Transcript
Page 1: GOVERNMENT OF KARNATAKA FINANCE DEPARTMENT · Medium Term Fiscal Plan 2013-17 Table of Contents Foreword Chapter 1- Introduction a) Economic Outlook b) Growth Risks in the State Economy
Page 2: GOVERNMENT OF KARNATAKA FINANCE DEPARTMENT · Medium Term Fiscal Plan 2013-17 Table of Contents Foreword Chapter 1- Introduction a) Economic Outlook b) Growth Risks in the State Economy

PÀ£ÁðlPÀ ÀPÁðgÀ Government of Karnataka

GOVERNMENT OF KARNATAKA

FINANCE DEPARTMENT

MEDIUM TERM FISCAL PLAN

2013 - 2017

(2013 ಯ ಇಸ – ಜು ೖ. ಂಗಳ è ಾನಮಂಡಲದ ಮುಂ ಮಂ ದಂ )

(As presented to the Legislature during July 2013)

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Medium Term Fiscal Plan 2013-17

Table of Contents

Foreword

Chapter 1- Introduction

a) Economic Outlook b) Growth Risks in the State Economy c) Inflationary Trends d) Trends in Growth Rate e) Fiscal Situation of the State in FY 12-13 and MTFP 12-16 Review f) Fiscal Management Review Committee g) Key Fiscal Challenges h) Fourteenth Finance Commission i) Efficient Management of Public Expenditure j) New Commitments

Chapter 2-Macro Economic Outlook

a) Karnataka’s GSDP and Forecast b) Growth Prospects and Road Ahead

Chapter 3-Evaluation of Fiscal Performance

a) Fiscal Consolidation Roadmap and Status b) Other Institutional Reforms under KFRA c) Fiscal Performance of the State in FY12-13 vis-à-vis FY11-12 d) Performance of receipts, expenditures and fiscal indicators (FY09-10 to FY12-13) e) Fiscal Performance – Table A

Chapter 4-Revenue Performance and Reforms

a) Tax Policy and Strategy b) Tax Effort c) Performance of Major Own Taxes

i. Commercial Taxes ii. State Excise iii. Stamps and Registration iv. Motor Vehicles Taxes

d) Cess Receipts e) Non Tax Revenues

i. Royalty on Major and Minor Minerals ii. Interest Receipts iii. Other Non Debt Capital Receipts

f) Accounting of Direct Releases of Central Government

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Medium Term Fiscal Plan 2013-17

Table of Contents (Contd..)

Chapter 5- Expenditure Management

a) Trends in Government Expenditure. b) Plan, Non Plan, Development and Non Development Expenditure c) Sector-wise Outlay d) Beneficiary Oriented Schemes and Subsidies e) Resource Transfer to Local Bodies f) Committed Expenditure g) Capital Expenditure to GSDP h) Delegation of Fund Release powers to Administrative Departments

Chapter 6-Public Finance Management and Systemic Reforms

a) Overall Debt Scenario b) Composition of Debt c) Management of Borrowings d) Maturity Profile of Outstanding State Government Securities e) Creation of Consolidated Sinking Fund (CSF) f) Contingent Liabilities g) Cash Management h) Public Disclosure of Fiscal Situation on Quarterly basis i) Systemic Reforms

Chapter 7-Medium Term Fiscal Plan Projection 2013-17

a) Brief assessment of sustainability of certain fiscal parameters b) Balance between Revenue Receipts and Revenue Expenditures c) Use of Capital Receipts including Borrowings for generating productive assets

Medium Term Fiscal Projections for 2013-17 (TABLE-B)

Underlying Assumptions for the projections in MTFP13-17

Annexed Statements - Disclosures as required under Sec 5(2)(c) of KFRA

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LIST OF TABLES

Table No. Description

1 GSDP at current market prices

2 Trends on Annual Growth Rates of India’s GDP and Karnataka’s GSDP (at Constant Prices)

3 Fiscal Performance of State

4 Trends in Sector wise Composition of GSDP (Current Prices)

5 Trends in Sector wise Composition of GSDP (Constant Prices 2004-05 Series)

6 Compliance to KFRA fiscal and debt norms

7 Fiscal performance of the State in FY12-13 vis-à-vis 2011-12

8 Fiscal Deficit Trends

9 KFRA Ceiling on Total Liabilities

A Fiscal Performance 2009-13

10 Buoyancy of State’s Own Taxes

11 Commercial Tax Trends during FY12-13

12 Excise Trends during FY12-13

13 Stamps and Registration Fees Trends during FY12-13

14 Motor Vehicle Taxes Trends during FY12-13

15 Expenditure on Services

16 Outlay under Major Development Sectors

17 Explicit and Implicit Subsidies

18 Committed Expenditure as a ratio of Uncommitted Revenue Receipts

19 Composition of Gross Public Debt

20 Government Guarantees

B Medium Term Fiscal Plan Projections 2013-17

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LIST OF ANNEXURES

Statement No.

Description

1 Tax Expenditure/Revenue Foregone under Deferment of Purchase Tax on Sugarcane pertaining to FY 11-12 & FY 12-13

1A Information on Tax Expenditure / Revenue Foregone by exemption or deferment of Value Added Tax (VAT), Central Sales Tax (CST) and Entry Tax (KTEG) pertaining to FY 2012-13

1B Abstract of Statement 1-A

1C Tax Waivers by State Government through the Reimbursement route / Loan route

2 Compliance Cost of Major State Taxes (Commercial Tax, Stamps duty, Motor Vehicle tax, Excise)

3 Revenue Consequences of Capital Expenditure and physical assets of major departments

4 Government Land Details

5 Future Expenditure Commitments of major policy changes during FY 12-13

6 Liabilities in Public Private Partnership

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Statement of Compliance

1. The Medium Term Fiscal Plan 2013-17 is tabled before the Legislature in compliance with Section 3 of the Karnataka Fiscal Responsibility Act (2002).

2. Section 3 of the Act requires the MTFP to include the following elements, all of

which can be found in the document as shown below:

a. The medium-term fiscal objectives of the Government (Chapters 1, 3, 4, 5, 6 and 7).

b. An evaluation of the performance of the prescribed fiscal indicators in the previous year(Chapter 3)

c. A Statement of recent economic trends and prospects for growth and

development (Chapter 1 & 2).

d. The strategic priorities and key fiscal policies of the Government and an evaluation of their consistency and broad conformity to fiscal management principles set out in Section 4. (Chapters 4to 7).

e. Four - year rolling targets (Chapter 7 & Table B).

f. An assessment of sustainability relating to the balance between revenue receipts and revenue expenditures and the use of capital receipts including borrowings for generating productive assets. (Chapter 7)

3. Disclosures as per amended Section 5 (2) of KFRA (Annexed Statements)

4. Table A – Fiscal Performance in the previous four financial years vis-à-vis the Budget Estimates (in Absolute terms and as a percentage of GSDP)

5. Table B – Medium Term Fiscal Projections for four years including the current

year i.e. 2013-17 (in Absolute terms and as a percentage of GSDP)

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Foreword to Medium Term Fiscal Plan 2013-17 (MTFP)

MTFP 2013-17 was presented to the Legislature in February

2013 as required under the Karnataka Fiscal Responsibility Act

(KFRA), 2002 and Karnataka Fiscal Responsibility Rules, 2003. At

that time MTFP was premised on the then prevailing economic

and fiscal challenges and on the proposed budget estimates for

the Financial Year 2013-14 being placed in the Legislature during

February 2013.

In view of a new Government in place, a fresh budget for the full

Financial Year 2013-14 is now being presented during July 2013.

In view of the recent changes in economic scenario and

reprioritisation of expenditure requirements in the fresh budget,

it was found necessary to bring out a fresh MTFP 2013-17. While

a large portion of MTFP 13-17 includes issues brought out in the

earlier MTFP presented in February 2013, the developments

thereafter and its impact on the fiscal management have also

been brought out in this edition of MTFP.

The statement of compliance at the beginning of the MTFP 13-

17 lists out the key elements covered in this document. MTFP

13-17 continues taking into cognizance the key challenges on the

Revenue and Expenditures side identified earlier. To analyse the

fiscal performance of the State during 2012-13, the Revised

Estimate figures for FY12-13 would continue to be used since final

accounts for the FY12-13 is yet to be compiled and certified by

Comptroller & Audit General of India.

The Karnataka Fiscal Responsibility (Amendment) Act, 2011 by amending Section 5 of KFRA now requires State to make certain additional disclosures as part of Fiscal Transparency. These additional disclosures made are in line with the recommendations of the Thirteenth Finance Commission and are reflected as separate statements annexed to the MTFP document.

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Chapter 1

Introduction

a) Economic Outlook

Global & National Economic Scenario

1. This Medium Term Fiscal Plan is set in an environment where the Global economy is going

through challenging times with the European Area sovereign debt crisis only aggravating the

situation. To some extent concerted action by governments, central banks, regulators and

multilateral institutions have helped moderate this impact, but still there is continued

uncertainty at the global level. On the whole global growth remains tepid and multi-paced.

The Euro zone would continue to under-perform in 2013. However there are indications that

the overall economic conditions in 2013 may be better than they were in 2012 on account of

the upturn in the USA and continued growth in the emerging & developing world, especially

in Asia and Africa.

2. The gradual improvement in financial conditions that was setting in due to certain policy

actions has been recently subject to some turbulence in financial markets. The

apprehensions of global liquidity contracting with the United States’ Federal Reserve

indicating a phased withdrawal from its bond buying programme or easy money policy, has

fuelled large scale sell off of financial assets in emerging markets including in India leading to

sharp downward movements in their equity, bond and currency markets. These

developments have accentuated the spill-over risks from unconventional monetary policies

(UMPs) of advanced economy (AE) central banks posing new challenges to emerging

economies.1

3. Therefore emerging economies need to be prepared for spells of high volatility and

uncertainty going ahead. The macroeconomic risks to Indian economy have increased over

the last six months, mainly on the dimensions of domestic growth, external sector and

corporate sector performance. Domestic supply bottlenecks, policy uncertainty,

consequential dampened investment sentiment and slackening external demand

contributed significantly to the slowdown. There has been marked slowdown in growth as

industrial activity is subdued and services remain below trend.

1 Financial Stability Report of RBI – June 2013

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4. In the Financial Year 2012-13, the national GDP growth grew by just 5 per cent, the lowest in

a decade. Even during the start of FY13-14, growth remains below trend and vulnerabilities

on the external front have risen. The high current account deficit (CAD) and its financing

remain stress points for the Indian economy as evident from the recent depreciation of the

rupee. On the other hand, there are indications that inflation is moderating and the growth

slowdown appears to be at a trough. Credible progress has been made on the fiscal front by

the Central Government, which has been reflected in the upgrading of the outlook by credit

rating agencies. This fact is evinced from the optimistic growth outlook for FY 2013-14 in the

forecasts of the World Bank in its Global Economic Prospects Report. The World Bank sees

India’s economic growth rising to 5.7 per cent in 2013-14 buoyed by gradual strengthening

of external demand. Growth is thereafter projected to accelerate to 6.5 per cent in 2014-15

and 6.7 per cent in 2015-16. The Prime Minister’s Economic Advisory Council (PMEAC) in its

recent report in April 2013 has stated that the expected pick-up in the pace of economic

activity during the course of the year should be able to take the economic growth from the

present level of around 5 per cent in 2012-13 to about 6.4 per cent in 2013-14. Going

forward, improvement in the quality of fiscal consolidation will be crucial for ensuring

macroeconomic stability and sustainable higher growth.

Impact on Sub-national economies:

5. The economic slowdown would have direct or indirect bearing on the sub-national

economies. In recent times several initiatives have been taken by the Government of India

(GOI) to improve economic climate, spur investments, and bring back the economy to the

high growth path. However this needs to be sustained on a long term basis and supported by

judicious mix of fiscal consolidation policies and in view of moderating inflation, a graduated

easing of monetary stance by the Central Bank. These are necessary for strengthening of

investment sentiment and laying the road for long term inclusive and sustainable growth.

6. Some of these measures including those recommended by PMEAC are as follows.

a) Integrated decision making on high impact infrastructure projects

b) Reducing non merit subsidies

c) Encouragement to investments by facilitating faster and timely approval mechanisms

like the recently set up Cabinet Committee on Investment.

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d) Containing inflation especially in primary food articles through better supply side

management.

e) Improving Net Energy Availability within the country as it is linked to external payments

situation and widening Current Account Deficit (CAD).

f) Better coordination between the Centre and States for pushing through policy changes

b) Growth risks in the State Economy

7. With the given risks as anticipated at the time of State budget formulation in February 2012,

Karnataka’s MTFP 2012-16 had assumed GSDP to grow 7.5 per cent in real terms for the year

2012-13 and thereafter at 8 per cent until 2014-15 expecting the economy to recover. Also

GSDP growth rate as conveyed by the Ministry of Finance, GOI was accepted by the State

and accordingly, the MTFP 2012-16 had assumed GSDP for the year 2012-13 to be at Rs.

5,20,766 crore (at current prices). These numbers had their basis in the growth projections

recommended by Thirteenth Finance Commission for Karnataka. For the financial year 2013-

14, Government of India has conveyed the GSDP figure for Karnataka at Rs.601633 crore.

This estimate has its basis in the Central Statistical Office’s (CSO) estimate of GSDP for FY11-

12 at Rs.458903 crore. On this GSDP figure, nominal growth of 14.5 per cent has been

assumed to arrive at GSDP for FY12-13 and thereafter another 14.5 per cent nominal growth

is assumed on GSDP for FY12-13 to arrive at GSDP for FY13-14. State has adopted this figure

of Rs.601633 crore as its GSDP for FY13-14 for finalizing all its estimates.

8. In contrast to the above assumptions of GOI, the Advance Estimates of GSDP released by

the Directorate of Economics and Statistics (DES) in State Government for FY 12-13 place

Karnataka’s GSDP at Rs.5,27,492 crore (at current market prices). If the annual inflation is

assumed to be around 7.5 per cent and economy is expected to grow at around 6 per cent,

then the GSDP for FY13-14 would work out to around Rs.5,93,413 crore which is lesser than

the GSDP estimate of Rs.601633 as conveyed by GOI.

9. Table 1 shows the comparative position between GSDP numbers conveyed by GOI and as

estimated by DES.

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Table1 GSDP at current market prices (Rs. In crore)

Year As conveyed by Ministry of Finance, Government

of India

As per Directorate of Economics and Statistics

(DES), Karnataka*

(1) (2) (3) 2011-12 458903 4,63,242 (QE) 2012-13 525444 5,27,492 (AE) 2013-14 601633 N.A

*QE- Quick Estimate, AE-Advance Estimate, N.A – Not Available as yet.

10. While preparing the budget 2012-13, the annual change in the GSDP growth of Karnataka

was assumed to be 7.5 percent in real terms over that of 2011-12. However the real GSDP

growth rate as per the Advanced Estimates has turned out to be much lower at 5.9 per cent.

The growth has been constrained by a significant slowing down of growth in Agriculture

mainly due to adverse weather conditions and lesser off-take of expenditure as compared to

outlay. Karnataka has witnessed serious drought situation on account of deficit rainfall over

the last two years. The condition has worsened on account of deficit rainfall from south-west

monsoon during June and July 2012. 123 taluks of 28 Districts were declared as drought hit

in the previous year i.e. 2011-12. On account of deficit rainfall in 2012-13, another 34 taluks

were declared as drought hit subsequently. Hence a total of 157 taluks in 28 districts were

declared as drought hit in the last two years. Overall there was a shortfall of around 30 per

cent in the south west monsoon rainfall in 2012. This has a significant impact on the primary

sector which constitutes almost 15 per cent of GSDP, as a major part of agriculture in

Karnataka is rain fed and thus heavily dependent on these rainfalls.

11. Though the annual growth in agriculture has moderately recovered to 1.8 per cent as per

2012-13 AE as compared to the negative growth rate of (-) 2.2 per cent at constant prices

during 2011-12, the overall growth in the primary sector has got constrained. The industry

sector is estimated to stay at same level of 2011-12, i.e. at 2.4 per cent due to negative

growth in mining sector. There is also a decrease in the growth rate of the service sector

from 9.5 per cent in 2011-12 to 8.9 per cent in 2012-13. While the long term economic

fundamentals of the State economy in Industrial and Services sectors are strong, unless

there is a well laid out fiscal roadmap for reorienting outlays and reprioritising expenditure

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designed for monitorable outcomes, the likelihood of the State’s economy bouncing back to

high growth trajectory in the medium term would be tough.

c) Inflationary Trends

12. The MTFP 2012-16 had assumed an inflation rate of 6.5 per cent for FY12-13 and 6.0 per

cent in the medium term. The most notable factor during FY12-13 was the persistence of

high rates of inflation, especially of food items, and the direct impact this may have had on

profitability and thereby on investment behaviour. While it would be desirable to see the

Wholesale Price Index (WPI) headline number to weaken in 2013-14, this may not quite

happen. Price corrections are being made in administered products like in refined petroleum

products, fertilizer and electricity. The minimum support prices (MSP) of important food

grains, particularly rice (paddy) and wheat have also seen upward revision, with attendant

impact on the market price of wheat and rice. The supply chain for perishable food products

still remains incomplete, as also the reform of their market structures.

13. The combination of the above factors would tend to keep inflation on the higher side. On

the other hand, the momentum and direction of inflation appears to have clearly moved

down for manufactured prices in the absence of significant cost pressures. If the currency

stabilizes and trade balances improve somewhat, weaker manufactured goods inflation will

have a dampening impact on domestic headline, and especially on core inflation. The

headline inflation would move to around 6.0 per cent, with primary food inflation around 8

per cent, fuel at about 11 per cent and manufactured goods at around 4 per cent2.

14. At the State level, the drought in the State leading to declining growth in Agriculture may

also have been a contributing factor to slow supply side response. The slight moderation in

inflation is expected to provide more leeway to monetary and fiscal policy makers in coming

days to bring in changes to stimulate economic growth while ring fencing the impact of

inflation. However since fiscal consolidation seems to be a priority for the Government of

India, steps like increase in administered price of diesel, cutting down of non merit subsidies

and increase in MSP of foodgrains would moderate any expectation of a early reduction in

inflationary pressures. Also the effect of new initiatives like direct cash transfer of subsidy on

inflation is uncertain at this stage.

2 PMEAC – April 2013

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15. RBI has kept key lending rates slightly on the higher side to moderate money supply. This has

contributed to some extent in the slowing down of the economic growth. The high interest

policy regime had some bearing on the State finances as the Government needed to

continue various farmer friendly interventions like the concessional crop loan scheme, which

are so designed that the State Government absorbs a large part of the impact of high

interest costs. The State has also introduced a cooperative crop loan waiver scheme to

protect farmers from the impact of the severe drought condition in various taluks of the

State. In this background the graduated monetary policy easing undertaken by RBI balancing

on the one hand the inflationary risks to the economy and the facilitation of investment

through reduced cost of borrowing on the other is welcome.

16. For the State, the hardening of interest rates with regard to State Development Loans

availed in the third and fourth quarter of the FY12-13 was becoming evident. For instance

during first two quarters of FY 2012-13, the cost of borrowings which were hovering around

8.60 to 8.75 per cent have gone up to 8.90 per cent during the third and fourth quarters.

State has not yet tested the market during the first quarter of FY13-14 under its borrowing

programme.

d) Trends in growth rates:

Table - 2

Trends on Annual Growth Rates of India’s GDP and Karnataka’s GSDP (at Constant Prices)

2007-08 2008-09 2009-10 2010-11 Q.E*

2011-12 AE*

2012-13 Proj

2013-14 Proj

India's GDP**

9.3 6.7 8.6 9.3 6.2 5.0 6.4

Karnataka's GSDP*

12.6 7.1 1.3 9.7 5.5 5.9 -

* QE: Quick Estimate and Advance Estimate as per DES for Karnataka ** CSO estimate till 2012-13 and PMEAC estimate for 2013-14

17. The Table 2 shows the trends in the annual growth rate of India’s GDP and that of

Karnataka’s GSDP. During the period 2007-09 State’s growth rate has been higher than that

of the country. During 2009-10, State’s growth sharply dipped on account of drop in growth

rates of industry and services. In the year 2010-11, State grew faster and its GDP growth rate

was higher than that of India. However there is significant slowing down of growth both for

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the State and the country as a whole in FY11-12. During the FY12-13, the country’s GDP hit a

decade low of 5 per cent, while State is expected to do slightly better at 5.9 per cent due to

some recovery in agricultural sector. The moderate growth rates of the State and country as

a whole since 2011-12 is in line with the prevalent global economic scenario impacting

emerging market economies. The following chapter discusses the growth prospects of

economy in detail.

e) Fiscal Situation of the State for the FY 2012-13 and Review of MTFP 2012-16

18. The Budget 2012-13 and the MTFP 2012-16 were presented when national economy was

expected to recover to high growth path. However, the performance of the state economy

has been in line with the national economy and has shown less than expected revival. The

GSDP estimates of Directorate of Economics and Statistics (DES) indicates that in 2012-13

Karnataka’s economy grew by 5.9 per cent (at constant prices) only over that of the previous

year as against an anticipated growth rate of 7.5 per cent in the MTFP 2012-16. In view of

this, the growth for FY12-13 in the revised estimates for FY12-13 were moderated to 6 per

cent in real terms

19. Hence, the overall performance of the fiscal indicators in MTFP 2012-16 was expected to be

marginally lower. However with the anticipated tax and non-tax revenues during the year,

the State is expected to maintain a revenue surplus of Rs.943 crore and fiscal deficit as a

percentage of GSDP would be kept at 2.93 per cent in the revised estimates for 2012-13.

Thus while revenue surplus is being maintained, on fiscal deficit as percentage of GSDP,

State would have marginally done better than in Budget Estimates for 2012-13.

Table – 3 Fiscal Performance of State

(Rs. in Crore)

Item 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 BE

2012-13 RE

GSDP Nominal* 227854 271246 302146 335747 380871 434270 520766 520766

Fiscal Deficit (FD) 4688 5331 8732 10874 10688 12300 15312 15239

FD as % of GSDP 2.06% 1.97% 2.89% 3.24% 2.81% 2.83% 2.94% 2.93%

Revenue Surplus 4152 3776 1632 1619 4172 4691 931 943

* The GSDP figures have been revised from 2002-03 onwards due to change in base to 2004-05

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20. Despite the slowing down of the economy, the performance of the State on fiscal indicators

as seen from the revised estimates for revenue surplus and fiscal deficit as compared to

budget estimates in 2011-12 within KFRA limits. This has resulted to some extent from the

high tax effort of the State and curtailing of lower priority revenue expenditure. The fiscal

performance of the State was influenced by a mix of expenditure management policies as

well as revenue enhancing interventions. However the area of concern is the dip in the

revenue surplus which has reduced drastically from Rs.4691 crore in FY11-12. The revenue

surplus estimated in RE 12-13 would have been fully appropriated towards financing capital

expenditure thereby reducing the need for the State to borrow to that extent.

f) Fiscal Management Review Committee:

21. As required under the recent amendment to the KFRA, State Government constituted the

Fiscal Management Review Committee (FMRC) headed by the Chief Secretary. The

Committee would review fiscal and debt position of the State and the State’s progress on

the fiscal correction path and thereafter advice on the corrective measures as may be

required. FMRC has reviewed the fiscal and debt position of the State and its progress on

fiscal correction path as required under the Karnataka Fiscal Responsibility Act (KFRA). The

Committee has deliberated in detail on the fiscal and debt parameters and thereafter

advised the Finance Minister on the remedial measures to be adopted to ensure adherence

to the parameters stipulated in KFRA.

22. The FMRC during the mid-term review of the fiscal 2012-13 focussed broadly on the

challenges in the current year, resource and expenditure, prudent fiscal management, deficit

management and adherence to KFRA amongst others. After detailed deliberations the FMRC

resolved on the following issues:

i. Coordinate with neighbouring states in evolving non-competitive fiscal

incentive policy as decided in recent meeting of the South Zone Council.

ii. Relook into the issue of granting exemptions to State Road Transport

Corporations (SRTCs) keeping in view its impact on the State’s tax base.

iii. Follow up with departments for improving their non-tax revenues.

iv. Avoid and moderate inclusion of large expenditure commitments in

supplementary estimates.

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v. Focus on consolidating existing institutions and improving their effectiveness.

vi. Control on starting new institutions and admitting private institutions to GIA.

vii. Regulation on creation of new posts, and filling up vacancies in non-core

mandate areas.

viii. Approvals for new initiatives and works requiring implementation over

multiple years to be based on fiscal sustainability of the total expenditure

rather than expenditure during the year of approval only and thereby avoid

build up of fiscal stress due to unfunded expenditure commitments.

ix. Advise the departments to base their proposals for new initiatives within

their respective 12th Five Year Plan allocations to be communicated by

Planning Department, instead of seeking additional funding on recurring

basis.

x. Move over to medium term (3 to 5 years) appraisal and approval cycle for the

schemes from the currently practiced annual cycle.

xi. Revisit and control the preference for implementation of schemes and

programmes through society and SPV mode and managing funds through

bank and personal deposit accounts outside the Consolidated Fund.

23. FMRC reiterated these recommendations again when it met in February. The committee

noted the need for implementing these recommendations for enhancing robustness of fiscal

position, mobilizing more resources for capital formation and improving expenditure

effectiveness during the MTFP period. In view of this, the Committee resolved as follows:

i) A time bound action plan to be put in place by Finance Department and Planning

Department involving the Administrative Departments for implementation of these

recommendations.

ii) Cabinet approval for specific mandate to be obtained.

iii) Thereafter detailed guidelines to be issued to all Administrative Departments for

implementation of Action Plan.

24. The management of State Finances is broadly guided by the recommendations of

the FMRC. All these recommendations of FMRC are essentially aimed at increasing

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the capital expenditure, minimizing lower priority revenue expenditure, increasing

non-tax revenue, ensuring fiscal sustainability and pursuing prudent planning and

appraisal mechanisms to improve outcomes. The Hon’ble Chief Minister who is

also the Finance Minister of the State has approved the above recommendations

of FMRC. These have been considered in the fiscal projections for the MTFP

period. Over a period of time, concerted efforts need to be made to translate

these valuable suggestions into an actionable roadmap.

g) Key Fiscal Challenges

25. The State has to balance the requirement of providing adequate funds to critical

sectors of the economy while adhering to fiscal prudence norms. The following are

some key challenges identified, which the State has to tackle in the ensuing years.

Some of these challenges including those identified earlier have continued to remain

in focus during the current year. These are as follows.

a. Low non tax revenues: While the State has one of the highest own taxes to

GSDP ratio, the ratio of non-tax revenue to total receipts has not been

increasing over the years on anticipated lines. Apart from enforcement and

monitoring of own tax efforts, special emphasis needs to be given for

mobilizing non-tax revenues during the coming years. Government is

committed to rationalizing user charges and reviewing the same regularly. In

this regard, Government is also guided by the recommendations of

Expenditure Reforms Commission.

b. Limitations on use of borrowed funds for capital formation: In order to

meet the competing needs of various priority sectors for investment in

capital assets apart from reliance on its own resources and Central funds,

State goes in for borrowings. However borrowings are not open ended but

are limited by the ceiling imposed by KFRA. While borrowing, State has to

ensure that the twin parameters of Fiscal Deficit and Total Liabilities as a

percentage of GSDP are both retained within permissible limits during the

course of the year.

c. Fiscal impact of official pay committee recommendations: In view of the

acceptance of the recommendations regarding revision of pay and other

allowances by the State Government, the existing dearness allowances and

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installment due as on 1st January 2012 was merged in the basic pay and

pension along with 23.25 per cent increase. The additional outgo from the

budget during FY12-13 from the ensuing pay revision was estimated to be

around Rs.4300 crore. The large committed expenditure requirement for

salary would mean that the State would have to prudently manage its other

plan and non plan commitments to maintain its revenue and fiscal balance.

d. Large budget size and supplementary requirements: State presented budget

exceeding One Lakh Crore for the first time in FY12-13. Ample own resources

were mobilised and with grants from Centre and borrowings within KFRA

ceiling, resources were found for financing the budget. However additional

plan commitments in the nature of supplementary estimates keep cropping

up. It would be difficult to mobilise additional resources as also identifying

savings in other plan schemes during the course of the year to keep meeting

the enhanced requirements during the year.

e. Ensuring effective targeting of the subsidy net: In recent times there has

been a large increase in the number of beneficiaries under various subsidy

schemes like Social Security Pensions and Bhagyalakshmi. Steps have been

taken to identify deserving beneficiaries to ensure effective targeting of the

subsidies. Subsidies given to power sector for consumption of electricity by

farmers primarily for below 10 HP IP sets have also been growing. The

subsidy claims are ever increasing as the consumption by IP sets is not

measured but only estimated. The Energy Department has not taken up

metering of such IP sets. As a result, there exist a strong possibility of even

the losses, both technical and commercial, and thefts getting included in the

IP set consumption and thereby inflating the bill to the government.

Expenditure on Explicit and Implicit subsidies put together is over Rs.14,800

crore. Hence expenditure on subsidies needs to be moderated in the medium

to long term to make them fiscally sustainable. The Resident Data Hub

Scheme, UID scheme and Direct Cash Transfer scheme would help in better

identification of beneficiaries and targeting of subsidies directly.

f. Plan commitments under XII Five Year Plan: The 12th Five Year Plan outlay

for Karnataka at Rs. 2,55,250 crore (current prices) is 87 per cent higher than

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the 11th Five Year Plan expenditure at current price of Rs.1,36,352 crore. The

per capita plan outlay of Karnataka at Rs. 6,810 in FY 2012-13 is one of the

highest among major States. The Plan Size for FY12-13 at Rs.42030 and

subsequent increases in the following years would have to be met largely by

improving the balance from current revenues (BCR). Hence curbing non

essential non plan expenditure and improving State’s Own Tax Revenue

(SOTR) would require sustained focus and follow up.

g. Unfunded or partially funded liabilities: At the macro level, Government of

Karnataka has maintained the fiscal discipline mandated by the Legislature

through Karnataka Fiscal Responsibility Act during the past 5 years. However,

in these years, the government has taken up several commitments much

beyond its fiscal capacity requiring additional funding over and above the

current level of the resources. Some of these partially funded commitments

are the Crop Loan Waiver Scheme, Power Sector dues, Support for Housing

sector, Support for Grant in Aid institutions and Infrastructure Projects.

h. Other potential areas of fiscal stress are as follows:

i. Requirement to transfer 40 per cent of Non Loan Net Own Revenues

(NLNORR) to local bodies as per the recommendations of Third State Finance

Commission.

ii. Mandatory earmarking of funds for Special Component Plan And Tribal Sub

Plan along with provision of Pooled Funds to Social Welfare Department.

iii. Minimum maintenance expenditure to be provided for Roads and Bridges

and Irrigation projects as prescribed by 13th Finance Commission and

minimum budgetary allocation to be made for Elementary Education, Forest

and Renewable Energy as prescribed by 13th Finance Commission.

iv. Specific earmarking of funds would be required to be made within available

budget for development of backward areas as required under Article 371 J

of the Constitution of India.

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h) Fourteenth Finance Commission:

26. Fourteenth Finance Commission has been set up by Government of India recently.

Constitutionally the primary role of the Finance Commission is to recommend the sharing of

tax proceeds between the Centre and the States. The 14th Finance Commission’s

recommendations would have a major bearing on devolution of Central Taxes to the State

for a five-year period beginning April 1, 2015. The five-member committee is to submit its

report by October 31, 2014. The State has been pressing in the past that a balanced

approach to inter se allocations amongst States should be adopted by the Finance

Commission. This would require almost equal weights for equity and efficiency

considerations. While need factors like population, area and HDI address the equity aspect,

equal consideration needs to be given for efficiency imperatives like tax effort and fiscal

discipline. Also looking at the wide ranging terms of reference of the Committee like pricing

of public utilities such as electricity and water in an independent manner, subsidies, GST

compensation etc, significant changes could also be expected in the fiscal consolidation

framework.

i) Efficient Management of Public Expenditure

27. Dr Rangarajan’s Committee on “Efficient Management of Public Expenditure” has given

excellent recommendations to reorient management of the public expenditure for

improving the development outcomes. The Union Government has been requested to take

up definite measures for implementation of the recommendation regarding accountability

of the public expenditure through a more granular and transparent system of government

accounts. Also as recommended by the Committee on Restructuring the Centrally Sponsored

and Central Sector Schemes headed by Sri. B.K Chaturvedi, the procedure for transfer of

funds to the States should be reformed to ensure full accountability of States. Currently fund

transfers are taking place directly at District level or to other independent bodies or societies

making it difficult for the States to monitor utilization of funds. For better accountability, all

transfers by Government of India should be routed through State Governments and not

directly to the independent societies at the State or District level.

j) New Commitments

28. While managing the fiscal stress on account of unfunded liabilities built up over the years,

adequate resources have to be provided for the new announcements of the new

Government in place. Additional resources would be earmarked for enhancement in subsidy

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to be provided by State for supply of rice at Rs.1 per kg, enhancement of incentive to milk

producers from Rs.2 to Rs.4 per litre benefiting 45 lakh farmers, enhancement in housing

subsidy from Rs.75,000 to Rs.1.2 lakhs per unit and for one time waiver of overdue loans

availed by disadvantaged sections from Corporations of Social Welfare Department

amounting to Rs.1314 crore and benefiting 7.6 lakh borrowers. The allocations in new and

revised budget for FY13-14 would ensure that these commitments are fully met and hence

would not be carried over as liabilities for future years and not add to the extant fiscal stress.

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Chapter 2

Macro Economic Outlook

a) Karnataka’s Gross State Domestic Product (GSDP) and Forecast

29. The growth prospects of the State economy are closely intertwined with that of the national

economy, which are influenced mainly by the performance of the three sectors of

agriculture, industry and services. As noted earlier, this year the embedded risks from global

economic uncertainty and slowdown in the pace of national economic growth, pose a major

challenge to macro policy making and micro operations.

30. The Advance Estimates of Karnataka’s GSDP released by the Directorate of Economics and

Statistics (DES) indicates a drop in the nominal growth rate of Karnataka in 2012-13 as

compared to 2011-12. The GSDP growth rate (at current prices) in the year 2012-13 over

that of 2011-12 is estimated to be 13.9 per cent as compared to 14.0 per cent in the

previous year.

31. Table–4 shows trends in sector wise contribution to GSDP and sector wise composition of

GSDP along with growth rates at current prices. As has been the trend, Tertiary Sector

constituting almost 59 per cent of GSDP continues to drive economic growth of the State.

However the year on year (y-o-y) growth in Services sector has been slower in FY12-13 at

17.7 per cent as compared to 18.8 per cent in the previous year. As compared to this, both

the agricultural sector and industrial sector growth have shown higher y-o-y growth.

However the increase in the agricultural sector has to be seen in the light of a large drop in

growth rate in this sector in 2011-12 over 2010-11.

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Table - 4 Trends in Sector wise Composition of GSDP (Current Prices)

(Rs. in Crore)

Industry 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Q.E

2012-13 A.E

Primary 42322 51478 54617 59282 76866 78357 84625

Secondary 69765 80733 91859 93579 107850 121488 132897

Tertiary 115150 138417 163836 184655 221754 263397 309971

Total GSDP 227237 270629 310312 337516 406470 463243 527492

Percentage share of different sectors

Primary 18.62 19.02 17.60 17.56 18.9 16.9 16.0

Secondary 30.70 29.83 29.60 27.73 26.5 26.2 25.2

Tertiary 50.67 51.15 52.80 54.71 54.6 56.9 58.8

Total 100 100 100 100 100.0 100.0 100.0

GSDP Annual Growth of different sectors

Agriculture 2.8 17.1 6.8 11.0 26.7 7.9 8.2

Industry 25.3 18.4 12.9 1.0 17.6 8.4 9.2

Services 15.7 20.2 18.4 12.7 20.1 18.8 17.7

Total 16.0 19.1 14.7 8.8 20.4 14.0 13.9

QE: Quick Estimate, AE: Advance Estimate

32. Table-5 shows sector wise trends in GSDP at Constant Prices. The real GSDP growth rate has

recorded only a moderate increase from 5.5 per cent in FY11-12 to 5.9 per cent in FY12-13.

The real growth over the previous year has been at the same level of 2.4 per cent for the

industrial sector. After recording a negative growth in FY11-12, agricultural sector has seen a

moderate increase in its growth rate and achieved 1.8 per cent growth in the current year.

However the growth in the largest contributor to GSDP i.e. the services sector has actually

slipped to 8.9 per cent from 9.5 per cent last year. This could be attributed to the global

slowdown in economy leading to lower demand. Lower growth of agriculture sector

combined with near same growth in industrial sector and decline in services sector growth

has effectively pulled down the overall GSDP growth rate to below 6 per cent during

FY12-13.

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Table -5

(` in Crore)

Trends in Sector wise GSDP (Constant Prices 2004-05 Series)

Industry 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Q.E 2012-13

A.E

Primary Sector 35287 40244 40995 42285 46613 44451 45258

Secondary Sector 62066 68170 71917 71094 77225 80331 82243

Tertiary Sector 105307 119788 131509 134183 147647 161628 175943

Total 202660 228202 244421 247562 271485 286410 303444

Percentage share of different sectors

Primary Sector 17.41 17.64 16.77 17.08 17.2 15.5 14.9

Secondary Sector 30.63 29.87 29.42 28.72 28.4 28.0 27.1

Tertiary Sector 51.96 52.49 53.80 54.20 54.4 56.4 58.0

Total 100 100 100 100 100.0 100.0 100.0

GSDP Annual Growth of different sectors

Agriculture -2.8 12.4 2.3 4.1 11.0 -2.2 1.8

Industry 17.0 10.8 5.1 -1.5 8.3 2.4 2.4

Services 10.5 13.8 9.8 2.0 10.0 9.5 8.9

Total 10.0 12.6 7.1 1.3 9.7 5.5 5.9

QE: Quick Estimate, AE: Advance Estimate

b) Growth Prospects and the Road Ahead

33. 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

focussed 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 source of revenues to provide for enhanced outlays in essential socio-

economic sectors. The KFRA limitations make it imperative that unfunded and partially

funded commitments are reviewed and yet to start and less productive spending

programmes are rolled back. Else the fiscal position of the State will continue to be in stress

leaving little scope for new development initiatives to be taken up and thereby stifle future

growth prospects.

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34. It is also necessary to find ways and means to accommodate absolutely essential

commitments within budgetary outlays. State would also have to provide for extensively on

growth enhancing capital projects by utilising the fiscal space available to borrow.

35. The proposed migration to GST regime which would bring in opportunities on one hand for

uniform and seamless market for goods and services across the country, would also pose

restrictions on the governments’ ability to influence its fiscal policy stance and on the

flexibility in enhancement of additional resource mobilization.

36. From its initial estimate of 9 per cent growth, the Planning Commission has fixed a growth

target of 8.2 per cent for 12th FYP period with higher growth being back loaded i.e. 9 per

cent for last two years of the Plan period. In this, agriculture growth is targeted at 4 per cent

during Plan period. If the State has to achieve this, then it needs to emphasize more on

methods to revive the sector from the low growth cycle it is faced with. This is a fairly

ambitious target when national GDP growth projections for FY13-14 are itself realistically

around 6.5 per cent. Overall the Commission has approved total plan outlay of Rs.255250

crore at current prices for Karnataka over the 12th FYP period. With such a large plan

allocation, the challenge for the State would be to moderate its non plan commitments in

the medium to long term so as to make resources available to finance Plan Size of the State.

Also State is in the process of finalising and sending the inter-sectoral allocation of plan

funds for 12th FYP period to Planning Commission for consideration.

37. During the last few years the government has taken major policy decisions to encourage

private investment and productivity for triggering growth in priority sectors of agriculture

and industry. The allocation in the Agriculture sector is being enhanced to primarily focus

and re-direct investment in this sector. The effects of such policy interventions have to some

extent helped reverse the negative trend in real growth of (-) 2.2 per cent seen in FY11-12 to

a positive 1.8 per cent in FY12-13 in the agricultural sector. Hence in the medium to long

term, the growth outlook seems stable. Policy focus on inclusive and sustainable growth,

particularly in addressing the sources of imbalances between regions, between rural and

urban economies, the gender differentials and the quality of governance at sub-national

level are going to drive the economic performance.

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Chapter 3

Evaluation of Fiscal Performance

a) Fiscal Consolidation Roadmap and Status: 38. The State Government has been on the path of Fiscal Consolidation ever since the passing of

Fiscal Responsibility Legislations (FRLs) like Karnataka Fiscal Responsibility Act (KFRA), 2002

and Karnataka Ceiling on Government Guarantee Act (KCGGA), 1999. It is to the State’s

credit that such FRLs were brought in much before Government of India had enacted the

Fiscal Responsibility and Budget Management Act (FRBM) 2003. Therefore State has chosen

on its own volition to bring in fiscal discipline in the management of its finances.

39. Based on the Thirteenth Finance Commission’s recommendations for following a time bound

fiscal road map, the State Government vide KFR (Amendment) Act, 2011 has incorporated

statutory year-wise ceilings for key fiscal and debt indicators like Fiscal Deficit, Revenue

Deficit and Outstanding Debt as percentage of GSDP for the years leading up to 2014-15.

This was necessary not only to instil fiscal discipline but also to comply with Government of

India’s directions. Necessary amendments indicating ceilings for key fiscal and debt

parameters to the State’s FRLs were made as a condition-precedent for release of state

specific grants and debt relief measures in future. The States were expected to maintain the

fiscal targets within such new statutory ceilings.

40. The particulars of the key fiscal and debt norms to be followed and the compliance by the

State are shown below in Table 6:

Table - 6 Particulars Statutory norm Compliance by State

Revenue Deficit (RD) Reduce RD to Nil by 31st March, 2006 Achieved in FY04-05 itself. Maintained adequate Revenue Surplus thereafter.

Fiscal Deficit (FD) Reduce FD to not more than 3 per cent of estimated GSDP by 31st March, 2006.

Maintained FD below 3% since FY04-05*

Total Liabilities to GSDP (TL/GSDP)

To ensure that TL/GSDP does not exceed 25.2% of GSDP by 31st March, 2015.

Already achieved this in FY10-11 much ahead of timeline prescribed.

Outstanding Guarantees (OG)

OG on 1st April of any year should not exceed 80% of Revenue Receipts of second preceding year.

Since enactment of Karnataka Guarantee of Ceiling Act, 1999 this limit has never been breached.

*Except in the FY 2008-11 where it was fixed based on the advice of the Central Government.

Adherence to fiscal prudence during challenging economic environment

41. As seen at Table 6 the State is well on track with respect to the Fiscal Consolidation

roadmap. It has consistently recorded Revenue Surpluses since 2004-05. It was only in the

years 2008-09 and 2009-10, based on the advice of the Central Government, the Fiscal

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Deficit limit of 3 per cent was enhanced to 3.5 per cent of GSDP in 2008-09 and to 4 per cent

of GSDP in 2009-10 to give a fillip to the public spending to tide over the prevailing economic

slowdown. Further, for the year 2010-11, recognising the difficulties faced by the State

Government in compressing the fiscal deficit by 1 per cent (to 3 per cent of GSDP) in one

year itself, the Government of India had advised the State Government to comply with the

fiscal responsibility norms over a two year period. As a result, for the year 2010-11, the

State Government had been advised to incur a fiscal deficit of up to 3.44 per cent and only

from the FY11-12 onwards would Fiscal Deficit be maintained below 3 per cent as per the

KFRA.

42. However inspite of the fact that the Government of India had allowed the states to have

higher fiscal deficit and incur revenue deficit in those difficult years, the State reined in its

Fiscal deficit to below 3 per cent in FY10-11 itself and managed to maintain a Revenue

Surplus throughout the years 2008-11 thereby utilizing the increased borrowing space

entirely towards capital expenditure only.

b) Other Institutional Reforms under KFRA

43. KFRA was amended in the year 2011 to bring in more transparency in management of

government’s finances and liabilities. The newly introduced Section 5(2)(c) of KFRA now

mandates the State Government amongst others to make specific disclosures on tax

expenditure / revenue foregone during the year, compliance costs of major State taxes,

revenue consequences of capital expenditure, future expenditure commitments on account

of major policy decisions during the year and explicit and implicit liabilities in PPPs. State

Government has been providing this information in successive MTFPs presented before the

State Legislature. All these statements appear as Annexures to this document.

44. The other important requirement under the amended KFRA was to constitute a Fiscal

Management Review Committee (FMRC) headed by the Chief Secretary. This committee has

been set up with a mandate to review the fiscal and debt position of the State and the

State’s progress on the fiscal correction path and thereafter advice on the corrective

measures as may be required. As seen in Chapter 1, FMRC has given various

recommendations which are aimed at increasing the capital expenditure, minimizing lower

priority revenue expenditure, increasing non-tax revenue, ensuring fiscal sustainability and

pursuing prudent planning and appraisal mechanisms to improve outcomes.

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45. With a view to bring in transparency and de-mystification of State’s financial position, State

is also placing its statement of receipts and expenditure on a quarterly basis on its website at

kar.nic.in/finance. The statement would enable public at large to assess the financial

performance of the State and note the compliance of State with regard to fiscal and debt

indicators as prescribed in KFRA.

c) Fiscal performance of the State in FY12-13 vis-à-vis 2011-12

46. Table 7 shows the State’s fiscal performance for Financial Year 2012-13 vis-a-vis the targets

set then and the likely performance of the FY 12-13 (R.E) vis-à-vis the budgeted target.

Table - 7

Fiscal performance for previous year (Rs.in Crore) 2011-12 2012-13

Particulars B.E Accounts B.E R.E Revenue Surplus 1279 3144 931 943

Fiscal Deficit as percentage of GSDP

2.87% 2.92% 2.94% 2.93%

Total Liabilities to GSDP 24.05% 23.62% 22.66% 22.59% Outstanding Guarantees as percentage of revenue receipts of second preceding year

18.72% 13.51% 16.32% 16.32%

47. The performance on key fiscal and debt parameters of Revenue Surplus, Fiscal Deficit and

Total Liabilities as a percentage of GSDP in RE 12-13 is in compliance to statutory ceilings

prescribed in KFRA. The State would continue to maintain a Revenue Surplus, albeit small

quantum, at a level slightly higher than budgeted estimate, thereby ensuring that entire

current expenditure of the State was being met only from Revenue Receipts and the

Revenue Surplus and Capital Receipts were employed purely for capital expenditure.

Revised estimate of Fiscal Deficit as a percentage of GSDP is also expected to be kept within

the BE limit of 2.94 per cent.

48. On the debt management side, the 13th Finance Commission had laid down the road map

for reducing the debt to GSDP ratio for Karnataka to 25.2 percent by the year 2014-15. The

year-wise ceiling of debt to GSDP ratio to be adhered to for FY 12-13 being 25.7 per cent.

The actual debt to GSDP ratio is proposed to be kept within this at 22.66 per cent in BE12-

13. This is being maintained in RE12-13 too by maintaining this ratio at 22.59 per cent.

Hence the State is ahead of the road map suggested by the 13th Finance Commission and

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has met the norms with regard to debt management before the prescribed time line.

However in absolute numbers, the total liabilities have crossed the figure of Rs.1 lakh crore.

Hence borrowings in future would have to be need based only and spent on capital

formation.

d) Performance of receipts, expenditures and fiscal indicators (FY09-10 to FY 12-13)

49. Rule 4 of The Karnataka Fiscal Responsibility Rules prescribe the form and contents of the

MTFP. As per Rule 4(e), analysis of various fiscal parameters are to be provided for the year

before the previous year (accounts), the previous year (budget estimates and accounts) and

the current year (budget estimates and revised estimates), the next year (budget estimates)

and a projection for three subsequent years. Table B and Chapter 7 contain these analysis.

However for descriptive analysis of trends in various receipts, expenditure and other fiscal

indicators, revised estimates of current year and three previous year accounts data are used

in this chapter.

Revenue Receipts:

50. Revenue Receipts consists of four major components viz. Own tax revenues, non tax

revenues, Devolution from GOI and GIA & Contributions. A major source of Revenue receipts

has been the State’s Own Tax Revenue (SOTR) which constitutes almost 64 per cent of total

revenue receipts in Budget estimate 2012-13. Including the own non tax revenue, this share

increases to more than 67 per cent of revenue receipts. Thus the State substantially relies

more on its own resources rather than on devolution of central taxes or grants from Centre.

Revenue receipts on the whole are expected to increase by Rs.3423 crore over the budget

estimate for FY12-13. Due to the moderation of the growth in Central taxes, the devolution

of Central taxes in the current year may fall short of the budgeted estimate of Rs.13094

crore.

State Own Tax Revenues (SOTR):

51. SOTR comprises of the four major taxes of the State and all other taxes levied by the State.

Commercial taxes constitute the major part of own tax revenues i.e. about 60 per cent. SOTR

was estimated at Rs.51821 crore in budget estimate 12-13 which was 10 per cent more than

the actuals in 2011-12. The overall tax revenue is expected to exceed budget estimate.

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Non Tax Revenue:

52. The major single source of non tax revenues are receipts from mining and forest

development tax. However the entire forest development tax receipts are a pass through in

the State Budget since these are transferred to Forest Development Fund maintained in the

Public Account and the same is utilized thereafter for schemes of Forest Department. Mining

receipts are basically royalty on major and minor minerals. These receipts have been a

steady source of income to the State. Since the mining receipts were conservatively

estimated at Rs.1500 crore in FY12-13, it is expected to meet this target. The other sources

of non tax revenues include interest receipts and dividends. Non Tax Revenues have not

been growing at the anticipated rate and have been identified as one area which requires

significant thrust. While the BE 11-12 target could be achieved, it was largely due to interest

receipts on account of investment in GOI treasury bills. The FMRC’s advice on taking

concerted action in improving non tax revenues needs to be acted upon early.

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Non Debt Capital Receipts (NDCR):

53. NDCR includes largely sale of assets and recoveries of loans and advances. In recent past,

State has been unable to realise the monetary potential out of the land available with it.

Also due to sluggish real estate market and various administrative hurdles, no additional

revenue from such land sale has been possible during 2012-13. Keeping this aspect in mind,

the estimate under this head for FY13-14 has been estimated conservatively.

Expenditure pattern:

54. Public expenditure indicates the quantum of government spending on social and physical

infrastructure for the development of the State. The basic broad categorization of public

expenditure is into plan and non-plan. Chart below indicates the growth of Plan and Non

Plan expenditure over the years. While the Non Plan expenditure quantum is much more

than the Plan Expenditure, the Plan expenditure of the State has also steadily increased.

Following chart shows the plan – non plan expenditure comparison over the last four years.

55. While Non Plan expenditure in RE 12-13 has grown at a rate 21 per cent over the 2011-12

accounts, during the same period the Plan expenditure too has increased by over 21 per

cent. Thrust has been given to further improve the Plan expenditure while curbing the non

essential non plan expenditure. Also as detailed later in the MTFP, a large part of non plan

expenditure of State consists of development expenditure. Development expenditure is that

expenditure which is primarily spent on Social and Economic Services. The Government

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strategy is to effectively control non-essential non developmental expenditure so as to

enhance resource allocation for development activities in various sectors.

Fiscal Indicators:

56. The two primary fiscal indicators that are carefully monitored and kept within the limits

specified in KFRA are the Revenue Balance and Fiscal Balance. The excess of revenue

receipts over revenue expenditure is available as revenue surplus to finance capital

expenditure. KFRA mandates that State should maintain adequate Revenue Surplus. State

has continuously maintained Revenue Surplus ever since 2004-05 ensuring that entire

borrowings and revenue surplus are made available for capital expenditure only and not for

meeting current expenditure. However of late, there has been an area of concern. Revenue

Surplus relative to GSDP has reduced from 1.8 per cent in 2006-07 to around 0.5 - 1 per cent

in recent time. The drop in revenue surplus has significant impact on financing of capital

expenditure which would now depend on additional borrowings.

57. Fiscal Deficit is the gap between the total expenditure and total non debt receipts of the

State. This financing gap is met out of budgetary borrowings and out of Public Account.

Deficit financing is one of the well acknowledged ways of financing the gap between

available receipts and anticipated expenditure. Prior to 2004-05, State used to have large

fiscal deficits and used to borrow to finance current expenditure too. Due to Fiscal

Consolidation, since 2004-05 State has maintained Fiscal Deficit within 3 per cent of GSDP,

which is the Finance Commission recommended norm.

58. State has strictly adhered to Fiscal Deficit (FD) ceiling prescribed by the 13th Finance

Commission in its Fiscal Consolidation Roadmap for Karnataka. Hence the statutory ceiling of

FD of 3 per cent of GSDP was maintained except during the years FY08-11, when special

permission was given by GOI to increase the fiscal space and borrow more to provide a fillip

to the slowing economy. As seen from the table 8 and following graph, Fiscal Deficit as a

percentage of GSDP limit has not been breached during the last three years. As against the

FD limit of 2.94 per cent fixed for BE12-13, it is expected to maintain FD as a percentage of

GSDP to within this limit.

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Table – 8

Fiscal Deficit Trends (in Percent)

Fiscal Deficit 2009-10 2010-11 2011-12 2012-13 RE KFRA Ceiling 4.00% 3.44% 3.00% 3.00% Achievement 3.24% 2.81% 2.83% 2.93%

Debt Sustainability Indicators:

59. The two primary indicators that the State Government adopts to monitor its debt stability

and sustainability are the ratios of Interest Payments to Revenue Receipts (IP/RR) and Total

Liabilities to GSDP (TL/GSDP). Both these indicators are prescribed by the 13th Finance

Commission for evaluation of debt sustainability of the State.

Interest Payments to Revenue Receipts (IP/RR):

60. Due to fiscal consolidation as well as revenue mobilisation, the Interest to Revenue Receipts

ratio has declined over the last decade to around 8 to 8.5 per cent in recent times. 13th

Finance Commission has mandated that the IP : RR ratio is kept within 15 per cent. As seen

below, due to buoyancy in revenue receipts, State has ensured that Interest Payments are

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kept well within this ratio. Since 2009-10, this limit has not been in excess of 11 per cent. In

2012-13 it is expected to further reduce and maintain this ratio at around 8.1 per cent in

revised estimate. Reduced requirement for debt servicing ensures more resources for

investment in development programmes.

Total Liabilities to GSDP:

61. The total liabilities of the State are an important indicator of the debt position of the State.

In absolute numbers, the Total Liabilities of the State has more than doubled in the last

decade and has exceeded Rs.1 lakh crore. However as a ratio of the GSDP it is 25.5 per cent

(RE12-13), within the 13th Finance Commission norm of 25 per cent to be achieved by 2014-

15. The State includes liabilities under Off-budget borrowings under the definition of Total

Liabilities.

62. Based on the 13th Finance Commission recommendations, the Karnataka Fiscal Responsibility

(Amendment) Act, 2011 has amended Section 4 of KFRA to incorporate ceiling for

Outstanding Debt (or Total Liabilities) as seen at table 9.

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Table 9

KFRA Ceiling on Total Liabilities

Year 2011-12 2012-13 2013-14 2014-15

OD/GSDP (%) Ceiling as provided under

KFRA

26.0 25.7 25.4 25.2

63. The above ceilings have been strictly adhered to by the State. The fresh borrowings in any

year are opted for keeping in mind the above ceilings. In view of this, State has been

ensuring that Total Liabilities are kept within the limits as seen from the following graph. In

view of the already high quantum of Total Liabilities in absolute numbers, State would have

to exercise caution and prudence on its borrowing strategy in the coming years and thereby

limit such borrowings to be requirement basis only.

64. As required under KFRA, the Fiscal Performance in the previous four financial years vis-à-vis

the Budget Estimates (in Absolute terms and as a percentage of GSDP) is presented in the

following Table A.

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Table - A Fiscal Performance 2009-10 to 2012-13 (` in Crore)

Particulars 2009-10 BE

2009-10 A/c

2010-11 BE

2010-11 A/c

2011-12 BE

2011-12 A/c

2012-13 BE

2012-13 RE

1 Revenue Receipts 48389 49156 53638 58206 66313 69806 81461 84884

of which

(i) State Own Tax Revenues 32721 30579 36228 38473 43817 46476 51821 53492

(ii) Non Tax Revenues 2130 3334 2820 3358 3675 4087 3193 3796

(iii) Resources from the centre

of which

- Devolution 7645 7360 9060 9506 10419 11075 13094 12500

- Grants 5893 7883 5530 6869 8402 8168 13354 15095

2 Revenue Expenditure 47238 47537 53138 54034 65034 65115 80530 83941

of which

(i) Interest 5578 5213 6316 5641 6950 6062 7500 6852

(ii) Salaries 11305 10396 12577 11086 13854 11870 18299 17120

(iii) Pensions 4001 3408 4500 4070 5500 5436 6980 7500

(iv) Subsidies(Food, Transport 1704 1806 1723 1885 1956 2120 2484 4029

Housing, Industry & Others)

(v) Power Subsidy 2402 2341 2826 4442 4301 5303 5100 6350

(vi) Devolution to ULBs 2720 2474 2885 2978 4343 4344 5237 5011

(vii) O & M

of which

- Major O&M (Roads, Buildings & Irrigation)

763 676 676 712 700 681 556 581

- Other O&M (Edn,Health, RD,WS,Agr, Forest)

7805 8088 9989 5818 7534 7292 10621 10715

(viii) Administrative Expenditure

828 892 908 914 1010 1011 1251 1331

(ix) Other Revenue Expenditure

10132 12243 10738 16488 18886 20996 22502 24452

3 Revenue Surplus 1151 1619 500 4172 1279 4691 931 943

4 Capital Receipt (Non Debt) 1977 625 2903 233 2062 330 299 257

5 Capital Expenditure 11622 13118 13112 15093 15822 17321 16542 16439

6 Fiscal Deficit 8493 10874 9708 10688 12482 12300 15312 15239

7 Outstanding Debt 77797 83482 89607 91943 101196 103030 114745 114401

8 Debt Services 7782 7521 8779 8448 10062 9382 11170 10496

9 Off Budget Borrowings 2589 3249 3249 3249 3249 3249 3249 3249

10 Guarantee Stock 7203 7203 8200 6618 9200 6640 9500 9500

11 Total Liabilites 80386 86731 92856 95192 104445 106279 117994 117650

12 GSDP at current prices 294952 335747 328312 380871 434270 434270 520766 520766

13 Annual Inflation 4% 4% 5% 5% 6% 5.0% 6.5% 8%

14 GSDP Real Growth Rate 6% 6% 8% 8% 8% 8.0% 7.5% 6%

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Table - A Fiscal Performance 2009-10 to 2012-13 ( in percentage)

Particulars 2009-10

BE 2009-10

A/c 2010-11

BE 2010-11

A/c 2011-12

BE 2011-12

A/c 2012-13

BE 2012-13

RE

ALL THE ITEMS AS PERCENTAGE OF GSDP

1 Revenue Receipts 16.41 14.64 16.34 15.28 15.27 16.07 15.64 16.30

of which

(i) State Own Tax Revenues 11.09 9.11 11.03 10.10 10.09 10.70 9.95 10.27

(ii) Non Tax Revenues 0.72 0.99 0.86 0.88 0.85 0.94 0.61 0.73

(iii) Resources from the centre

of which

- Devolution 2.59 2.19 2.76 2.50 2.40 2.55 2.51 2.40

- Grants 2.00 2.35 1.68 1.80 1.93 1.88 2.56 2.90

2 Revenue Expenditure 16.02 14.16 16.19 14.19 14.98 14.99 15.46 16.12

of which

(i) Interest 1.89 1.55 1.92 1.48 1.60 1.40 1.44 1.32

(ii) Salaries 3.83 3.10 3.83 2.91 3.19 2.73 3.51 3.29

(iii) Pensions 1.36 1.02 1.37 1.07 1.27 1.25 1.34 1.44

(iv) Subsidies(Food, Transport 0.58 0.54 0.52 0.49 0.45 0.49 0.48 0.77

Housing,Industry & Others)

(v) Power Subsidy 0.81 0.70 0.86 1.17 0.99 1.22 0.98 1.22

(vi) Devolution to ULBs 0.92 0.74 0.88 0.78 1.00 1.00 1.01 0.96

(vii) O & M

of which

- Major O&M (Roads, Buildings & Irrigation)

0.26 0.20 0.21 0.19 0.16 0.16 0.11 0.11

- Other O&M (Edn,Health, RD,WS,Agr, Forest)

2.65 2.41 3.04 1.53 1.73 1.68 2.04 2.06

(viii) Administrative Expenditure

0.28 0.27 0.28 0.24 0.23 0.23 0.24 0.26

(ix) Other Revenue Expenditure

3.44 3.65 3.27 4.33 4.35 4.83 4.32 4.70

3 Revenue Surplus 0.39 0.48 0.15 1.10 0.29 1.08 0.18 0.18

4 Capital Receipt (Non Debt) 0.67 0.19 0.88 0.06 0.47 0.08 0.06 0.05

5 Capital Expenditure 3.94 3.91 3.99 3.96 3.64 3.99 3.18 3.16

6 Fiscal Deficit 2.88 3.24 2.96 2.81 2.87 2.83 2.94 2.93

7 Outstanding Debt 26.38 24.86 27.29 24.14 23.30 23.72 22.03 21.97

8 Debt Services 2.64 2.24 2.67 2.22 2.32 2.16 2.14 2.02

9 Off Budget Borrowings 0.88 0.97 0.99 0.85 0.75 0.75 0.62 0.62

10 Guarantee Stock 2.44 2.15 2.50 1.74 2.12 1.53 1.82 1.82

11 Total Liabilites 27.25 25.83 28.28 24.99 24.05 24.47 22.66 22.59

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Chapter 4

Revenue Performance & Reforms

a) Tax Policy and Strategy:

65. The taxation policy of the State continuously aims at streamlining the tax structure and

administration for better tax compliance with least effort. In these times of economic

slowdown, taxation policy become all the more important not purely as a tool for revenue

generation but also as a medium and long term measure to propel the economy back to a

high growth trajectory.

66. In recent times the State has been trying to simplify and rationalize its tax structure along

with simplification of process of filing tax returns to ensure effective mobilization of

resources. The reforms carried out in the tax departments like E-payment of taxes in

Commercial Tax Department and Anywhere registration in Stamps & Registration

Department have benefitted the tax payer at large.

67. MTFP 12-16 onwards State has been disclosing the compliance costs associated with

different types of taxes it imposes. While Government spends money on tax collection

activities, some of the costs like filling out forms, keeping records and other such tax related

chores are borne by individual or entity paying the tax. These are collectively called costs of

compliance i.e. the cost incurred by the tax payer in complying with the tax payment

process. More complex tax systems tend to have higher compliance costs and as a corollary,

lower compliance cost is an indication of tax simplification.

68. Taxation reforms in 2013-14 would continue to strive for improving tax compliance and

increasing tax base. MTFP 13-17 continues to disclose the compliance cost of four major

taxes of State Government from the tax payer’s perspective.

b) Tax Effort:

69. Karnataka has over the years consistently achieved the highest own tax revenue to GSDP

ratio (tax effort) amongst all other States. The graph below highlights the effort in the last

four years.

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70. Tax Effort during FY 2008 to 2010 declined slightly due to the global economic crisis. Tax

effort of Government of India too was affected during this period. During the period 2004-05

to 2009-10, when the CAGR of GSDP was 15.1 per cent, the CAGR of State’s own tax revenue

was only 13.7 percent. Thereafter, however, the economy rebounded to the high growth

path in the latter half of 2009-10. As seen above from 2010-11 onwards the tax effort has

increased to above 10 per cent. The enhanced tax receipts are attributed to the factors like

different tax rates, widening tax base and institutional efficiency in collection all of which

improves tax compliance.

71. Though the State taxes have largely remained unaffected from the overall global economic

slowdown, there could be some moderation in tax effort in the coming years due to base

effect. Any more substantial increase in the tax growth cannot be expected in the near

future due to the tough economic climate. The challenge for the State would be to ensure

maintaining a high tax effort in future to garner adequate resources to meet expenditure

requirements of critical sectors through the 12th FYP period.

72. The composition of major taxes as a percentage of GSDP since 2008-09 is shown in the

graphs below.

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73. With the economy gaining steady momentum slowly from 2009-10 onwards, commercial

taxes and motor vehicle taxes have exceeded their pre-economic slowdown share and stand

at 6.1 percent and 0.7 percent respectively. Stamps and registration revenues which used to

comprise 1.4 per cent of GSDP in 2006-07 is at 1 per cent in 2011-12 RE. This is largely due to

the weak sentiments in the real estate market and the reduction of stamp duty to 5 per cent

under JnNURM reforms. Hence there is further scope to improve the tax collection here.

Growth in share of taxes in GSDP has been good in Excise as this has continuously increased

from 1.8 per cent in 2008-09 to over 2.2 per cent of GSDP in 2012-13 RE. It is estimated that

revenues should go up on account of upward correction of guidance values during 2013.

74. With incipient signs of slow easing of inflation in the coming days, it is expected that

investment activity too would ideally pick up slowly and steadily. The annual growth rates

and buoyancy of these taxes, individually for a 7 year period have been shown in the table

below. Tax buoyancy is a measure of the responsiveness of tax receipts to economic growth

or GSDP growth. A tax which is buoyant is one whose revenues increase by more than one

percent for a one percent increase in national income or GSDP. Buoyancy however reflects

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both discretionary changes in the tax rates and the normal revenue growth. Table 10 lists

out the buoyancy of State taxes.

Table - 10 Buoyancy in State’s Own Taxes (Rs. in Crore)

Commercial Tax Excise Duty Year Actuals Growth Rate Buoyancy Actuals Growth Rate Buoyancy

2006-07 13714 19% 1.2 4495 32% 2.0 2007-08 15552 13% 0.7 4767 6% 0.3 2008-09 16645 7% 0.6 5750 21% 1.8 2009-10 17960 8% 0.7 6946 21% 1.9 2010-11 23266 30% 2.2 8285 19% 1.4 2011-12 28000 20% 1.5 9775 18% 1.3

2012-13 RE 32000 14% 3.0 11300 16% 3.3 CAGR 15.17% 1.16* 16.60% 1.18*

Motor Vehicle Tax Stamps & Registration Duty

Year Actuals Growth Rate Buoyancy Actuals Growth Rate Buoyancy 2006-07 1374 24% 1.5 3206 45% 2.7

2007-08 1650 20% 1.1 3409 6% 0.3

2008-09 1681 2% 0.2 2927 -14% -1.2

2009-10 1962 17% 1.5 2628 -10% -0.9 2010-11 2550 30% 2.2 3531 34% 2.6 2011-12 2957 16% 1.1 4623 31% 2.2

2012-13 RE 3500 18% 3.9 5300 15% 3.1 CAGR 16.86% 1.17* 8.74% 1.09*

* Buoyancy over 7 year period is based on Logarithmic Regression

c) Performance of Major Own Taxes:

i. Commercial Taxes

75. The last decade has seen landmark taxation reform of introduction of Value Added Tax with

effect from 1.4.2005 replacing the Sales Tax. VAT is applicable to all commodities except

petrol, Aviation Turbine Fuel, diesel and sugarcane on which the earlier Karnataka Sales Tax

Act is still applicable. State has made smooth transition from Sales Tax to VAT.

76. Commercial Taxes constitute more than 60 per cent of the State’s own tax revenues. Being a

major contributor to the SOTR, collections here have a bearing over the overall resources

available. For the FY12-13, BE 12-13 of Commercial Taxes is Rs.31100 crore. In order to meet

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a part of the expenditure on account of cooperative crop loan waiver, VAT was increased by

0.5 per cent for one year i.e. from 01.08.2012 to 31.07.2013. During the year, the quarterly

collections and quarterly growth over corresponding period in previous year for Commercial

taxes is as shown in Table 11.

77. During the first quarter of FY 2012-13, the commercial taxes grew at the rate of almost 27

per cent and thereafter moderated to around 14 per cent in the second quarter. By the third

quarter, the growth had slowed down to 11 per cent. A part of the decline in quarterly

growth rate of taxes could be attributed to slowdown in general economic activity.

78. However despite the slowdown in growth of taxes, the budget estimate would have been

met. The good growth in tax revenue over the last few years is primarily attributable to the

positive response of the tax payers to the extensive computerization programme embarked

upon by the Commercial Taxes Department. All the dealers are now filing returns online and

more than 80% of the revenue is coming through the electronic mode. A large number of

services are being provided electronically at the doorsteps of the tax payer. As a result the

tax compliance is much better.

Goods and Services Tax (GST) Issues

79. The State is at the threshold of transition to Goods and Services Tax (GST). GST would enable

the State to tax even services while Centre can tax trade within the State. Like Value Added

Tax, there is no cascading of taxes at any stage and tax is only on value addition. Karnataka

being a high consuming State would benefit as GST is a consumption based tax.

State has all along supported introduction of Goods and Services Tax which aims at creation

of a common market in the country, making exports competitive by total removal of

Table - 11

Commercial Tax Trends during FY12-13 (Rs. in Crore)

Taxes Q1 Growth Q2 Growth Q3 Growth Q4 estimate

RE 12-13

Overall growth

over previous

year Commercial

Taxes 8011 27% 7434 14% 7796 11% 8759 32000 14%

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domestic indirect taxes and making compliance simpler and easier. At the same time, State

has endeavored to ensure that the fiscal autonomy of the States in mobilizing revenue is not

compromised in the proposed GST scheme. GST regime requires a robust IT system to

ensure that the seamless input tax rebate scheme is not misused especially on inter-State

transactions. Karnataka has developed a fairly sophisticated IT infrastructure which can

operate effectively even under the new tax regime with some modifications and can be

easily integrated with the proposed GST network that would be put in place to administer

GST at State and Central level. The early introduction of this tax reform would be contingent

on early resolution of outstanding issues in the Empowered Committee constituted for GST.

ii. State Excise

80. State Excise revenue has shown a steady increase since 2008-09. It is the second largest

contributor amongst State’s own tax revenues. The budget estimate for FY12-13 for State

Excise is Rs.10775 crore. The quarterly collections and quarterly growth over corresponding

period in previous year for State Excise is as shown in Table 12.

81. As seen in table 12, there has been a steady growth in excise revenues for each of the three

quarters at around 22 to 23 per cent. The quarterly growth in excise has picked up in the last

two quarters. Going by this trend it is expected that excise revenues would have exceeded

the budget estimate by the end of the 4th quarter.

82. Excise department being a major tax source of revenue for State, the enforcement of excise

law has to be strict to ensure compliance. The department has increased its intensive

patrolling and surveillance on manufacturing and selling units. As a result of these

measures, there is healthy growth in revenue from sale of IMFL. The department proposes

to take up reform measures like Computerisation up to the range level offices, provision of

Table - 12 Excise Trends during FY12-13 (Rs. in Crore)

Taxes Q1 Growth Q2 Growth Q3 Growth Q4 estimate

RE 12-13

Overall growth

over previous

year State Excise 3101 23% 2457 22% 2741 22% 3001 11300 16%

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wireless, GPS sets, fire arms and modern vehicles to the departmental officers for effective

enforcement.

iii. Stamps and Registration:

83. Revenue from Stamps and Registration has been budgeted at Rs.5200 crore in FY12-13.

These receipts have shown less than anticipated quarterly growth as compared to the

previous year. Under the JnNURM reforms, there was a commitment by the State to

decrease stamp duty to 5 per cent. The decreased revenue on account of this move was

expected to be made up by increased compliance in registering documents and also by the

upward revision of guidance values in November 2011. However the impact of higher

registrations translating into better revenues may be seen only in the medium to long term.

The other reason for the slow growth in taxes could be attributed to the still recovering real

estate sector. The Department has proposed another round of upward revision of guidance

values in 2013.

84. During the year, the quarterly collections and quarterly growth over corresponding period in

previous year for Stamps and Registration is as shown below. Since growth rate has been

less this year, it is anticipated that the receipts may almost reach the budget estimates.

Table - 13

Stamps and Registration Fees Trends during FY12-13 (Rs. in Crore)

Taxes Q1 Growth Q2 Growth Q3 Growth Q4 estimate

RE 12-13

Overall growth

over previous

year Stamps & Registration Fees

1246 12% 1297 3% 1355 9% 1402 5300 15%

85. The Department has recently introduced the anywhere registration where a citizen can

register his document with any Sub Registrar Office within a district. In the future too,

efforts need to be made to better align the guidance value and the market value of the

properties to increase tax realization. The Department would be provided with better

staffing. A dedicated cell on the lines existing in Maharashtra is proposed to be created

within the Department to advise regularly on guidance value revision. A system of periodic

and automatic revision of guidance values indexed to average market rates is desirable.

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iv. Motor Vehicle Taxes

86. Budget Estimates for Motor Vehicle Taxes in FY12-13 is estimated at Rs.3350 crore. The rate

of growth of taxes in the first two quarters has been very good. The major share of tax is

collected from cars and two wheelers which constitute more than 75 per cent of the total

strength of motor vehicles in the State. While growth in the 3rd quarter has slowed down a

bit, the overall growth is expected to be around 18 per cent. Commensurate with the growth

of the vehicles, the tax revenue too has grown significantly and it is expected that during

2012-13 the revenue collection would have been more than even the revised estimate

indicated. During the year, the quarterly collections and quarterly growth over

corresponding period in previous year for Motor Vehicles taxes is as shown below

87. Computerization and issue of smart card driving licenses and registration certificate has

been implemented in all RTO/ARTOs offices in the State through PPP model. The Collection

of fees and tax, issue of driving licenses, vehicle registration, issue of permits have all been

computerized. The department is considering the collection of tax and fees also through e-

payment for better compliance of tax payments and transparency.

d) Cess Receipts:

88. A Cess is a tax on tax which is appropriated towards a specific purpose as opposed to tax

which is a general purpose levy. Levy and collection of a cess by the State creates an

obligation on its part to use the cess receipts for the specific purpose for which it is levied.

The two main cesses that the State imposes are:

a. Infrastructure Cess

b. State Urban Transport Cess

89. Infrastructure Cess is imposed on all of the State’s three major own taxes except Commercial

Taxes i.e. on Excise License Fee, Motor Vehicles Tax and Stamp Duty. These cesses were

imposed primarily for augmenting the Infrastructure Initiative Funds (IIFs) maintained in

Table - 14

Motor Vehicles Taxes Trends during FY12-13 (Rs. in Crore)

Taxes Q1 Growth Q2 Growth Q3 Growth Q4 estimate

RE 12-13

Overall growth

over previous

year Motor Vehicles 842 20% 892 31% 886 12% 880 3500 18%

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Public Account of the State. The cess transfers to the IIFs are utilised towards meeting the

expenditure for undertaking vital infrastructure works like Bangalore Metro, Rail Projects,

Airports, etc and maintenance of Rural roads. The rates of cess imposed statutorily on these

taxes are as follows.

10% on Motor Vehicles Tax

10% on Stamp Duty

15% on Excise License Fee

90. Apart from the above, there is also a 1 per cent cess imposed on Motor Vehicle Tax for

contribution to the State Urban Transport Fund (SUTF) which was set up as part of the

JnNURM reforms. SUTF is used to largely fund urban public transport schemes implemented

and overseen by the Directorate of Urban Land Transport.

91. Cess collections were estimated at Rs.725 crore for transfer to IIFs and Rs.30 crore for

transfer to SUTF in BE 12-13. Due to the less buoyant tax collection this year, the cess

receipts are proposed to be more or less at the same level in RE12-13.

e) Non Tax Revenues:

i. Royalty on Major and Minor Minerals:

92. The major revenue in the Department of Mines and Geology is royalty on major & minor minerals. The banning of extraction and export of iron ore while positively checking illegal mining in the State has on the other hand adversely affected revenue mobilization of the State. However due to e-auction of seized iron ore, there has been faster realisation of proceeds and hence it is anticipated that mining receipts would meet the budget.

ii. Interest Receipts:

93. Apart from the regular source of interest receipts on account of repayment of loans, the

other major source is interest proceeds out of investment of surplus cash balance of the

State. As per RBI’s regulations, the cash balance maintained by the State is invested in GOI’s

14 day Treasury Bills (T-Bills). However the average interest rate on these T-Bills is around 5-6

per cent. RBI and even the Accountant General have advised the State against piling up of

huge cash reserves and thereby keeping cash idle. To improve cash management, it has

advised States to invest their excess cash balance (beyond the immediate requirement) to be

investment in GOI’s 91 day T Bill. In view of this, like in FY11-12, this year too State has

decided to invest in GOI’s 91 day T Bill. There may be an increase in Interest Receipts by at

least Rs.200 crore in the current year on account of such investment in GOI’s 91 day T-Bills.

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iii. Other Non-Debt Capital Receipts:

94. Unlike in earlier years, Non Debt Capital Receipts on account of land sale has been estimated

realistically in BE12-13 at Rs.125 crore and further reduced to Rs.100 crore as opposed to

the large estimates considered in earlier years. With signs of inflation moderating and

cheaper credit being made available, the real estate market could look up in the medium

term. Government would explore possibility of monetisation of its assets by selling lands

owned by it in strategic locations in FY13-14 too.

f) Accounting of Direct Releases of Central Government:

95. The Central Government transfers some funds to State implementing agencies outside the

State budget for implementation of various schemes in the socio-economic service sectors.

The C&AG in his report on the State Finances for the year ending 31st March 2010 has

observed that as these funds are not routed through the State budget, Finance Accounts do

not capture the flow of these funds and to that extent State’s receipts and expenditure as

well as other fiscal variables/parameters derived from these are understated. Some of these

schemes are Flagship schemes like National Rural Employment Guarantee Scheme, National

Rural Health Mission and National Horticulture Mission. The report has suggested that a

system be put in place to ensure proper accounting of these funds and the updated

information should thereafter be validated by the State Government as well as the

Accountant General (Accounts & Entitlement).

96. In view of this observation, State started the practice of accounting for such direct releases

in the State budget. Both receipts and expenditures are being accounted through the

budget. Administrative Departments under which the implementing agencies function have

been authorised to issue adjustment orders on expenditure of directly released funds. It is

felt that this would enable proper documentation and reporting of expenditure for such

schemes at least for the time being. It is learnt that Planning Commission has advised

Government of India to route all its releases to States through their budgets and not bypass

them. If this comes through soon then the necessity of accounting such direct releases

would not be felt as all funds would anyway flow through the budget. However till such

time, State would continue with this interim arrangement of accounting for such direct

releases in its budget and would request Accountant General to carry out these adjustments

to account for the transfers.

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Chapter 5

Expenditure Management

a) Trends in Government Expenditure

97. Expenditure priorities of the State Government can be evaluated by the outlays on general,

social and economic services. It is desirable that the outlays should be enhanced for social

and economic services because of the developmental impact while the expenditure on

general services should be moderated. Another indicator of quality of expenditure is the

share of plan expenditure out of the total expenditure. Further an increase in the proportion

of capital expenditure to total expenditure indicates more priority for asset creation rather

than current consumption expenditure.

98. The expenditure outlays on general, social and economic services for the current year and

past three years are shown in Table 15. Expenditure is further broken down into revenue,

capital and loan to give a better understanding of the nature of expenditure.

Table – 15

Expenditure on Services (Rs. In Crore)

Services 2009-10 2010-11 2011-12 2012-13

RE

General Services

Revenue 12762 14055 16445 21127

Capital 490 465 625 659

Loan - - - -

Total 13252 14520 17071 21786

Social Services

Revenue 19119 22108 25172 32762

Capital 2651 2617 2695 2926

Loan 805 1490 1546 732

Total 22575 26215 29413 36420

Economic Services

Revenue 13182 14892 19154 25041

Capital 8996 10273 12185 11292

Loan 176 248 269 830

Total 22354 25413 31608 37163

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`

99. The Government expenditure on various services over the last four years has been shown

above. The State has come a long way from the year 2003-04 when General services

expenditure was higher than social and economic services expenditure. However during the

last three years and the current year, while the share of General Services continues to

reduce as a percentage of GSDP, the rate of growth in social and economic services is almost

similar. During the current year, expenditure on economic services and social services

accounts for 39 per cent and 38 per cent of total expenditure respectively. During 2012-13,

State has substantially invested more in social sector than in the previous years. As per

Revised Estimates the growth of social sector expenditure has increased by almost 24 per

cent in 2012-13 over the previous year. This is primarily on account of higher expenditure in

critical sectors like education, medical and public health, welfare of SC/ST/OBCs,

expenditure on women and child welfare schemes. The higher investment in socio-economic

sectors is expected to improve the development indicators of the State.

b) Plan and Non Plan Expenditure:

100. The usefulness of Plan and Non-plan expenditure distinction has been widely debated.

Dr.Rangarajan Committee on Efficient Management of Public Expenditure (2011) had

recommended abolition of such distinction. It has been justifiably argued that the ‘outputs’

and ‘outcomes’ depend on the total expenditure and not merely on the plan outlays. State

on its part has taken steps to moderate the non-plan expenditure by imposing the

economy orders. But it has been clarified recently that such economy orders would not

apply to filling up of posts through promotion or if it entails filling up of a backlog post.

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101. The share of plan expenditure in total expenditure has also shown an increasing trend

continuously. From 37 per cent in FY08-09, it has improved to 41 per cent in 2012-13 (RE).

In addition to this, the share of capital expenditure in total expenditure has reached almost

16 per cent during the same period. Although there is improvement in terms of allocation

and also the quality of expenditure outlays, the major challenge before the State will be to

continuously focus on improving the outcomes of the expenditure so that the impact is

visible in improvement of Human Development Indicators (HDI) for the State and overall

socio-economic growth.

Development and Non-Development Expenditure:

102. Another way of classifying expenditure would be categorising it based on expenditure on

development and non-development schemes / programmes. Development Expenditure in

government parlance is the summation of expenditure on Social and Economic services,

while the expenditure on General services is treated as Non-Development expenditure.

This categorization is also a subject of debate. This is in view of the fact that items of

expenditure falling under the General Services are essential support services and thus

cannot strictly be treated as non-development expenditure.

103. While the notion of what development expenditure comprises of and what it does not

could be a subject of debate, the State classifies such expenditure based on the

classification available in Finance Accounts and thereafter as reflected in the RBI’s Study of

States’ Budgets. As per this classification, even as the Non Plan expenditure rises in

absolute terms every year, it is to be noted that the State’s development expenditure is

much more than the non-development expenditure. For RE12-13, the development

expenditure is more than 54 per cent of total expenditure. This is a healthy trend and

needs to be sustained throughout the MTFP 13-17 period.

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c) Sector wise Outlays:

104. The State Plan Size which is Rs.42030 crore in 2012-13 BE is projected to be around

Rs.42100 crore in revised estimates. However actual Plan Achievement is contingent on the

performance of the State PSEs and would be known only at the time of finalisation of

accounts for FY12-13. In order to provide adequately for all the major sectors of the State,

the outlays have increased across most of the sectors in BE13-14 over 2012-13 allocations

(RE). The outlays of some of the major developmental sectors for the last four years and

FY13-14 and corresponding growth over previous year are detailed in the Table 16.

Table - 16 Outlay under major development sectors

(Rs.in Crore) Years Agri & Horti Growth Rural Dev Growth Health Growth Education Growth

2009-10 1348 3362 1547 8576 2010-11 1659 23% 3580 6% 1941 25% 10998 28% 2011-12 2624 58% 5507 54% 2252 16% 12403 13% 2012-13

(RE) 3760 43% 8101 47% 2991 33% 15933 28%

2013-14 (BE)

4378 16% 8218 1% 4099 37% 18923 19%

d) Beneficiary oriented schemes & Subsidies:

105. State implements multitude of beneficiary oriented schemes whose allocations have

steadily increased over the years. These schemes being largely financial support based or

subsidy based schemes are revenue in nature. Any large allocations here impact the

revenue balance of the State. With the scope and ambit of these schemes increasing to

cover more and more beneficiaries, there are demands for allocations beyond what is

provided for in the budget, most of which have to be accommodated regularly in

Supplementary Estimates during the course of the year, affecting the overall revenue and

fiscal balance of the State.

106. The subsidies provided by State can be of two kinds. One where the State explicitly

provides for the expenditure in nature of subsidy or interest subvention for some scheme

of the government. The three largest explicit subsidy outgoes for the State are the power

subsidy provided for free supply of electricity to farmers for usage of agricultural

pumpsets, food subsidy and interest subsidy for concessional crop loan. Apart from the

explicit subsidy, State also provides financial assistance in the nature of subsidy but not

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specifically accounted as subsidy. The total quantum of explicit and implicit subsidy over

the years is listed at Table 17 below. The challenge lies in ensuring that these subsidies to

the tune of over Rs.14,800 crore do not become a permanent source of additional support

and thereby deter these sectors from undertaking reforms. Table 17 details the total year

wise quantum of subsidies included under the ambit of explicit and implicit subsides.

Table-17

Explicit and Implicit Subsidies

Type of Subsidy 2009-10 2010-11 2011-12 2012-13

RE 2013-14

BE Explicit Subsidy 4118 6303 7390 10379 12391

Implicit Subsidy 1153 1771 1897 2845 2414

Total Subsidy 5271 8074 9287 13224 14805

e) Resource Transfer to Local Bodies:

107. As per State Finance Commission’s recommendations, State is committed to transfer a

part of its Non Loan Net Own Revenue Receipts (NLNORR) to local bodies. Such

transfers to ULBs and PRIs have been consistently increasing as see in the following

graph. The State has accepted the recommendations of the Third State Finance

Commission’s recommendations with modifications to be applicable from FY 2011-12

to FY 2015-16. Total funds to be devolved to local bodies have been increased from the

current 40 per cent to 42 per cent of the Non Loan Net Own Revenue Receipts

(NLNORR) of the State. Out of this, 32 per cent of NLNORR would be assigned to

Panchayat Raj Institutions, inclusive of their salary expenditure and 10 per cent to

Urban Local Bodies (ULBs) from the present 8 per cent which would be achieved

gradually by the year 2014-15.

108. For the year 2012-13, the total budgeted transfers to ULBs were Rs. 4800 crore and to

PRIs were Rs.17849 crore. On an estimated NLNORR of Rs.53482 crore, the transfers to

ULBs stand at 9 per cent and transfers to PRIs at more than 33 per cent.

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f) Committed Expenditure

109. The State’s revenue expenditure growth is characterized by a large portion of it being

committed expenditure thereby leaving little room for manoeuvrability for furthering other

capital investments to meet the growing needs of social and economic infrastructure

required to steer the economy to greater economic heights. The State has been

increasingly relying on Public Private Partnerships (PPPs) to fill these investment gaps.

However, these infrastructure challenges remain large and require public investment to

encourage private investment to supplement. There is also increasing demand on the

public resources in the light of statutory legislations like Right to Education, Food Security

Act and Employment Guarantee measures. These emerging concerns necessitate a review

of the public resources as a whole to assess their allocative and technical efficiency.

110. Table 18 indicates the limited revenue space available with the State after accounting for

its committed expenditure needs.

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Table – 18

Table of Committed Expenditure as a ratio of Uncommitted Revenue Receipts

Sl. No Particulars 2011-12

A/c 2012-13

BE 2012-13

RE 2013-14

BE

1 Salary (State and District Sector) 11543 17671 17120 20843

2 Interest 6062 7500 6852 8500

3 Pension 5436 6980 7500 8500

4 Social Security Pension 2244 2318 2318 2334

5 Subsidy of which 9287 10240 13224 14805

a Explicit Subsidy 7390 7583 10379 12391

b Implicit Subsidy 1897 2657 2845 2414

6 GIA & Other Financial Assistance 5309 5507 6571 6295

7 Administrative Expenses 1029 1265 1454 2068

8 Devolution to Local Bodies 11246 14590 14364 17103

a ULBs 4344 5237 5011 6055

b PRIs(Non Salary) 6902 9353 9353 11048

9 Committed Expenditure (Total 1 to 8) 49912 63754 67085 78113

10 Revenue Receipts 69806 81461 84884 97986

11 Of which Tied Grants from Centre linked to specific schemes 7744 12784 14525 15918

12 Uncommitted Revenue Receipts (10 - 11) 62062 68677 70359 82068

13 Committed Expenditure as a % of Uncommitted Revenue Receipts (9/12)

80% 93% 95% 95%

111. As a ratio of the Uncommitted Revenue Receipts (URR), the Committed Expenditure (CE) has

been steadily increasing. The following graph highlights the aspect. In RE12-13 the CE:URR

ratio is as large as 95 per cent leaving hardly any scope for expenditure management on

the revenue side. Medium term corrections on the expenditure side are required to

moderate such committed expenditures as a percentage of uncommitted revenue receipts.

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g) Capital Expenditure to GSDP:

112. Since the State maintains adequate revenue surplus, it has additional resource to meet its

capital expenditure needs. Between 2008-09 & 2011-12 the capital expenditure to GSDP

ratio increased from 3.5 per cent to 4.0 per cent. Since during this period, Government of

India permitted State Government to incur fiscal deficit beyond 3 per cent of GSDP, this

additional borrowing space was used to push for more capital expenditure. However

during 2011-12, the fiscal deficit limit for the State was pegged back to 3 per cent of GSDP.

This explains the slight moderation in capital expenditure to GSDP ratio in 2011-12.

113. During 2012-13, capital expenditure has come down on account on higher revenue

expenditure and lower revenue surplus. The primary reasons for the increase in revenue

expenditure are the salary increase for State Government employees on account of pay

committee report and the outgo on account of cooperative crop loan waiver for farmers.

The reduced revenue surplus on this account meant that capital expenditure had to be met

largely out of capital receipts including borrowings which are regulated and permitted only

by GOI. However in future the State has to work towards raising its non-debt capital

receipts and reducing its consumptive revenue expenditure and thereby spend more on

creation of capital assets.

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h) Delegation of Fund release powers to Administrative Departments

114. With a view to improve the pace of implementation of schemes and thereby improve plan

expenditure, Finance Department has delegated powers of release of funds to concerned

Administrative Secretaries for the first two quarters of the Financial Year up to 50 per cent

of the budget provision for almost all the major schemes of departments (except for a few

schemes). With this the Plan expenditure of Rs.12025 crore incurred during April-

September 2012 accounted for 34 per cent of B.E 2012-13 and reflected a growth of 17 per

cent over the expenditure during the same period in the previous year. This achievement

of plan expenditure was much more than the five year average of 29 per cent. To further

give a fillip to speed up expenditure, Finance Department has delegated powers of release

to Administrative Secretaries even for the third quarter up to 75 per cent of the budget

provision. It is expected that this delegation would improve the pace of plan expenditure

incurred by Departments.

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Chapter 6

Public Finance Management & Systemic Reforms

115. After pursuing an expansionary fiscal policy to address the slowdown in the economy in the

aftermath of the global crisis, the challenge before the State government in the subsequent

years was to revert to the fiscal consolidation path. With the passing of the KFRA 2002 and

subsequent amendments, State has also committed itself to follow the fiscal consolidation

roadmap with clear timelines for achieving fiscal and debt indicators. The debt indicators

under Karnataka’s fiscal consolidation roadmap are in line with that prescribed by the

Thirteenth Finance Commission.

a) Overall Debt Scenario:

116. The Public Debt of State includes the Internal Debt and Loans and Advances from

Government of India. Internal Debt is further broken down into Market Borrowings, Loans

for Financial Institutions and Special securities issued to National Small Savings Fund (NSSF)

of Central Government. State has endeavoured to maintain its Gross Public Debt at

manageable levels as required under the debt management principles of KFRA. As seen in

earlier chapters of this document, Karnataka’s debt scenario has undergone significant

improvement since FY04-05 due to strict adherence to a time bound fiscal consolidation

roadmap. On key debt indicators, the State would meet its targets ahead of the timeline

indicated by Thirteenth Finance Commission. KFRA has also been amended to fix the ceiling

for the Total Liabilities as a percentage of GSDP up to FY14-15.

b) Composition of Debt:

117. The composition of Gross Public Debt for the year ending FY09-10 to FY12-13 may be seen

in shown in Table 19.

Table – 19

Composition of Gross Public Debt (Rs in Crore)

Type of Borrowing 2009-

10

% of Total debt

2010-11

% to Total debt

2011-12

% of Total debt

2012-13 RE

% of Total debt

Market Borrowings 23527 42% 24564 41% 32064 48% 43991 53% Loans from Financial Institutions 2343 4% 2762 5% 3353 5% 4103 5% Special Securities issued to National Small Savings Fund 19598 35% 21436 36% 21436 30% 21436 26%

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Table – 19

Composition of Gross Public Debt (Rs in Crore)

Type of Borrowing 2009-

10

% of Total debt

2010-11

% to Total debt

2011-12

% of Total debt

2012-13 RE

% of Total debt

(NSSF) GOI Loans 9902 18% 10515 18% 11782 17% 13751 17%

Total 55370 100% 59277 100% 68635 100% 83280 100% *Source: Finance Accounts for the FYs 2009-10, 2010-11, 2011-12 & for 2012-13RE as per 2013-14 BE

118. In recent years, the borrowing profile of the State has shown an increasing trend towards

more reliance on Open Market Borrowings (OMB), while share of NSSF loans has reduced

considerably. The Committee for comprehensive review of NSSF has recommended that

the mandatory component of investment of net small savings collections in State

Government Securities be reduced from 80 per cent to 50 per cent. Government of India

while accepting this recommendation has sought the States’ option of either 80 per cent or

50 per cent for the mandatory borrowing. In view of the higher cost of borrowing from

NSSF loans, State Government has opted for NSSF loans at 50 per cent share of net

collections during FY12-13. Hence the share of NSSF loans in borrowings is expected to

come down in the medium term.

c) Management of borrowings:

119. In any development oriented State, borrowings are essential to supplement the State’s

own resources. Apart from Open Market borrowings, others sources of borrowings include

GOI loans, NSSF loans, loans from Financial Institutions and from financing out of Public

Account. All borrowings of the State Government are with the permission of Government

of India under Article 293(3) of the Constitution of India. Permission by Government of

India for Open Market Borrowings is also accorded in phases taking into account other

available sources of borrowings. The onus is on the State to ensure that overall borrowings

of the State from all sources including the Public Account are kept within the Total

Liabilities to GSDP target fixed by the 13th Finance Commission. State is ahead on the debt

consolidation roadmap and has achieved its target much before the timeline indicated by

13th Finance Commission.

d) Maturity Profile of State Government Securities:

120. Since 2005-06, all issuances of State Development Loans (SDLs) have a maturity of ten

years. A significant shift in this trend took place in FY12-13 where the State strategically

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went in for issuances of SDLs of varying tenures. On RBI’s advice, State undertook to flatten

its redemption profile by spacing out the SDL maturity year, by floating short term bonds of

4 or 5 years tenure in addition to the regular 10 year SDL. State also explored the market

with both fresh issue and re-issue of earlier bond issuances. Much to the State’s advantage,

short term maturity issuances have led to availing funds at much lower interest rates with

a discount of close to 20-25 basis points over the 10 year SDLs of other States.

121. The State has also ensured that its borrowings are kept within the annual fiscal space

available. However during FY08-11, State was allowed to incur fiscal deficits in excess of 3

per cent. By ensuring that adequate revenue surplus was maintained, the State utilised a

larger part of this additional fiscal space during this period to borrow for meeting only its

capital expenditure. As a result, it is anticipated that repayment obligations would be

slightly on the higher side from FY2017-18 onwards.

122. As seen in the chart below, the maturity profile of the outstanding stock of SDLs as at the

end March 2012 shows that the majority were in the maturity bucket of 7 years and above

only reflecting that there are no short term redemption pressures on State’s resources.

Maturity profile of Outstanding State Government Securities

*Source: RBI’s State Finances- A study of Budgets of 2012-13

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e) Creation of Consolidated Sinking Fund (CSF)

123. Till recently, Karnataka was one of the few States in the country which had not yet set up

the CSF. RBI had been persistently advocating the need for creating a fund specifically to

provide cushion to meet its repayment obligations during times of fiscal stress and enables

market borrowing at reasonable cost. The CSF corpus has to be built out of annual

transfers from general sources of revenue from the budget. CSF corpus of the States is

thereafter invested in GOI Securities. Working Group of RBI has recommended that there is

a necessity for States to build up a minimum CSF corpus of 3-5 per cent of State liabilities

within the next five years and thereafter maintain it on a rolling basis. Karnataka’s Total

Outstanding Liabilities (TOL) had exceeded Rs. 1 lakh crore in FY11-12.

124. Hence State has decided to set up a Consolidated Sinking Fund and contribute 1 per cent of

the TOL i.e. Rs.1000 crore to this Fund by making provision in Supplementary Estimates – II

of FY12-13. In FY12-13, this entire expenditure would be met from the Fiscal Management

Fund (FMF). FMF was created in the Public Account of the State in the year 2007 to

discharge any large liabilities arising during the course of the year which could not be met

from that year’s budget; and this Fund was to be financed out of the General Revenues of

the State. In view of using FMF reserves for transfer to CSF, such transfer would be revenue

neutral in FY12-13. However in the future, annual contributions to CSF have to be out of

general revenues in that year.

f) Contingent Liabilities:

Off budget borrowings

125. Off budget borrowings (OBB) are borrowings availed by State agencies like Public Sector

Undertakings, Special Purpose Vehicles and other equivalent bodies with or without

Government Guarantee and where the specific liability for principal and interest

repayment on such borrowings is on the State Government. Thus the debt servicing for

these borrowings is through the budget. For ensuring transparent and rational accounting

of its debt liability, State Government considers its OBB as part of its own liabilities while

working out Total Outstanding Debt. The ratio of this total outstanding debt to GSDP is

closely monitored and kept within the 13th FC targets. During the FY12-13, State has taken

over the long term loan debt from KPTCL on to its account. The total loan outstanding was

Rs.1050 crore, of which PFC loan was Rs.750 crores and REC loan was Rs.271 crore. State is

expected to repay all the dues of KPTCL by 2016-17.

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126. State has also committed to not exceed the level of OBB as at the end of the financial year

2009-10 i.e. Rs.3249 crore. This self imposed ceiling by the State may require a relook in

view of large funding requirements of agencies like KBJNL and other such SPVs for

financing long gestation capital projects like Upper Krishna Project-III, Upper Bhadra and

Yethinahole projects.

Guarantees:

127. Government guarantees are contingent liabilities which the State has to take onto its books

in case of default by any borrower covered by guarantee and if the guarantee is invoked by

the lender. The Karnataka Ceiling of Government Guarantee Act (KCGGA), 1999 provides

for a cap on outstanding guarantees extended by the Government as at the end of any year

at 80 per cent of the State’s revenue receipts of the second preceding year. The

outstanding guarantees at the end of all financial years between 2008 & 2011 have all been

within the prescribed limit as seen at Table-20.

Table - 20

Government Guarantees (Rs in Crore)

Parameter 2008-09 2009-10 2010-11 2011-12 Maximum amount guaranteed 18.732 18,420 19,150 13,262 Outstanding amount of guarantees (including interest) 8,693 7,203 6,618 6,640 Percentage of outstanding amount guaranteed to total

revenue receipts of the second preceding year 23% 18% 15% 14%

128. Since guarantees result in increase in contingent liability they should be examined in the

same manner as a proposal for a loan, taking into account, inter alia, the credit-worthiness

of the borrower, the amount and risks sought to be covered by a sovereign guarantee, the

terms of the borrowing, the justification and public purpose to be served, probabilities that

various commitments will become due and possible costs of such liabilities, etc. Presently

there is no Government Guarantee Policy in place to guide departments while

recommending for such guarantees. Hence it is desirable to evolve a State Government

Guarantee Policy on lines of that brought out by Government of India.

g) Cash Management:

129. Cash management is an integral part of the public finance management. The cash balance

of the State is maintained by Central Accounts Section (CAS) of RBI in Nagpur. State has not

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availed of any Special Ways and Means Advances (SWMA) or Normal Ways and Means

Advances (NWMA) from RBI since the year 2007-08. Even in the current year, there may

not be any necessity to operate SWMA / NWMA due to reasonably comfortable cash

position. Presently cash surpluses above the minimum prescribed limit by RBI are

automatically invested in Government of India 14-day Treasury Bills. However these have

very low yields varying from 5-6 per cent. Hence as advised by RBI and recommended by

13th Finance Commission and the C&AG of India, additional cash balance available over and

above anticipated requirement, is not kept idle and is being invested in 91 day Government

of India Treasury Bills.

130. However it is acknowledged that efforts need to go in for better forecasting of exact

requirement of funds and timely release of funds so as to maintain prudent level of cash

balance. The State would work towards having in place a real time cash flow estimation

model based on the advice and guidance of RBI.

Adoption of Advance Indicative Calendar for borrowings

131. Based on RBI’s request, State has been estimating the timing of its Open Market Borrowing

by communicating an advance indicative calendar for borrowings. This enables the market

to arrange for funds in advance while subscribing to SDLs. State in turn gets the benefit of

better interest rates. There is also a review of borrowing requirement after the 2nd and 3rd

quarter of any financial year to re-assess the exact requirement of funds. If it necessitates,

State has been drawing down on its cash balance rather than borrowing more.

h) Public Disclosure of Fiscal Situation on Quarterly basis

132. State is committed to transparency in its disclosures on fiscal situation. Information on

fiscal situation is being hosted on the official website of Finance Department

www.kar.nic.in/finance on a quarterly basis.

i) Systemic Reforms

National Pension System (NPS)

133. Government of Karnataka has introduced the New Pension System (now renamed as

National Pension System – NPS) for all State Government employees joining government

service on or after 01.04.2006. The scheme was operationalised fully from 29.03.2010. A

dedicated NPS Cell was created under Directorate of Treasuries (DoT) to implement and

operationalise NPS in the State. State Government has adopted NPS architecture designed

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by Pension Fund Regulatory and Development Authority (PFRDA) and has appointed NSDL

as the Central Record Keeping Agency (CRA) for NPS. Bank of India is the Trustee Bank in

charge of pension funds. NPS Trust oversees the investment of pension funds by Pension

Fund Managers (PFMs) SBI, UTI & LIC so as to ensure that the subscriber employee gets the

best returns on his or her investment. The security of investment of pension corpus is also

given primacy by mandating that 85 per cent of corpus is investment in bonds and fixed

maturity investments.

134. While employees were given an option to pay their backlog either in lumpsum outside

salary or in multiple installments through salary deductions, State Government paid its

backlog contribution at one shot with 8 per cent interest. As on May 2013, 1.22 lakh State

Government employees are registered under NPS with CRA and have been allotted

Permanent Retirement Account numbers (PRANs). Government has paid Rs.154 crore as its

backlog contribution and Rs.407 crore as its matching regular contribution.

Reforms in Stamps and Registration Department:

135. State has been taking steps to ensure that reforms are pushed through in the Stamps and

Registration Department which is one of the major revenue earners for the Government.

Following initiatives have been taken up by the Stamps and Registration Department:

i) Online booking of Appointments for Registration of Documents / Marriage / Partnership

Firms / Societies along with provision for capturing of pre-registration data from citizens

through the portal to avoid data entry errors and reduce the registration time.

ii) E-Payment facility to citizens for Stamp Duty and other fees through online payment

gateway.

iii) Electronic transmission of J-forms to BHOOMI (Record of Rights software) to avoid delay

and errors in manual transmission. Details such as Survey No., extent of the land and name

of the seller captured from BHOOMI in KAVERI (Registration software) during registration

to avoid duplicate and fraudulent transactions.

iv) Kaveri integrated with SAKALA (Citizen Services Delivery Act) for ‘Document Registration’

service to ensure service delivery to citizens within guaranteed time period of one working

day. Issue of ‘Encumbrance Certificate’ (where computerized data is available post

1/04/2004) within guaranteed time period of two working days.

v) Online Grievance Redressal System for citizens to record complaints and track the

progress.

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vi) Integration with Urban Local Bodies, Gram Panchayats and Mojani (Survey software) to

prevent duplicate and fraudulent transactions.

E-governance initiatives of Commercial Taxes Department:

136. The Commercial Taxes Department has adopted several innovative e-governance initiatives

during the past few years for providing convenience to tax payers and thereby improving

tax compliance. The prominent among these are as follows:

(i) Facility for applying for Registration online.

(ii) Facility of filing VAT returns electronically online.

(iii) Facility for making electronic payment of taxes and reconciliation of such payments.

(iv) Facility of declaring electronically details of goods movement from and to the State

online.

(v) Facility of declaring electronically details of transit of goods through the State online.

(vi) Facility of filing of Profession Tax returns through internet.

137. In addition to the above, during this financial year, the following initiatives have been put

in place to further strengthen internal control mechanism to ensure effective and

transparent tax administration.

i. e-CAS (Comprehensive Audit System):

This provides for electronic trail of all the stages of audit of self assessments made by the

dealer right from the stage of allotment of returns for scrutiny to other stages like

assignment of cases for audit, passing of final assessment orders by the audit officers & the

outcome of any appeal filed against such orders. The audit officers are required to keep log

of each stage on the system, upload orders for which unique numbers are generated to bring

total accountability and make the entire process tamper proof.

ii. e-DCB (Demand, Collection and Balance) module:

This facility ensures correct and prompt recording of demands raised in each case, its

collection and balance so that it could be monitored for timely revenue realization.

iii. e-Enforcement module:

This enables correct recording of the functions carried out by the enforcement officers and

monitors the outcome to bring in accountability of the process.

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iv. e-Grievance Redressal system:

This enables registered dealer to raise grievances electronically and track the status of their

redressal.

v. e-GRAHAK:

This enables a citizen to complain or provide information to the Commercial Taxes Department

about tax evasion by a dealer through SMS and online track the status of action taken.

vi. Facility of Automatic generation of ‘C’ form:

The dealers have been now enabled to download CST forms electronically after furnishing

relevant information without the need of the approval of any departmental authority. By

this there is no scope for any delay and there is total transparency in service delivery.

vii. Facility for electronic Payment of other taxes:

Tax payers under Luxury Tax, Entertainment Tax and Betting Tax Acts will also now be given

the facility of electronic payment of taxes so as to reduce their cost of compliance and

reduce mistakes in reconciliation of payments made through other modes.

viii. Facility of electronic Returns and other taxes:

Luxury Tax and Entertainment Tax payers are also now in the process of being provided

facility of filing the returns electronically.

Implementation of Expenditure Reforms Commission (ERC) recommendations:

138. The Expenditure Reforms Commission was constituted by the State Government in 2009.

The Commission submitted its report in four volumes along with summary of

recommendations containing gist of 292 recommendations. Of the 292 recommendations

214 are on 17 Selected Departments, 15 were common to all departments and 63 are

recommendations on Generic issues. The State Government has by and large accepted a

number of recommendations made in the reports. Many of them have been implemented;

some are under consideration of the Government while a few departments are in the

process of implementing the remaining recommendations. Status of implementation of

various recommendations is as listed below:

Horticulture Department has commenced transferring Cash Subsidies through ECS.

In Social Welfare Department the scholarship schemes are being implemented on an online

system and transfer of money is through electronic means.

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Impact analysis is being conducted by Planning Department through ISEC and ISST regarding

the “Monograph on Status of Women”.

Regular review meetings of progress under Karnataka Mahila Abhivriddhi Yojane (KMAY) for

254 schemes of 25 departments are being conducted by Women & Child Development

Department and Gender Budget Cell of Finance Department.

Sunset clauses have been introduced in some projects in Infrastructure Development

Department. For eg. Airport projects have a completion time of 24 months from the date of

signing of PDA with the developer.

To ensure transparency and achieve economy in procurements e-procurement has been

introduced in all departments with effect from 3-12-2012 by the e-Governance Department.

In Public Works Department Section 19-A (1) of the Karnataka Highways Act 1964 has been

amended to empower the State Government to collect the Toll on roads developed under

annuity schemes. There is a provision for collection of toll on roads and bridges in the

Karnataka Highways Act-1964. Accordingly, the toll fixation for various categories of vehicles

has been done in line with the National Toll Policy. After a number of roads come under toll

system, the proposal for setting up a “State Road Regulatory Authority” can be taken up for

consideration.

KRDCL is now taking up the projects on BOT, DBOT, Annuity, PPP etc; and even the

maintenance of the roads already developed is being considered on Operate, Maintain and

Transfer (OMT) basis.

The social auditing of different schemes identified by the Planning Department is taken up

every year. Independent Directorate of Social Audit has been established.

The Karnataka State Evaluation Policy and Karnataka Evaluation Authority have been

constituted in July 2011 to streamline and support the internal evaluations of the line

Departments. So far about 10 studies have been given technical support and they are at

various stages of progress. KEA also takes up external evaluation of some of the flagship

programmes of the Government in consultation with the line Department concerned. So far

3 such external evaluations (Secondary Education Sector, NRHM, JnNURM) were taken up

and the first one is completed. In addition, KEA also supports compilation of District and

State Human Development Reports of the Planning Department.

Global Positioning System is contemplated under MGNREGS for identification of works in the

Gram panchayats. Biometric system is also introduced in 7 districts of Karnataka State on

Pilot basis for payment of wages to the labourers at door step through smart cards. The

project taken up in 7 districts is called as EBT (Electronic Benefit Transfer) project.

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e-Procurement:

139. The State Government has ushered in 100% transparency in procurement through

implementation of e-Procurement project. The project started with 6 departments in

2007, now encompasses 227 departments and organisations and in the last 4 years

procurements worth Rs.1,61,300 Crore have been made using this platform. Use of the

platform has increased the bidder participation by 2-5 times and has resulted in average

reduction of about 10 per cent in the bid amount leading to savings to the departments.

This platform is currently being used by 33,000 suppliers and contractors. Considering the

impact of the platform in ushering transparency and savings to Government, the

Government of Karnataka has made it mandatory for all its departments and organisations

to procure goods and services and undertake construction works exceeding Rs.5 lakh on

the e-Procurement portal.

Karnataka Resident Data Hub (KRDH) and UID Enabling Service Delivery

140. Improving efficiency in service delivery has been a key aim of the Government. In order to

do this, the State Government is setting up the KRDH, which is a repository of the UID of all

the residents of Karnataka linked to the various Government services being availed by

them. The Government has started the UID based delivery of services through seeding of

Aadhaar numbers into nearly 15 services offered by Government in the districts of Mysore,

Tumkur and Dharwad. This will enable the Government to prevent the pilferages in the

system and ensure better targeting of benefits to residents of Karnataka.

Khajane II

141. Khajane II is a comprehensive Integrated Financial Management System (IFMS), a

computerization project of the Finance Department, which is an advanced and expanded

initiative to replace the present “Khajane” the treasury automation application. With the

idea of overcoming the constraints in the present system and envisioning wider reach in

terms of functionality, user access and turnaround results the system is intended to bring

in groundbreaking practices in financial management of Government. It is envisioned that

this system will improve efficiency, and help the users particularly decision making entities

make effective, transparent and accountable and informed financial decisions.

142. This single platform of financial comprehensiveness on which all players within

Government and its stakeholders will perform their financial business will result in a total

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view of the finance inflow and outflow of the Government, on a near real-time basis. With

such reliable and ready information availability, there would be an impact on the quality

and speed in implementation of Government policies that will in turn make responsive

governance a reality. Departmental Heads will be aware of the trend of the scheme

implementation and this assured knowledge of the financial status of each scheme would

give them the flexibility not only to monitor effectively, but will allow them room for

juggling their finances to achieve best results.

143. To achieve the above, the project is architectured to have an online system of release of

funds, preparation of bills, and have customized MIS of expenditure incurred along with

trending facilities and calculate the cash balance position. From the citizen’s perspective,

the benefits would be 90% payments through electronic mode, facility to pay Government

taxes, fees & fines online, a centralized pension payment facility and routing public

grievances online with status updates to their e-mail ids, and mobile phones.

144. The project awarded to M/s. Tata Consultancy Limited as a conclusion to a three stage

tendering process includes, application development, hardware deployment and

maintenance for a period of 7 years. The total cost of the project that includes civil

infrastructure up-gradation of 218 treasuries, and project related cost inclusive of TPA fee,

consultancy fee and Project Monitoring Unit expenses is Rs.91 crore. The system

requirement solution documents are being written for 12 of the 24 modules that relate to

core treasury activities. Meetings and discussions with the external stakeholders on the

modalities and technical feasibility of integration have reached an advanced stage.

145. Provision for a Third Party Auditor (TPA) to test the system and ensure that it meets the

technical and functional requirements as detailed in the RFP is made. M/s. KPMG has been

appointed the TPA. Expert Team from IITB, Bangalore has also been involved to the assist

the TPA. It is expected that the pilot rollout will be during the end of 2013.

Results Framework Document (RFD) – An approach to Outcome Based Monitoring

146. Since achievement of departmental outcomes is the objective of allocation of resources,

there needs to be some kind of institutionalised systematic monitoring mechanism. The

structured Results Framework Document, in six sections, interalia indicates departmental

weighted priorities in pursuit of the stated objectives, and lists out the activities to be

undertaken during the year as per the mandate flowing from budgetary allocations, annual

plan priorities and business allocated to the department. The end of the year performance

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using RFD is measured against verifiable indicators, as defined by the department at the

beginning of the year. Unlike the conventional monitoring systems, such indicators are

validated by teams of independent experts and other non-government stakeholders for

enhanced credibility. The involvement of such experts is intended to prevent likely bias on

the part of departments in favour of overdesigning or under designing of the success

indicators.

147. Karnataka is among the few states to start the outcome based monitoring through the

Result Framework Document. The Ad-hoc Task Forces set up by the State Government

have already evaluated the performance of the departments for 2011-12 and 2012-13 and

also fixed the target for 2013-14 after due deliberations with administrative departments.

The RFD design captures and reflects not only the quantifiable success indicators, but also

the constraints in inter-departmental coordination for successful implementation of

department mandate. Further the RFD also discloses medium term indicators, which if

internalised would reflect the expenditure priorities within a department over a period of

following two years. This is an important step towards ensuring that the public money is

spent on-time and on the stated priorities and also making the departments accountable as

per their vision and mission. Going forward the aggregated values from RFDs have

potential to be used as an indicator for future expenditure priorities and enable

synchronization of the same with the MTFP.

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Chapter 7

Medium Term Fiscal Plan Projections 2013-17

a) Brief assessment of sustainability of certain fiscal parameters

148. Section 3(3) of KFRA, 2002 mandates that in particular the MTFP shall include an

assessment of sustainability relating to –

i) The balance between revenue receipts and revenue expenditures

ii) The use of capital receipts including borrowings for generating productive assets

149. The State has continuously maintained a revenue surplus since FY04-05 as brought out

earlier in this document. This meant that all current and consumptive expenditure has

been met well within the revenue receipts of the State. As a result, the revenue surplus has

been fully available to meet capital expenditure needs of the State.

150. Since MTFP requires that sustainability of revenue surplus and use of capital receipts for

generating productive assets have to be brought out, these two aspects are discussed

below:

b) The balance between Revenue Receipts and Revenue Expenditures

151. State has always maintained fiscal prudence as one of its policy goals. It is to the credit of

the State that even during the economic slowdown period (FY08-10), revenue surplus was

continuously maintained. Despite the short term stress on the revenue balance on account

of salary and pension expenditure increase, the State continues to maintain revenue

surplus in FY13-17. For the FY13-14, one major item of revenue stress would be to finance

the balance commitment under cooperative crop loan waiver. Apart from this, there are

large non plan requirements and subsidy schemes which require enhanced allocations for

the ensuing three years. The high percentage of committed revenue expenditure to

uncommitted revenue receipts reveals that the State has limited flexibility in allocation of

its resources. Hence the need of the hour is expenditure rationalisation. By weeding out

non-essential schemes, limiting non-development revenue expenditure and streamlining

revenue collections, the State hopes to build up adequate revenue surplus for use in capital

formation and productive expenditure for FY 13-14 and the ensuing three years.

152. The pay and pension revision impact, cooperative crop loan waiver and other Non plan

revenue schemes including the enhanced Food, Milk and Housing subsidy requirement

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during FY13-14 and thereafter would also require better targeting of beneficiaries and

effective delivery systems to reduce leakages. Thereafter it needs to be coupled with

judicious use of the balance resources available for financing State Plan during the 12th FYP

period through re-prioritisation of expenditure towards essential sectors. Hence in view of

this, while the revenue receipts growth in the medium term is estimated to be steady, the

State through expenditure rationalisation would maintain the adequate Revenue Surplus

required under KFRA (as seen in the following graph).

c) The use of Capital Receipts including borrowings for generating productive assets

153. Capital receipts on the one hand includes non-debt capital receipts like revenue earned

from sale of government assets, recoveries of loans and advances etc and on the other

includes borrowings under Public Debt. Since adequate revenue surpluses have been

estimated for future years, it may be noted that the capital expenditure is being financed

by both capital receipts and such revenue surpluses. Following graph shows the

expenditure on Capital Outlay by using both the Capital Receipts (including borrowings)

and revenue surplus.

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154. The sustainability of higher expenditure on capital outlay out of both revenue surplus and

net capital receipts available for expenditure on capital assets is possible subject to

streamlining and cutting down of wasteful expenditure as mentioned earlier. Any balance

revenue receipts for the year after meeting all revenue expenditure and repayment of

loans and advances, is directly available for provisioning as Capital Outlay.

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Table - B Medium Term Fiscal Plan Projections 2013-17

(Rs in Crore)

Particulars 2011-12 Ac

2012-13 BE

2012-13 RE

2013-14 BE

2014-15 Proj.

2015-16 Proj.

2016-17 Proj

1 Revenue Receipts 69806 81461 84884 97986 113413 130513 150275

of which (i) State Own Tax Revenues 46476 51821 53492 62464 72920 84727 98463

(ii) Non Tax Revenues 4087 3193 3796 4038 4339 4620 4925

(iii) Resources from the centre of which - Devolution 11075 13094 12500 15056 17239 19739 22602

- Grants 8168 13354 15095 16428 18914 21427 24285

2 Revenue Expenditure 65115 80530 83941 97391 108898 121656 136610

of which (i) Interest 6062 7500 6852 8500 9430 10495 11714

(ii) Salaries 11543 18299 17120 20843 24363 27150 30269

(iii) Pensions 5436 6980 7500 8500 9702 11127 12789

(iv) Subsidies(Food, Transport 2120 2484 4029 7141 7892 8891 9850

Housing,Industry & Others) (v) Power Subsidy 5307 5100 6350 5250 5880 6762 7776

(vi) Devolution to ULBs 4344 5237 5011 6055 7068 8213 9544

(vii) O & M of which

- Major O&M (Roads, Buildings & Irrigation)

791 556 581 657 756 831 914

- Other O&M (Edn,Health, RD,WS,Agr, Forest)

7292 10621 10715 13127 14440 15884 17472

(viii) Administrative Expenditure 1011 1251 1331 2068 2223 2445 2690

(ix) Other Revenue Expenditure 21208 22502 24452 25251 27144 29859 33591

3 Revenue Surplus 4691 931 943 596 4515 8857 13665

4 Capital Receipt (Non Debt) 330 299 257 335 351 369 387

5 Capital Expenditure 17321 16542 16439 18380 25533 32889 41144

6 Fiscal Deficit 12300 15312 15239 17449 20666 23663 27092

7 Outstanding Debt 103030 114745 114401 132829 153495 177158 204250

8 Debt Services 9382 11170 10496 12340 13654 15142 16826

9 Off Budget Borrowings 3249 3249 3249 3249 3249 3249 3249

10 Guarantee Stock 6640 9500 9500 9800 10290 10805 11345

11 Total Liabilities 106279 117994 117650 136078 156744 180407 207499

12 GSDP at current prices 434270 520766 520766 601633 688870 788767 903053

13 Annual Inflation 5.0% 6.5% 8.0% 7.5% 7.5% 7.0% 5.5%

14 GSDP Real Growth Rate 8.0% 7.5% 6.0% 6.5% 6.5% 7.0% 8.5%

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Table - B Medium Term Fiscal Plan Projections 2013-17

(in Percentage)

Particulars 2011-12 Ac

2012-13 BE

2012-13 RE

2013-14 BE

2014-15 Proj.

2015-16 Proj.

2016-17 Proj

ALL THE ITEMS AS PERCENTAGE OF GSDP

1 Revenue Receipts 16.07 15.64 16.30 16.29 16.46 16.55 16.64

of which

(i) State Own Tax Revenues 10.70 9.95 10.27 10.38 10.59 10.74 10.90

(ii) Non Tax Revenues 0.94 0.61 0.73 0.67 0.63 0.59 0.55

(iii) Resources from the centre

of which

- Devolution 2.55 2.51 2.40 2.50 2.50 2.50 2.50

- Grants 1.88 2.56 2.90 2.73 2.75 2.72 2.69

2 Revenue Expenditure 14.99 15.46 16.12 16.19 15.81 15.42 15.13

of which

(i) Interest 1.40 1.44 1.32 1.41 1.37 1.33 1.30

(ii) Salaries 2.66 3.51 3.29 3.46 3.54 3.44 3.35

(iii) Pensions 1.25 1.34 1.44 1.41 1.41 1.41 1.42

(iv) Subsidies(Food, Transport 0.49 0.48 0.77 1.19 1.15 1.13 1.09

Housing,Industry & Others)

(v) Power Subsidy 1.22 0.98 1.22 0.87 0.85 0.86 0.86

(vi) Devolution to ULBs 1.00 1.01 0.96 1.01 1.03 1.04 1.06

(vii) O & M

of which

- Major O&M (Roads, Buildings & Irrigation)

0.18 0.11 0.11 0.11 0.11 0.11 0.10

- Other O&M (Edn,Health, RD,WS,Agr, Forest)

1.68 2.04 2.06 2.18 2.10 2.01 1.93

(viii) Administrative Expenditure 0.23 0.24 0.26 0.34 0.32 0.31 0.30

(ix) Other Revenue Expenditure 4.88 4.32 4.70 4.20 3.94 3.79 3.72

3 Revenue Surplus 1.08 0.18 0.18 0.10 0.66 1.12 1.51

4 Capital Receipt (Non Debt) 0.08 0.06 0.05 0.06 0.05 0.05 0.04

5 Capital Expenditure 3.99 3.18 3.16 3.06 3.71 4.17 4.56

6 Fiscal Deficit 2.83 2.94 2.93 2.90 3.00 3.00 3.00

7 Outstanding Debt 23.72 22.03 21.94 22.08 22.28 22.46 22.62

8 Debt Services 2.16 2.14 2.02 2.05 1.98 1.92 1.86

9 Off Budget Borrowings 0.75 0.62 0.62 0.54 0.47 0.41 0.36

10 Guarantee Stock 1.53 1.82 1.82 1.63 1.49 1.37 1.26

11 Total Liabilities 24.47 22.66 22.56 22.62 22.75 22.87 22.98

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The underlying assumptions for the projections made for the

Medium Term Fiscal Plan 2013-17:

Revenue Receipts

155. With the existing ratio State Own Tax Revenues (SOTR) to GSDP ratio of 10.38 percent in

2013-14 BE, the SOTR to GSDP is projected to be 10.59 percent, 10.74 percent and 10.90

percent overall for 2014-15, 2015-16 and 2016-17. The above translates into a year on year

growth rate of 16.74 percent, 16.19 percent and 16.21 percent for the years 2014-15,

2015-16 and 2016-17.

156. The Non Tax Receipts as a percentage of GSDP are projected to grow at a much lower

average rate of around 6.84 percent.

157. The devolution from the Centre is projected to grow at the rate of growth of Nominal GSDP

i.e 14.50 percent for years 2014-15, 2015-16 and 2016-17.

158. The Grants from the Centre are projected to grow at an average 13.92 percent for the

projected years.

Revenue Expenditure

159. The Interest Expenditure is projected to grow in accordance with the fiscal deficit incurred

for each year. To arrive at the interest expense average cost of funds at 11 per cent has

been assumed.

160. The expenditure towards salaries and expenditure and pensions are projected to grow at a

rate of 13 per cent for percent for the projected years.

161. The Expenditure on Subsidies (food, transport, housing and industry, others) are projected

to grow at rate of 7.5 percent for 2014-15 and 12.66 percent for 2015-16 and 10.78

percent for 2016-17.

162. Expenditure for power subsidies are projected to grow at an average rate of 14 percent

every year.

163. The devolution to Urban Local Bodies is projected to grow at the same rate as growth of

taxes keeping in mind the recommendations of the 3rd State Finance Commission.

164. Expenditure for Major O&M (Roads, Buildings and Irrigation) is projected to grow at rate of

15 percent for year 2014-15, 10 percent for year 2015-16 and 2016-17.

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165. The Expenditure for Other O&M (Education, Health, Rural Development, Water Supply,

Agriculture, Forest) is projected to grow at 10 percent every year for years 2014-15,

2015-16 and 2016-17.

166. The Administrative Expenditure and other revenue expenditure is projected to grow at rate

of 7.5 percent for the year 2014-15 and 10 per cent for 2015-16 and 2016-17.

167. The other revenue expenditure is projected to grow at the rate of 7.5 percent for the year

2014-15, 10 percent for 2015-16 and 12.5 percent for 2016-17.

Capital Receipts and Borrowings

168. The Non Debt Capital Receipts have been is projected to grow at the rate of 5 percent for

the years 2014-15, 2015-16 and 2016-17.

169. Full fiscal space of 3 per cent of GSDP has been adopted for the borrowings for the projected

years.

Inflation and GSDP

170. Inflation rate has been projected at 7.5 per cent for FY13-14 and 2014-15, 7 per cent in

2015-16 and 5.5 per cent in 2016-17.

171. The Nominal GSDP is projected to grow at rate of 14.5 per cent every year for 2014-15,

2015-16 and 2016-17, based on the estimates of the Thirteenth Finance Commission.

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Disclosures as required under Sec 5(2)(c) of KFRA

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Statement – 1

Tax Expenditure/ Revenue Foregone under Deferment of Purchase Tax on Sugarcane pertaining to FY 11-12 & FY12-13

(in Rs. lakhs)

Sl. No. Name of the Sugar Unit

Value of Exemption/ Concession in FY 11-12

Value of Exemption/ Concession in FY 12-13

Remarks

1 2 3 4 5 DVO, Belgaum:

1 Krishna SSKN, Athani, Belgaum Dist 140.00 - Interest free loan

2 Venkateshwar Power Project Bedakihal, Chikodi Taluk, Belgaum Dist

149.00 - Interest free loan

3 Satish Sugars, Hunashyal Tal. Gokak Dist, Belgaum 568.00 557.51 Interest free loan

4 Shivashakti Sugars Ltd., Soundatti, Tal: Raibag, Dist: Belgaum - 172.02 Interest free loan

5 Dyanayogi Shree Shivakumar Swamiji Sugars Factory, Hirebevanur 231.00 168.44 Interest free loan

6 Godavari Bio-refinaries Sugar Factory Ltd., Sameerwadi 463.00 120.99 Interest free loan

7 Nirani Sugars Ltd., Mudhol 660.00 541.09 Interest free loan

8 Vishwanath Sugars Ltd., B.Bagawadi Tal: Hukkeri - 343.14 Interest free loan

9 Shiraguppa Sugar Works Ltd., Kagawai - 141.27 Interest free loan

10 KPR Sugars Ltd. - 331.69 Interest free loan DVO, Gulbarga:

1 Mahatma Gandhi Sahakari Sakkare Karkhane (N) Bhalki, Dist: Bidar 238.00 238.50 Interest free loan

DVO-1, Bangalore: 1 Gem Sugars Ltd. - 294.58 Interest free loan 2 NSL Sugars Ltd. - 870.51 Interest free loan

TOTAL 2449.00 3779.74

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Statement 1-A

Information on Tax Expenditure/Revenue Foregone by exemption or deferment of Value Added Tax (VAT), Central Sales Tax (CST) and Entry Tax (KTEG)

pertaining to FY 2012-13 (in Rs. lakhs)

Div. No

Sl. No Name and address of the industry with TIN

Amount

Remarks

1 2 3 4 5

I DVO-1 Bangalore - II DVO-2 Bangalore -

1 Toyota Kirloskar Motors Pvt, Ltd, Bidadi, Ramanagar Dist. 29430074805

412.14 VAT Exemption 71.83 KTEG Exemption

27824.33 CST deferment 21298.83 VAT Deferment

III DVO-3, Bangalore - IV DVO-4, Bangalore - V DVO-5 Bangalore

1 Bysani Rice Mill Gowribidanur 29240068265 0.34 KTEG Exemption

2 Tiger Stones, Vedalaveni 1.24 KTEG Exemption

VI DVO-6, Bangalore

1 Vigneswara Granites, Tumkur 29740087681 1.36 KTEG Exemption

2 Vahini Irrigation Private Ltd.,Tumkur 29210053392 24.00 KTEG Exemption

3 Surabhi Polymers, Tumkur 29100890223 0.09 KTEG Exemption

4

Lakshminarayana Granite Industries, Tumkur 29330279821 0.14

KTEG Exemption

5 Balaji Enterprises, Tumkur 29720461336 KTEG Exemption

6 Raju Enterprises, Tumkur 29440086779 0.11 KTEG Exemption

7 Best & Young Engg. Pvt. Ltd., Tumkur 2966020331 0.06 KTEG Exemption

8 Kern Liebers Springs, Tumkur 29780496611 0.30 KTEG Exemption

9

Sri Siddalingeswara Foods and Beverages, Tumkur 29750602115 0.35

KTEG Exemption

10 Filcom, Tumkur 29330219875 0.25 KTEG Exemption

11 Sri Lakhminarayana Rice Mill, Tumkur 29750129046 0.09 KTEG Exemption

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Div. No

Sl. No Name and address of the industry with TIN

Amount

Remarks

1 2 3 4 5

12 Jai Matha Rice Industries, Tumkur 29950600065 0.12 KTEG Exemption

13 Swetha Clay Products, Tumkur 29960560532 0.11 KTEG Exemption

14 Rithesh Industries, Tumkur 29280642580 0.10 KTEG Exemption

15 Sree Vinayaka Industries, Tumkur 29120102475 0.35 KTEG Exemption

16 Srihari Packaging, Tumkur 29760677721 0.25 KTEG Exemption

17 Sri Kannika Rice Industries, Tumkur 29530751131 0.42 KTEG Exemption

18 Siporex India Pvt. Ltd., Tumkur 0.20 KTEG Exemption

19 Regon Rolling Mill, Tumkur 0.22 KTEG Exemption

20 Bhavani Offset Printers, Tumkur 0.21 KTEG Exemption

VII DVO, Mysore

1 J.K.Tyres and Industries Ltd, KRS Road, Metagalli,

Mysore 29140116820 782.46 VAT Deferment

2

Precitec, Pura Village, S.R.Patna Tq, Mandya Dist.299800615423

3.95 KTEG exemption

3

Sri Kalle Gowda Rice Mill, Kallahalli, Mandya Dist. 29950022042

20.20

KTEG exemption

4 Sri Ganesh Gears (p) Ltd., Belagola Industrial Area , Mysore 2.61

KTEG exemption

5 A.S. Rice Industries, Chowhalli T. Narasipura Tq. 29030610853 4.03

KTEG exemption

6 Veekesy Sandals (India) Pvt. Ltd., Kallahally, Nanjangud Tq. 29290847487 10.91

KTEG exemption

VIII DVO, Shimoga 1 Shanthala Ferrocast ,Shimoga 29940000465 0.52 KTEG exemption

2 Annapoorneshwari Alloy Castings Pvt Ltd, Shimoga 29480570690 0.20 KTEG exemption

3 Focus Diacast Pvt Ltd, Shimoga 29790791836 1.55 KTEG exemption

4 C.M. Hydrosystem Project Ltd, Shimoga 29510802261 0.06 KTEG exemption

5 Pragathi Steel Castings Pvt Ltd, Shimoga 2912000431 2.06 KTEG exemption

6 Vijay Technocrats Pvt Ltd , Shomoga 29200012706 1.00 KTEG exemption

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Div. No

Sl. No Name and address of the industry with TIN

Amount

Remarks

1 2 3 4 5 11.87 VAT deferment

7 Shimoga Piston Rings, Shimoga 29380016487 2.93 VAT deferment

8 Santhosh Enterprises, Anandapuram , Sagar Taluk 29320013125 0.50 KTEG exemption

9 Chandan Granites, Hassan 29390621907 0.04 KTEG exemption

10 Asin Granites, H.P Pura, Hassan TIN 29530661794 0.16 KTEG exemption

11 Manish Trade Links, Mallikere Village, Arakalgud Tq. 29530667129 0.35 KTEG exemption

12 Srivema, H.N pura Road, Hassan 2903065436 0.18 KTEG exemption

13 Rushi Décor Ltd., Amble, Chikmagalur 29650587620 0.09 KTEG exemption

IX DVO, Dharwad

1 West Coast Paper Mills Ltd, Dandeli, Uttara Kannada

29380045781 1590.72 CST deferment 1340.49 VAT deferment

2 M/s N.B. Hiremath, Civil contractor, Hubli 29850123850 25.99 KTEG exemption X DVO Mangalore

1 Mangalore Refinery & Petrochemicals Limited, Mangalore 29960081394

13453.11 CST exemption

19872.67 KTEG exemption

2 Madhav Prakash Cashew Industries, Karkala 290800943539 0.30

KTEG exemption

3 Bola Raghavendra Kamath and Sons, Karkala 29680043579 2.04

KTEG exemption

4 Annapoorna Granites, Nitte 29500603077 0.36 KTEG exemption

5 Pass Industries, Karkala 29480624441 0.76 KTEG exemption

6 Navadurga Exports, Karkala 29610625860 0.10 KTEG exemption

7 Vijaya Cashew, Hebri 2921022216 0.65 KTEG exemption

8 Shridevi Cashew Industries, Karkala 29700043277 0.30 KTEG exemption

9 Suneetha Industries, Karkala 29820644611 0.29 KTEG exemption

10 Allen Industries, 29180087407 0.07 KTEG exemption

11 Vijaya Feeds, 29270227183 0.40 KTEG exemption

12 Jayalaxmi Enterprises, 29560119014 0.56 KTEG exemption

13 Maruthi Cashew Industries, 29630601890 0.14 KTEG exemption

14 Bola Surendra Kamath and Sons, 29660322077 0.79 KTEG exemption

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Div. No

Sl. No Name and address of the industry with TIN

Amount

Remarks

1 2 3 4 5

15 Keltech Energies, 29910061931 0.32 KTEG exemption

16 Thenguraja Coco Products, 29970652531 0.51 KTEG exemption

17 Saptagiri Industries, 29270793760 0.06 KTEG exemption

18 Marate Milk Products, 29470471513 0.36 KTEG exemption

19 Navadurga Industries, 29130084670 0.04 KTEG exemption

20 Vignesh Industries,29240844750 0.03 KTEG exemption

21 Kamakshi Exports,29100043510 0.12 KTEG exemption

22 Vasudeva Cashews, 29560832643 0.12 KTEG exemption

23 Sri Gajanana Rice Industries, 29590267564 1.00 KTEG exemption

24 Sri Laxmi Cashew Industries, 29770043190 0.12 KTEG exemption

25 Western Cashews, 29410592020 0.25 KTEG exemption

26 New Ramanath Cashew Industries, 2945004336 0.18 KTEG exemption

27 Star Cashew, Naravi 29070858763 0.11 KTEG exemption

28 Radhesh Plastic Industries, Koteswara 29900587240 0.19 KTEG exemption

29 Siddivinayaka Cashew, Kundapura, 2971105082 0.39 KTEG exemption

XI DVO Davangere

1 Basaveshwara Rice Industries, Malebennur,Harihar Tq 29780047889 0.32 KTEG exemption

2 Shankar Rice Mill, Honnali 29390361559 0.38 KTEG exemption

3 Veerabhadreshwara Rice & Flower Mills, Malebennur 29480046114 0.23 KTEG exemption

4 Channeshwara Rice Industies , Malebennur 29090047153 1.17 KTEG exemption

5 Akash Rice Industries, Mittalkatti, Davangere Taluk 0.29 KTEG exemption

6 Parshvamani Cotton Mills, Bellary 2958062078 2.71 KTEG exemption

7 Sree Sai Nandi Cotton Ginning and pressing Factory, Mundargi, Bellary-TIN 29780669368 2.31 KTEG exemption

8 Suryakath Environment Technologies, Haragirion Village, Bellary TIN 29740620017 1.02 KTEG exemption

9 Vishwa Structurals Engineering Pvt. Litd. Bellary TIN 29020811212 6.50 KTEG exemption

10 Janki Corporation Ltd. Sidaginmola 57.02 KTEG exemption

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Div. No

Sl. No Name and address of the industry with TIN

Amount

Remarks

1 2 3 4 5

11 Sri Sugureshwar Riuce Mill Bellary TIN 2928001371 0.61 KTEG exemption

12 Galaxy Chemicals,Mundargi, Bellary ITN 2903067862 3.24 KTEG exemption

13 Krishna Industries, Bellary TIN 29480817361 0.40 KTEG exemption

14 Shivaganga Agro Oil Refineries Pvt Ltd., Siruguppa TIN 29450634678 4.24 KTEG exemption

15 Sree Lakshmi Narayan Rice Industries, Siruguppa TIN 29590012055 0.76 KTEG exemption

16 Sri Devi Rice Industries Siruguppa TIN 2923002359 0.40 KTEG exemption

17 Sri Lashmi Balaji Oil Industries, Siruguppa TIN 29480684655 0.94 KTEG exemption

18 ILC Iron & Steel Pvt Ltd.Hospet 29650598969 4.36 KTEG exemption

19 Padmavathi Ferrous Ltd. 29920142775 6.34 KTEG exemption

20 Kartagi Refineries Pvt Ltd Hospet 291460597832 4.14 KTEG exemption

21 JSW Projects Ltd Trg. 29470607701 186.93 KTEG exemption

22 Seetharama Rice Industries, Kampli 29120842003 0.03 KTEG exemption

23 M/s. SrilaxmiSrinivasa Modern Industries, Gangavathi TIN 29080657337 0.66 KTEG exemption

24 Sri Srinivasa Agro Food & Drier Mill, Venkatagiri 29660657115 0.89 KTEG exemption

25 Sri Srinivasa Paddy Drier, Venkatagiri 29440656848 0.80 KTEG exemption

26 3F Oil Palm Agro Tech Pvt. Ltd., 1.77 KTEG exemption

27 Amar Jyothi Industries, Gangavathi 29200785408 0.44 KTEG exemption

28 M/s Mukund Ltd., Ginigera 1167.37 VAT exemption XII DVO, Gulbarga 1 Shree Metal Products, Haladkeri, Bidar 29890828630 0.37 KTEG exemption

2 Talampally Rubbers Pvt Ltd, Bidar 29060496037 2.70 KTEG exemption

3 Wohler Laboratories Pvt Ltd Bidar 29060854355 0.22 KTEG exemption

4 Laxmidurga Drugs and Intermediates Pvt Ltd, Humnabad 29630870192 4.44 KTEG exemption

5 Vikat Sagar Cements, Chincholi 29220870466 349.00 KTEG exemption

6 Gulbarga Power, Chincholi 29760605456 119.00 KTEG exemption

7 Chincholi Sugar and Bio Industries, Chincholi-29580749115 52.00 KTEG exemption

8 Balaji Briguetting Plant, Chincholi taluk 29380581124 40.00 KTEG exemption

9 Kabra Industries , Sedam 29650573167 61.00 KTEG exemption

10 Channaveer Enterprises, Raichur 2960613400 0.30 KTEG exemption

11 Sugureshwara Enterprises, Raichur 29390678943 0.30 KTEG exemption

12 Devashree Ginning Factory, Raichur 29310579853 0.53 KTEG exemption

13 Laxmi Srinivas Industries, Raichur 29950050463 1.41 KTEG exemption

14 Sri Laxmi Srinivas High Tech Industries, Raichur 29450634484 9.00 KTEG exemption

15 Meenakshi Rice Mill Industries, Raichur 29810630600 0.41 KTEG exemption

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Div. No

Sl. No Name and address of the industry with TIN

Amount

Remarks

1 2 3 4 5

16 Mahur Food Braveries Industries, Gulbarga 29300592323 2.03 KTEG exemption

17 Bhawaal Spinners Private Limited, Raichur 29240042657 3.23 KTEG exemption

18 Core Green Sugar & Fuels , Shahpur Tq Yadgir Dist. 29690847170 0.56 KTEG exemption

19 Madhavi Edible Bran Oil Pvt. Ltd., Raichur 29910583985 16.50 KTEG exemption

20 Chettinadu Cement Corporation Ltd., Chincholi Tq. 29690137518 3.02 KTEG exemption

XIII DVO, Belgaum

1 Krishna Granites , Ilkal 29340683966 0.86 KTEG exemption

2 Vinayak Granites 29600894992 0.23 KTEG exemption

3 Jyoti tiles 29360852444 0.05 KTEG exemption

4 P.N. Stones, 29750876625 0.03 KTEG exemption

5 M.H. Granites 29820668764 0.63 KTEG exemption

6 Akshta Granites 2970755361 0.13 KTEG exemption

7 Saptagiri Udyog, 29790483171 0.36 KTEG exemption

8 Shivani Granites, 29820595626 0.19 KTEG exemption

9 Rajguru Foods, Bijapur 29120636460 1.38 KTEG exemption

10 Tulaja Alloys Pvt. Ltd., 0.80 KTEG exemption

11 Yashika Industries, 29650115715 9.44

12 Phoenix Components, Belgaum 9.69 KTEG exemption

13 K. S. Engineering, Belgaum 29740657750 4.84 KTEG exemption

14 Laksha Industries,Ilkal 29610589970 0.14 KTEG exemption

15 Rouquette Riddi Siddi Pvt. Ltd, Gokak 29980008979 1037.00 VAT defernebt

16 KPR Sugar Mills (p) Ltd, Almel, Sindagi Taluk 29180735367 204.56 KTEG exemption

17 Manali Sugars Limited, Malaghan, Sindhagi taluk 2958082332029580823320 100.81 KTEG exemption

18 Millenium Stars India Private Ltd, Athani 29270814130 12.20 KTEG exemption Total 90282.28

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Statement 1-B

(Abstract of Statement 1-A)

( In Rs. lakhs)

Sl. No. Type of details of concession FY 2012-13

No. of units Value

1 2 3 4

1 Exemption of CST 1 13453.11

2 Exemption of VAT 2 1579.51

3 Exemption of KTEG 134 21363.03

4 Deferment of CST 2 29415.05

5 Deferment of VAT 6 24473.58

Total 145 90282.28

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Statement 1-C

Tax waivers by State Government through the reimbursement route / loan route

a) Reimbursement of State taxes

(in Rs.lakhs)

Sl.

No.

Particulars Particulars 2011-12 2012-13 Total

1 Cashew dealers Tax 239.64 - 239.64

Interest due 35.36 146.47 181.83

Penalty - - -

Total 275.00 146.47 421.47

2 Arecanut dealers Tax - 734.33 734.33

Interest due - 498.42 498.42

Penalty - 35.18 35.18

Total - 1267.92 1267.92

3 Utensil dealers Tax 49.99 - 49.99

Interest due - 29.23 29.23

Penalty 5.09 - 5.09

Total 55.08 29.23 84.31

b) As interest free VAT loan

(in Rs.lakhs)

Sl.

No.

Name of the industry 2011-12 2012-13 Total

1 J.K. Cement Works, Muddapur, Bagalkot dist. 1492.00 1394.00 2866.00

2 Nectar Beverages Pvt.Ltd., Dharwad 00.00 472.00 472.00

Total 1492.00 1866.00 3358.00

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Statement-2 Compliance cost of Major State Taxes

A. Commercial Taxes - Commercial Taxes Department

Class of Dealers Nature of work relating to Compliance

Total Compliance Cost per

tax payer per annum

(in Rs.) 1) VAT DEALERS WITH TURNOVER OF:

(a) 0 to 10 Lakhs Dealers maintain accounts & file returns themselves 1000

(b) 10 to 50 Lakhs Dealers maintain accounts & returns filed by STPs 3000

(c) 50 to 100 Lakhs Employee maintains accounts & files returns 7000 (Re-Assessment of 2% of Dealers) 5000 (d) 100 to 500 Lakhs Employee maintains accounts & files returns 19000 (Re-Assessment of 2% of Dealers) 10000 (e) > 500 Lakhs Employee maintains accounts & files returns 31000 (Re-Assessment of 2% of Dealers) 10000

2) HOTELIERS Dealers maintain accounts & returns filed by STPs 3000

(Re-Assessment of 2% of Dealers) 1500 3) CONTRACTORS Employee maintains accounts & files returns. 8500 (Re-Assessment of 2% of Dealers) 10000 4) LUXURY TAX ASSESSEES Employee maintains accounts & files returns. 10000

5) ENTERTAINMENT TAX ASSESSEES Employee maintains accounts & files returns. 18000

6) PROFESSION TAX – EMPLOYERS Employee maintains accounts & files returns. 8000

7) BETTING TAX PAYERS Employee maintains accounts & files returns. 10500 8) AIT ASSESSEES Employee maintains accounts & files returns. 15000

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B. Stamp Duty – Stamps and Registration Department

Sl no

Type of Documents Compliance Cost

1 Registerable documents

a) Stamp duty payment through e-stamping (amount of below Rs. 5000/-)

E-stamping service charge of Rs. 11/- and processing charges of Rs. 280/-

b) Stamp duty payment through treasury/ e-stamping where amount is more than of Rs. 5000/-

Processing charges of Rs. 280/-

c) Stamp duty payment through DD/Pay order Commission of Rs. 250/- and processing charges of Rs. 280/-

d) Registration Fee payment through DD/Pay

order Commission of Rs. 100/-

2 Un-registerable documents a) Stamp duty payment through DD/Pay order Commission of Rs. 250/-

b) Stamp duty payment through Franking

machine Service Charge of Rs. 5/- per sheet

c) Stamp duty payment through e-stamping

where amount is Rs. 5000/- and below E-stamping service charge of Rs. 11/-

d) Stamp duty payment through treasury/e-

stamping where amount is more than of Rs. 5000/-

Nil

C. Motor Vehicle Tax – Transport Department (in Rs.)

Type of Tax/Fees Average Annual compliance cost for Tax Payer / Entity

DD / Bank Charges Postal Charges

1 Life Time Tax 40 25 2 Quarterly Tax 160 25 3 Driving License &

Renewal of License - 25

Note:

a. Forms for payment of TAX / FEE are being supplied by department to public free of cost. b. Vehicle tax less than Rs.3,500/- is being collected by cash. Hence no additional expenditure

is incurred by the individual.

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D. Excise – Excise Department

Sl No

Type of tax Cost of Compliance (average annual expenditure per tax payer/entity in Rs )

1.

The office accommodation provided to the supervisory staff within the premises of the Distillery/Brewery/Winery

Rs 5.46 lakh per annum (91 varied types of manufactories, taking into consideration a standard prototype of 200 sq feet office accommodation at the rate of Rs 30/- sq ft) The average annual expenditure per tax payer/entity is Rs 6000/-

2. The cost of the Security Excise Adhesive Labels (EAL) affixed on the IMFL/Wine bottles presently borne by the Distillers/Vintners (at the rate of 17 paise per label + VAT)

The cost of Security Excise Adhesive Labels (EAL) borne by the licensee works out to Rs 52.31 crore for the period April-2012 to March- 2013. The average annual expenditure per tax payer/entity is Rs. 1,04,62,830/- (total: 50 licensees as per sales figure furnished by M/s Marketing Consultants & Agencies)

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Statement - 3

Revenue Consequences of Capital Expenditure and physical assets of major departments

A. Education Department

Description

Class Rooms Existing

upto 2011-12

Class Rooms constructed

during 2012-13 Total Rooms

Normative Maintenance Cost

per School per annum (in Rs)

Primary Education 208644 5770 214414 18,000

Secondary Education 20892 546 21438 28,000

PU Buildings - 252 252 30,000

B. Health Department

Description

Existing up to 2012-13

Added in 2013-14

Total Number of

assets

Normative Maintenance Cost

per building per annum (In Rs. )

ANM Sub-Centre (SC) 8871 - 8871 10,000-00 Primary Health Centre (PHC)

2353 - 2353 1,00,000.00

Community Health Centre (CHC)

188 - 188 2,00,000.00

Taluk Hospitals (TLH) 146 - 146 5,00,000.00 District Hospital 20 - 20 8,00,000.00

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Water Resources Department

Details of Assets & Potential creation

(In Rs. crore)

Assets created till 31/3/2012:

Krishna Bhagya Jala Nigam Limited 11784.00

Karnataka Neeravari Nigam Limited 11833.93

Cauvery Neeravari Nigam Limited 11633.22

Total 35251.15

Addition during 2012-13 : (i.e. capital work in progress)

Karnataka Neeravari Nigam Limited 1868.02

Krishna Bhagya Jala Nigam Limited 1150.39

Cauvery Neeravari Nigam Limited 841.47

Total 3859.88

Total Assets till 31/9/2012 is 39111.03

Irrigation Potential created by Water Resources Department (M.M.I) upto 31/3/2012 (in Ha) 2689402

Irrigation Potential created by Water Resources Department (M.M.I) upto 31/3/2012 (in Ha) 53743

Total Potential (in Ha) 2743145

Note: O & M cost of Rs.900/ hectare is being considered as Maintenance Cost for the year 2013-14 onwards.

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C. Public Works Department : Sl.

No. Assets Total

assets up to March

2012

Assets added in FY 12-13

Total assets (3+4)

Annual normative maintenance cost

for FY 12-13

(in Rs. Lakhs)

1 2 3 4 5 6

1 Roads: (in kms.)

A NH 4491 - 4491 3000.00

B SH 20774.37 17.50 20791.87 40993.00

C MDR 49905.56 - 49905.56 54288.00

2 Bridges (nos.)

A SH 35365 - 35365 1601.00

B MDR 79859 - 79859 979.00

3 Buildings (nos)

A Non-Residential 3784 - 3784 27363.00

B Residential 2825 - 2825 13345.00

4 Ports (nos.) 10 10 1500.00

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D. Social Welfare Department Description

(Type of hostel)

Existing up to

2012-13

Hostels added in 2013-14

Total hostels

Normative maintenance cost per hostel per annum

(Rs. In lakhs)

Pre-Matric Hostels

1272 -28 1244 17.16

(for strength of 50 boy students)

19.29

(for strength of 50 girl students)

Post-Matric Hostels

478 9 487 12.14

(for strength of 50 boy students)

14.15

(for strength of 50 girl students)

Scheduled Tribes Welfare Department, Bangalore

Description (Type of Hostels)

Existing up 94to 2011-12

Hostels added in 2012-13

Total Hostels

Normative Maintenance cost

per hostel per annum

(in Rs. Lakhs)

Pre Matric Boys Hostels 94 02 96 14.49

Pre Matric Girls Hostels 39 01 40 15.78

Post Matric Boys Hostels 32 04 36 11.03

Post Matric Girls Hostels 18 06 24 12.35

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Karnataka Residential Educational Institutions Society (KREIS)

Sl. No

.

Description

Existing MDRS/KRCRS/P

U College Complexes

New School complexes/Colleges

added in 2012-13 (Up to date

Total school/College

Complexes

Expected Normative

Maintenance cost per school

complex per Annum in F.Y.

2012-13

1 Morarji Desai Residential School complexes

a)

SC MDRS/KRCRS School complexes

100 16 116 A sum of Rs. 10.00 lakhs per

school/per complex

b)

ST MDRS/KRCRS School complexes

17 5 22

Total 117 21 138

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88

Statement -4

Government Land Details*

Division Districts Extent (in acres)

BELGAUM

BAGALKOTE 14,127.36

BIJAPUR 33,785.22

HAVERI 18,001.27

UTTAR KANNADA 2,449.02

GADAG 2,366

DHARWAD 1,352

72,080.87

GULBARGA

BELLARY 65,916.15

YADGIR 44,988.01

KOPPAL 14,639.21

GULBARGA 78,935.05

BIDAR 19,180.13

223,658.55

MYSORE

UDUPI 624.39

HAASAN 59,812.34

DAKSHIN KANNADA 217.32

KODAGU 15,121.32

MYSORE 1475.29

77,250.66

BANGALORE

CHIKKABALLAPUR 98,861.34

DAVANGERE 47,231.12

CHITRADURGA 79,916.29

SHIMOGA 1,78,258.02 4,04,266.77

TOTAL (Incl. Other Districts) 7,77,256.85 *Details of other districts are still in the process of being compiled by Karnataka Public Land Corporation

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Statement 5

Future Expenditure Commitments of major policy changes during FY 12-13*

(In Rs. Crores)

Sl no Major Policy Stance Scheme 2012-13 2013-14 2014-15 2015-16

1

Additional Outgo on account of Pay Revision for State Government and GIA Employees

- 4000 4500 5100 5700

2 Availability of cheaper credit for farmers through Interest Subvention

Concessional Crop Loan Scheme

500 550 525 500

3 Providing relief to farmers Cooperative Crop Loan waiver

1140 2000 490 -

4 Buffer Stocking of Fertilizers - 90 100 120 135

5 Goal of Hutless State Basava Vasati Yojane 600 750 800 -

6 Improving State Highways SHDP 1000 1000 800 -

7 Support to Municipalities other than Corporation

CMSMTDP Phase -II 265 340 195 -

8 Improving road connectivity in rural areas

30 km road per Constituency 398 500 500 600

9 Improving village infrastructure Suvarna Grama 350 400 425 475

10 Yettinahole project - 300 500 750 750 11 UKP-III Project - 500 1000 1250 1500

12 Providing GIA support to more schools & colleges - 60 105 115 150

13 Implementation of Right to Education Act - 300 400 500 600

14 Industrial Promotion Policies - 100 200 250 300

15 Bangalore Metro Phase-II - 400 600 1000 1500

16 New Medical Colleges - 50 100 200 300 *The above list covers only major policy stances which involve future expenditure commitments. However this list is not exhaustive. Also the Planning Commission has indicated the inter sectoral allocations for Karnataka over the 12th FYP period. In the last National Development Council (NDC) meeting State Government had taken the stance that it would reprioritize and reallocate the sectoral outlays indicated by Planning Commission. Since the process of finalising these priorities is still underway, the 12th FYP sectoral allocations as proposed by the State Government to Planning Commission would be brought out in the Mid Year Review 2013-14.

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90

Statement – 6 Liabilities in Public Private Partnership

Rs. In Crores Sl. No

.

Project Name District Name

Estimated Proj Cost

Sponsoring Authority

Stage Name VGF payout 2013-2014

Annuity Payments for

2013-2014

Others if any

(utility Shifting)

in 2013-14 No of

Years Amount

1 "4-Laning of Bangalore - Maddur Road (SH-17)

Bangalore rural & Mandya

188.5 KRDCL Completed, COD declared on 30-06-2006

- 8 59.40 -

2 Hubli - Lakhsmeshwara Road (SH- 73) (Mangsuli - Lakshmenshwara Raod)

Dharwad 103.5 KRDCL Completed, COD declared on 28-03-2011

- 8 33.34 -

3 Widening & Impts to Dharwad-Alnavar-Ramnagar(SH-34) road on BOT-VGF (Toll) basis

Dharwad, Karwar

238.00 KRDCL DBM up to 56.95 km completed on both sides Total CDs - 135 No - 121 Nos completed, 1 no. in progress and 13 yet to start. Minor bridges - 12 No, 9 Nos. Completed, 3 in progress, ROB 3 nos work is in progress.

7.076 - - -

4 Widening & Impts to Whagdhari-Ribbanpalli (SH-10) road on BOT-VGF (Toll) basis

Gulbarga, Yadgir

243.00 KRDCL Project Completed and Commissioned on 18.08.2012 , i.e., Commercial Operation Date (COD) declared.

8.312 - - -

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91

Sl. No

.

Project Name District Name

Estimated Proj Cost

Sponsoring Authority

Stage Name VGF payout 2013-2014

Annuity Payments for

2013-2014

Others if any

(utility Shifting)

in 2013-14 No of

Years Amount

5 Widening & Impts to Chikkanayakanahalli-Tiptur-Hassan Road (Partly MDR & Partly SH) on BOT-VGF (Toll) basis

Hassan 242.00 KRDCL Embankment - 18.39 km on LHS & 13.00 km on RHS completed. GSB 16.25 km on LHS completed. DLC - 15.93 km on LHS completed PQC - 4.56 km on LHS completed Total No. Of CDs 90 No. - 32 completed, Out of 9 minor briges, 1 is in progress, 8 yet to start.

9.061 - - -

6 Development of road from NH-63 near Ginigere - Gangavathi to Sindhanoor

Koppala, Raichur

190.16 KRDCL CA executed on 24.08.2012, Financial Closure is to be achieved within 180 days i.e., 23.02.2013 & action has been initiated to have financial closure at the earliest

6.596 - - -


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