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Are Congress’s Freebies Financially Sustainable for Karnataka?

Key Points

  • Congress chief Kharge wants realistic financial promises.
  • PM Modi criticizes Congress for making unrealistic promises.
  • Karnataka’s GDP growth is expected to be below the national average.
  • Tax revenue and central grants are both declining.
  • Foreign Direct Investment has dropped significantly.

Looma News

Congress chief Mallikarjun Kharge has told state units to make financially “doable” promises, which has heightened tensions between the Congress and BJP. Prime Minister Narendra Modi responded sharply, calling out what he sees as the Congress party’s “unreal promises.” Kharge dismissed Modi’s comments as a “cheap PR stunt,” especially in light of the NDA’s recent plans.

Karnataka’s Chief Minister Siddaramaiah and Deputy Chief Minister DK Shivakumar defended their party against Modi’s claims, insisting that the state’s finances are strong. Shivakumar pointed out that Karnataka has been neglected by the NDA-led central government.

Karnataka recently asked Union Finance Minister Nirmala Sitharaman for Rs 5,400 crore, based on recommendations from the 15th Finance Commission. However, Siddaramaiah skipped an important NITI Aayog meeting, expressing frustration over the lack of focus on Karnataka’s economic issues in the federal budget.

Karnataka’s Economic Performance

While Siddaramaiah’s welfare programs were initially praised, the state’s economic troubles are becoming clear. His advisor, Basavaraj Rayareddi, noted that around Rs 60,000 crore of the state budget is tied up in five major welfare initiatives, leaving less money for crucial development projects.

Karnataka’s economic growth is slowing down, with forecasts suggesting it will fall short of the national GDP growth of 7.3 percent, reaching only 6.6 percent in 2023-24. The state’s fiscal deficit is also rising, expected to go from 2.14 percent of GDP in 2022-23 to about 2.95 percent by 2024-25.

Tax Revenue and Central Grants

Karnataka’s tax revenue has dropped from 7.54 percent of GDP in 2021-22 to 6.24 percent in 2023-24. Central grants have also decreased, from 1.22 percent to 0.55 percent during the same period. The Karnataka Economic Survey 2023-24 shows a decline in central taxes from 2.55 percent in 2018-19 to 1.45 percent in 2023-24, with similar trends expected for central grants.

Future Liabilities and Foreign Investment

While liabilities are currently managed, forecasts suggest they will rise from 22.6 percent of GDP in 2023-24 to 23.97 percent by 2027-28. Additionally, Karnataka’s attractiveness to foreign investors is diminishing. Foreign Direct Investment (FDI) fell from $22 billion in 2021-22 to $6.57 billion in 2023-24, as investors are now leaning toward states like Gujarat.

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