively reduce the outstanding liabilities, revenue deficit, and fiscal deficit of the state government.

Revenue Balance: It is the difference of revenue expenditure and revenue receipts.  A revenue deficit implies that the government needs to borrow to finance its expenses which do not increase its assets or reduces its liabilities.  In 2022-23, Karnataka is estimated to observe a revenue deficit of Rs 14,699 crore, which is 0.78% of the GSDP.  This is higher than the revenue deficit of 0.36% of GSDP in 2021-22 as per the revised estimates.  

KFRA required the state to eliminate revenue deficit by March 31, 2006.  This was achieved in 2004-05 and thereafter the state maintained a revenue surplus.   However, it recorded a revenue deficit in 2020-21 and 2021-22 due to fall in revenue receipts during COVID-19. According to the projections provided, Karnataka is likely to have a revenue deficit up to 2025-26.  Note that the 15^th Finance Commission provided for revenue deficit grant to Karnataka only in 2021-22.  The Fiscal Management Review Committee (FMRC), under KFRA, suggested that a roadmap may be started so that Karnataka becomes revenue surplus.  The Committee recommended expenditure rationalisation, as it would be difficult to meet expenditure commitments without an increase in revenue growth. 

Fiscal deficit: It is the excess of total expenditure over total receipts.  This gap is filled by borrowings by the government and leads to an increase in total liabilities of the state government.  In 2022-23, the fiscal deficit is estimated to be Rs 61,564 crore (3.26% of GSDP).  It is within the limit of 4% of GSDP permitted by the central government in 2022-23 as per the Union Budget (of which, 0.5% of GSDP will be made available upon undertaking power sector reforms).

Outstanding liabilities: Outstanding liabilities is the accumulation of total borrowings at the end of a financial year, it also includes any liabilities on public account.  At the end of March 2023, the outstanding liabilities of the state is estimated to be 27.49% of the GSDP.  The outstanding liabilities are estimated to rise from 19.87% of GSDP in 2019-20 to 27.55% in 2025-26.  KFRA has imposed a limit of 25% on total liabilities to GSDP ratio.  While Karnataka achieved this in 2010-11, the 25% limit was breached in 2021-22 due to increased borrowings in the backdrop of COVID-19.  The FMRC recommended that measures may be taken to reduce total liabilities to below 25% of GSDP in the next two to three years.  

Figure  2 : Revenue and Fiscal Balance (% of GSDP)  Note: RE is Revised Estimates; BE is budget estimates.  A positive figure means a surplus, a negative figure means a deficit.  *Figures for 2023-24, 2024-25 and 2025-26 are projections. Sources: Karnataka Budget Documents 2022-23; PRS.

Figure  3 : Outstanding Liabilities (% of GSDP) Note: RE is Revised Estimates; BE is budget estimates. *Figures for 2023-24, 2024-25 and 2025-26 are projections. Sources: Karnataka Budget Documents 2022-23; PRS.

 Outstanding Government Guarantees: Outstanding liabilities of states do not include a few other liabilities that are contingent in nature, which states may have to honour in certain cases.  State governments guarantee the borrowings of State Public Sector Enterprises (SPSEs) from financial institutions.  At the end of 2020-21, the outstanding guarantee of the state is estimated to be 1.8% of GSDP, marginally higher than 1.6% of GSDP at the end of 2019-20.  According to the Karnataka Ceiling of Government Guarantee Act, 1999, outstanding guarantees should not exceed 80% of revenue receipts of the second preceding year.   In 2019-20, this amount was 18.3% which increased to 19.8% in 2020-21.  

Annexure 1:  Comparison of states’ expenditure on key sectors

The graphs below compare Karnataka’s expenditure on six key sectors as a proportion of its total expenditure on all sectors.  The average for a sector indicates the average expenditure in that sector by 30 states (including Karnataka) as per their budget estimates of 2021-22. [1]

• Education:  Karnataka has allocated 12.9% of its total expenditure for education in 2022-23.  This is lower than the average allocation (15.2%) for education by all states (as per 2021-22 Budget Estimates).
   
• Health:  Karnataka has allocated 5.8% of its total expenditure on health, which is marginally lower than the average allocation for health by states (6%).
   
• Agriculture:  The state has allocated 6.9% of its total expenditure towards agriculture and allied activities.  This is higher than the average allocation for agriculture by states (6.2%).
   
• Rural development:  Karnataka has allocated 3.7% of its expenditure on rural development.  This is lower than the average allocation for rural development by states (5.7%).
   
• Police:  Karnataka has allocated 3.2% of its total expenditure on police, which is lower than the average expenditure on police by states (4.3%).
   
• Roads and bridges:  Karnataka has allocated 4.1% of its total expenditure on roads and bridges, which is lower than the average allocation by states (4.7%).

Note: 2020-21, 2021-22 (BE), 2021-22 (RE), and 2022-23 (BE) figures are for Karnataka.
Sources: Karnataka Budget Documents 2022-23; various state budgets; PRS.

Annexure 2:  Comparison of 2020-21 Budget Estimates and Actuals

The following tables compare the actuals of 2020-21 with budget estimates for that year.

Table  7 : Overview of Receipts and Expenditure (in Rs crore)

Particular	2020-21 BE	2020-21 Actuals	% change from BE to Actuals
Net Receipts (1+2)	1,80,216	1,57,032	-13%
1.  Revenue Receipts (a+b+c+d)	1,79,920	1,56,716	-13%
a.  Own Tax Revenue	1,11,991	97,053	-13%
b.  Own Non-Tax Revenue	7,767	7,894	2%
c.  Share in central taxes	28,591	21,694	-24%
d.  Grants-in-aid from the Centre	31,570	30,076	-5%
Of which GST compensation grants	16,116	13,789	-14%
2.  Non-Debt Capital Receipts	297	315	6%
3.  Borrowings	52,918	84,528	60%
Of which GST compensation loan	-	12,407	-
Net Expenditure (4+5+6)	2,26,288	2,24,129	-1%
4.  Revenue Expenditure	1,79,776	1,76,054	-2%
5.  Capital Outlay	43,059	45,406	5%
6.  Loans and Advances	3,452	2,669	-23%
7.  Debt Repayment	11,605	11,016	-5%
Revenue Balance	143	-19,338	-13593%
Revenue Balance (as % of GSDP)*	0.01%	-1.07%
Fiscal Deficit	46,072	67,098	46%
Fiscal Deficit (as % of GSDP)	2.55%	3.72%

Note: *A negative revenue sign indicates a deficit, positive sign indicates a surplus.  BE: Budget Estimates.
Source: Karnataka Budget Documents of various years; PRS.

Table  8 : Key Components of State's Own Tax Revenue (in Rs crore)

Sector	2020-21 BE	2020-21 Actuals	% change from BE to Actuals
State Excise Duty	22,700	16,028	-29%
Land Revenue	246	184	-25%
Taxes on Vehicles	7,115	5,607	-21%
SGST	47,319	37,711	-20%
Taxes and Duties on Electricity	2,917	2,434	-17%
Stamps Duty and Registration Fees	12,655	10,576	-16%
Sales Tax/VAT	17,783	23,332	31%

Source: Karnataka Budget Documents of various years; PRS.

Table  9 : Allocation towards Key Sectors (in Rs crore)

Sector	2020-21 BE	2020-21 Actuals	% change from BE to Actuals
Housing	3,025	2,363	-22%
Welfare of SC, ST, OBC, and Minorities	9,402	7,457	-21%
Education, Sports, Arts, and Culture	28,967	25,483	-12%
Police	7,035	6,306	-10%
Rural Development	9,769	9,231	-6%
Water Supply and Sanitation	4,944	4,707	-5%
Urban Development	5,780	5,547	-4%
Irrigation and Flood Control	19,603	19,968	2%
Agriculture and allied activities	16,472	17,328	5%
Social Welfare and Nutrition	13,395	14,672	10%
Health and Family Welfare	10,296	11,868	15%
Energy	12,918	14,927	16%
Transport	12,220	15,562	27%
of which Roads and Bridges	10,477	12,984	24%

Source: Karnataka Budget Documents of various years; PRS.