(BENGALURU), JUNE 25, 2019
1. Chairman of the Fifteenth Finance Commission Sri N.K. Singh, distinguished members of the Commission and all Officers from the Commission; it is indeed my pleasure to warmly welcome all of you to Bengaluru.
2. It is befitting that this important Commission is chaired by such an eminent person as Sri N.K. Singh who has vast experience both in State and Central Governments. Having worked in the Finance Ministry of the Central Government Sri N.K. Singh has deep understanding of the issues before the Commission. I am confident that under his able leadership, the Commission will present a well-reasoned report which addresses the pressing needs of the State.
3. Over the decades, the States have been playing an increasingly important role in the growth story of India and in formulation and roll out of various developmental and welfare programmes. In this context it is important that the resources of the States are suitably strengthened by fund transfers from the Central Government.
4. Karnataka has always taken fiscal responsibility very seriously and for the last several years has adhered in full measure to all the parameters prescribed under the Karnataka Fiscal Responsibility Act. In fact, Karnataka is the first State to have legislated the Act in 2002 after which the Government of India brought in the FRBM Act in 2003.
5. Karnataka has always maintained consistent tax collection efforts and prior to introduction of GST we had perhaps the highest incidents of VAT rates in the country. We have been doing reasonably well even in collection of State excise duties, Motor Vehicle tax and in Stamps and Registration. While we have stepped up our efforts in increasing non tax revenues, there is scope for further improvements.
6. In the last few years, Karnataka has witnessed the implementation of several welfare oriented schemes including Anna Bhagya in which we give 7 kgs of rice free, Milk Subsidy Scheme (Rs.6 per litre), MathruPoorna (hot cooked meal for pregnant and lactating women), MahtruVandana (income support of Rs.1,000/- per month for pregnant women), Social Security Pensions higher than Government of India levels, Arogya Karnataka (Universal Health Care). These are only a few instances of major expenditure on the welfare side.
7. In addition, several other development schemes have been taken up including starting of several new medical colleges, substantial expenditure on Bangalore Metro, large State Highway Development Programme and major capital programmes for urban areas over and above the usual devolutions.
8. We have taken up several farm sector programmes with focus on Zero Budget Natural Farming and Organic farming. We are also trying to emulate the success of Israel in micro irrigation. Schemes like KrishiBhagya where subsidies are given to construct farm ponds and Raitha Siri to encourage farmers to grow traditional crops like minor millets etc. have been taken up.
9. To give impetus to employment generation and to increase the production capacity in manufacturing sector, we have started a new scheme called “Compete with China”, where cluster approach is being followed to enable industries take advantage of economies of scale. Investments in two clusters spread over two districts for manufacturing toys and garments and textiles have already materialised.
10. Karnataka is one of the States which has a separate Legislation earmarking substantial allocations for the development of the SC/ST population in the State. This Legislation came into effect in 2013-14. Since then Rs.1,11,980 crores has been spent on a variety of schemes under this Act. The allocation for the year 2019-20 is as high as Rs.30,445 crores.
11. Contrary to popular perception. Karnataka has a very large percentage of arid and dry areas. As a result the state has been spending several thousand crores on irrigation projects as well as on drinking water projects. Under the KrishiBhagya Programme we have taken up construction of farm ponds with waterproof lining to help the farmers.
12. During the last 10 years, Karnataka has suffered drought in 8 years. Such cumulative distress has very adversely affected the farmers and their income levels. As one of the measures to give relief to the suffering farmers, my Government has implemented large farm loan waiver scheme covering crop loans in commercial banks (upto Rs.2 lakhs) and in co-operative banks (upto Rs.1 lakh).
13. The intensity of successive droughts in Karnataka is only increasing from year to year and the ground water table is going down very rapidly. In many areas of the State, we have to drill to a depth of more than 1200 feet to get water. Bulk of our villages are dependent on ground water for human use. Keeping in view the increasing risk of depending on ground water and in view of decreasing yields of the bore wells, my Government has launched a comprehensive drinking water scheme called Jaladhare which will provide drinking water to villages in the State using surface sources. This ambitious programme is estimated to cost over Rs.53,000 crores.
14. Despite all the above expenditure and commitments, I am proud to state that we have so far complied with all the fiscal parameters prescribed under the Fiscal Responsibility Act.
15. We have also laid stress on protecting our valuable forests and as per the Forest Survey of India report the green cover in Karnataka has increased by 1100 sq. kms., largely outside the existing forests, between 2015 and 2017. I understand that forest cover is also one of the performance parameters being considered by the Commission.
16. The Commission will be happy to know that the State of Karnataka has done quite well in various other performance parameters also identified in the Terms of Reference including on population growth, implementation of sustainable development goals. Ease of doing business, promoting digital economy etc.
17. Karnataka has also been having regular State Finance Commission awards and we have ensured that the devolutions are actually more than those recommended by the successive State Finance Commissions. This demonstrates the State’s commitment to decentralisation and I may add that we expect similar treatment from the Central Government.
18. I will now very briefly summarise my requests to the Fifteenth Finance Commission.
a. The Commission must ensure that once the sharing formula is decided, the Central Government should not reduce the funding under the centrally sponsored schemes both in terms of size as well as in the sharing pattern between Centre and State. During the last 5 years we have seen that while on the one hand the Fourteenth Finance Commission has increased the devolution to States from 32% to 42%, the Central Government on the other hand reduced its share in centrally sponsored schemes. As a result, most of the additional money received under the devolution formula had to be allocated towards States share of the CSS schemes.
b. Injustice has been done to Karnataka in terms of the allocation under SDRF/NDRF. This is not only in terms of the meagre amount being allocated to the State but also by comparison to the allocations of other States. Keeping in view the severe and recurring drought in the State, there is an urgent need for the Commission to substantially increase the SDRF allocation for the State.
c. The base tax rates in the VAT regime in Karnataka was much higher and today on account of reducing the GST rates in several items, the actual tax collection for Karnataka has been adversely affected. I urge the Commission to recommend to the Central Government to continue the compensation for another 5 years beyond 2022 or at least protect the compensation level of the year 2022 for an additional 5 years.
d. I request the Commission to consider inter State transfers based on 5 criteria with equal weightage namely fiscal need based on population, fiscal cost based on area, fiscal contribution based on GSDP, fiscal capacity based on per capita private consumption and fiscal prudence/ performance based on population management, management of ecology and compliance to prescribed fiscal parameters.
e. In addition, I also request the Commission to consider favourably States specific requests to cover the following programmes
• Programme to double the income of farmers in view of the continued distress in the farm sector.
• Jaladhare water supply project to ensure sustainable drinking water supply from surface sources.
• Maintenance of forests and restoration of corridors of Project Tiger.
• Providing infrastructure in the Higher Education sector keeping in view the aspirations of the young population in the State which is very large.
• Upgrading facilities in Urban Local Bodies in view of the increasing urbanisation and migration from rural areas to urban areas. In fact Bangalore city alone is continuously growing and requires substantial amount of funding year on year. Bangalore city plays an important role in employment generation for the country and as a growth engine to the National economy and therefore merits special funding.
19. The detailed Memorandum we have submitted covers all the above points and more in a comprehensive manner. Some of the important points will also be highlighted during the presentation today. I believe that our requests are reasonable and based on sound economic considerations. I am confident that the Commission will execute its Constitutional mandate with an open mind and facilitate the States in general and Karnataka in particular to contribute substantially to the National economy.
20. I conclude by once again extending a warm welcome to the Commission and its Officials and I thank the Commission for sparing their valuable time to come to Bangalore and discuss important issues with Government of Karnataka.