Karnataka's Welfare Schemes Place Heavy Burden on State Finances, CAG Report Reveals
The Karnataka government's substantial expenditure on its flagship welfare guarantee schemes has created significant pressure on the state's financial health, according to the latest report from the Comptroller and Auditor General (CAG). The report, which was tabled in the Legislative Assembly on Thursday for the 2024-25 fiscal year, highlights that the growing costs have forced cuts in other ongoing programs and led to increased borrowings.
Guarantee Schemes Consume Substantial Revenue Share
The CAG noted that the state spent a massive Rs 52,525 crore on five key guarantee schemes during the 2024-25 financial year. These schemes include Shakti, Gruha Lakshmi, Gruha Jyoti, Yuva Nidhi, and Anna Bhagya. This expenditure accounted for approximately 20% of the state's total revenue receipts and a substantial 27% of Karnataka's own revenue, underscoring the heavy burden these programs place 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 CAG report stated. During the fiscal year, while the state's revenue increased by 10.63%, its overall expenditure grew by a larger 14.99%, primarily driven by the costs associated with these welfare initiatives.
Program Cuts and Rising Borrowings to Bridge Fiscal Gap
The CAG highlighted that the escalating subsidy burden compelled the government to reduce funding for several ongoing programs. Affected areas include nutrition initiatives, assistance to local bodies, gram panchayats involved in rural development programs, and various urban development projects.
The mismatch between receipts and expenditure resulted in a revenue deficit of Rs 20,834 crore. Meanwhile, the fiscal deficit expanded from Rs 65,522 crore in the 2023-24 fiscal year to Rs 85,030 crore in 2024-25, as reported by news agency PTI. To address this widening gap, the state undertook net market borrowings totaling Rs 71,525.15 crore, marking an increase of Rs 8,525.15 crore from the previous year.
Concerns Over Capital Expenditure and Debt Servicing
While overall capital expenditure rose by Rs 5,786 crore, the report indicated that 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."
Furthermore, the report expressed concern that higher borrowing levels would increase debt servicing obligations, potentially crowding out spending on developmental projects, infrastructure improvements, and other welfare measures. The CAG cautioned that continued growth in borrowing could risk breaching the fiscal targets established under the Karnataka Fiscal Responsibility Act (KFRA).
The findings present a challenging fiscal scenario for the state government as it balances popular welfare commitments with long-term financial sustainability and development goals.
