The 15^th Finance Commission headed by Chairman, Shri N.K. Singh alongwith its Members and senior officials met today with the Shri H. D. Kumaraswamy, Chief Minister, Karnataka alongwith his Cabinet colleagues and senior State Government officials

The Commission observed that:

• The State’s contribution to GDP of the country was 7.9% in 2018-19.
• In 2018-19, the share of primary, secondary & tertiary sector in GSVA (current prices) of the State was 11%, 21% & 68%, respectively.
• In 2018-19, per capita NSDP of the State was ₹ 2,07,062 against per capita income of ₹ 1,26,406 for India.
• State’s share in inter-se devolution was 4.713 based on the recommendations of FC-XIV which is less than its share of 5.05% in total population of the country.

 On the State’s Fiscal parameters, the Commission noted that:

• Karnataka is first State in the country to have enacted FRBM Act.
• In 2014, State Government amended Karnataka Fiscal Responsibility Act, 2002 to provide for, inter-alia, inclusion of Off Budget Borrowings that are to be repaid from the State Government's budget in "Total Liabilities" to provide true picture of sustainability of debt.
• The State has been maintaining revenue surplus since 2004-05 .
• Karnataka has witnessed third highest own tax revenue (OTR) to GSDP ratio of 7.2% in 2016-17 (after Chhattisgarh & Telangana) amongst all 29 States as compared to OTR-GSDP ratio of 6.3% for all States.
• In 2016-17, the State had incurred lowest committed expenditure (salary, pensions & interest payments) at 25.1% of total revenue expenditure as compared to that of 41.7% for all States.
• The State had fourth lowest debt to GSDP ratio of 18.3% in 2016-17 (after Chhattisgarh, Assam, and Maharashtra) amongst all 29 states.

Regarding the Health Outcomes of Karnataka, the Commission observed that the performance of State on most of the health indicators is better than all India’s average.  

Karnataka has been able to achieve the target of AT&C losses as per UDAY MoU in each year from 2015-16 to 2017-18. In 2017-18, the AT&C losses of Discoms of the State were 14.48% against the target of 15%. Further, the State has been able to achieve targets of most of the UDAY barometers such as ACS-ARR gap, smart metering, feeder segregation etc.    

The Commission expressed concern about the State’s GSDP - growth rate of GSDP (constant prices, 2011-12 series) of Karnataka has fluctuated widely from 2012-13 to 2018-19, compared to GDP (constant prices, 2011-12 series) of India.

The other fiscal parameters of concern were:

• As per the presentation made by Pr. AG, Karnataka, the buoyancy of non-tax revenue (NTR) of State has plummeted from 1.30 in 2015-16, 0.75 in 2017-18 to 0.38 in 2018-19(P).
• Off-budget borrowings of the State increased from ₹ 1,853.62 crore in 2011-12 to ₹ 13,173.44 crore in 2017-18. The off-budget borrowings as a percentage of outstanding debt of the State Govt. rose from 1.80% in 2011-12 to 5.65% in 2017-18.
• As per the presentation made by Pr. AG, Karnataka, in 2018-19, there was GST revenue shortfall of ₹ 12,407.75 crore for State as compared to the protected revenue, which is more than 23% shortfall.
• Since 2017-18, State Government has announced three crop loan waiver schemes, entailing estimated outgo of ₹ 47,419 crore.

The Commission sought clarification from the State as  whether they have a long term financially sustainable strategy to overcome agricultural distress and promote agricultural development in the State.

The Commission noted all issues raised by the State Government and assured to address them in its final report to the Union Government.

State fiscal sustainability concerns prompt Commission to seek long-term agricultural finance strategy and address revenue shortfalls. The Finance Commission highlighted Karnataka's strengths-revenue surplus, Fiscal Responsibility framework, strong own tax revenue and low committed expenditure-while flagging risks to state fiscal sustainability: volatile GSDP growth, falling non tax revenue buoyancy, rising off budget borrowings, a GST revenue shortfall and large crop loan waiver liabilities. The Commission requested the State's plan for a long term, financially sustainable strategy to address agricultural distress and stated these concerns will be considered in its final report.