The Comptroller and Auditor General (CAG) has recently issued a report highlighting the increasing strain on Karnataka's finances due to the implementation of its five guarantee schemes. These schemes, a cornerstone of the Congress government's agenda, have significantly impacted the state's fiscal health, reversing the recovery achieved after the COVID-19 pandemic.
The five guarantee schemes are Gruha Lakshmi (Rs 2,000 to every woman head of a family), Gruha Jyothi (200 units of free electricity to every household), Anna Bhagya (10 kg of rice to every member of a BPL family), Shakti (free travel for women in government non-luxury buses), and Yuva Nidhi (financial assistance to unemployed graduates and diploma holders). In the fiscal year 2023-24, these schemes accounted for nearly 15% of the state's revenue expenditure. The allocation for these guarantees in the 2025-26 budget is Rs 51,034 crore, slightly less than the revised estimates of the previous year.
The CAG's report, which was tabled in the Karnataka Assembly, revealed a concerning mismatch between the state's revenue and expenditure. In 2023-24, while the state's revenue grew by a mere 1.86%, its expenditure surged by 12.54%, primarily due to the financial burden of the guarantee schemes. This imbalance resulted in a revenue deficit of Rs 9,271 crore, a stark contrast to the revenue surplus recorded in 2022-23. Consequently, the state's fiscal deficit also widened significantly from Rs 46,623 crore in 2022-23 to Rs 65,522 crore in 2023-24.
To finance these schemes and address the growing deficits, the Karnataka government resorted to increased borrowing. Net market borrowing in 2023-24 reached Rs 63,000 crore, a substantial increase of Rs 37,000 crore compared to the previous year's Rs 26,000 crore. The CAG has cautioned that this increased borrowing will not only escalate the repayment burden in the near future but also significantly increase the state's interest burden.
Furthermore, the CAG report highlighted a reduction in capital expenditure towards infrastructure development, which fell by Rs 5,229 crore. This decline has led to a 68% increase in incomplete projects, potentially hindering Karnataka's future growth prospects. The CAG has explicitly stated that implementing the five guarantee schemes without rationalizing existing subsidies and financial assistance programs will exert considerable pressure on the state's resources and negatively impact fiscal deficits and debt levels. The state's subsidy burden has already been pushed up to Rs 60,774 crore.
The state government, however, defends the schemes, asserting that they have boosted the local economy, reduced economic disparities, and supported human capital development. Chief Minister Siddaramaiah has stated that the guarantee schemes are responsible for Karnataka becoming number one in per capita income in the country, as the purchasing power of the people increased due to the schemes. The Shakti scheme, offering free bus travel for women, has even been recognized by the Golden Book of World Records for the largest number of women passengers traveling on public transport. It has also been credited with a measurable socio-economic impact, leading to increased female employment and contributing to a rise in Karnataka's per capita income.
Despite these perceived benefits, the CAG maintains its concern that the schemes will strain the financial health of the state if existing subsidies are not rationalized. The report also raises concerns about the government's guarantees for loans taken by state-owned enterprises, particularly in the power sector, which could become contingent liabilities on the state's Consolidated Fund if these entities default. The government has provided a guarantee of Rs 52,335.74 crore for borrowings of electricity supply companies and the Karnataka Power Corporation Ltd.
The CAG's findings are likely to fuel political debate regarding the long-term sustainability and financial prudence of the guarantee schemes. The BJP is expected to raise the issue in the ongoing assembly session.
