Freebies first, development later? Karnataka cuts programs to fund welfare schemes, CAG flags deficit risks

NEW DELHI: The Karnataka government’s growing expenditure on welfare schemes has placed pressure on its finances, forcing cuts in some ongoing programmes, the Comptroller & Auditor General (CAG) said in its report for the 2024-25 fiscal, tabled in the Assembly on Thursday.The CAG noted that the state spent Rs 52,525 crore on five guarantee schemes — Shakti, Gruha Lakshmi, Gruha Jyoti, Yuva Nidhi and Anna Bhagya, in 2024-25. The report said this accounted for around 20% of revenue receipts and 27% of the state’s own revenue, highlighting the schemes’ heavy burden on the budget. “Though the revenue growth is stable, it is insufficient to absorb the recurring costs of the guarantee schemes and hence the state needs to rely on borrowings to fund the guarantee schemes,” the report said. During 2024-25, while the state’s revenue rose by 10.63%, its expenditure grew by 14.99%, largely due to the guarantee schemes.The CAG highlighted that rising subsidies compelled the government to reduce funds for some ongoing programmes, including nutrition, assistance to local bodies, gram panchayats in rural development programmes and urban development initiatives.The mismatch between receipts and expenditure contributed to a revenue deficit of Rs 20,834 crore, while the fiscal deficit rose from Rs 65,522 crore in 2023-24 to Rs 85,030 crore in 2024-25, reported news agency PTI. To bridge the gap, the state undertook net market borrowings of Rs 71,525.15 crore, up Rs 8,525.15 crore from the previous year.While overall capital expenditure rose by Rs 5,786 crore, the report said actual investment in infrastructure increased by only Rs 3,284 crore after adjusting for central assistance, investments, and off-budget borrowing. The CAG warned that this “compression in gross capital formation may prove detrimental to future growth prospects.”It further noted that higher borrowing would increase debt servicing obligations, which could crowd out spending on developmental, infrastructure, and welfare measures. The report cautioned that continued borrowing growth could risk breaching the Karnataka Fiscal Responsibility Act (KFRA) fiscal targets.