The political landscape in Karnataka has been significantly shaped by the Congress government's implementation of a series of welfare schemes, often referred to as "freebies," which were central to its 2023 Assembly election campaign. These programs, while popular among specific voter demographics, have sparked intense debate regarding their financial sustainability and broader economic implications. The core of this debate centers on the substantial fiscal burden these schemes impose on the state's exchequer, leading to consequential measures such as tax hikes and price increases on essential commodities and services. This article examines the structure of these policies, their documented financial costs, and the resulting adjustments in public pricing, based on information from provided source materials.
The five primary welfare guarantees introduced by the Congress government in Karnataka are: 1. Griha Jyoti: Free electricity up to 200 units, plus an additional 10% over the average annual consumption. 2. Griha Lakshmi: A monthly allowance of ₹2,000 provided to the head woman of Below Poverty Line (BPL) and Above Poverty Line (APL) families. 3. Anna Bhagya: An increased distribution of food grains, providing 10 kg per person to BPL and Antyodaya Anna Yojana cardholders. However, reports indicate a discrepancy, with the state government indicating it would provide only 5 kg in addition to the 5 kg provided by the central government, falling short of the initial promise. 4. Shakti: Free bus travel for women inside the state, excluding AC and luxury buses. 5. Yuvanidhi: An unemployment allowance extended to gender minorities.
The financial commitment required to implement these schemes is substantial. During the ten-month period of 2023-24, the government allocated approximately ₹36,000 crore for these freebies. For the subsequent financial year, the allocation increased to around ₹52,000 crores. Another source specifies the total financial burden at ₹62,000 crore, representing 20% of the state's budget. The Shakti scheme alone, which provides free bus travel for women, is reported to cost the public exchequer approximately ₹417 crore monthly, significantly worsening the financial health of the state's transport corporations.
The state's financial health presents a mixed picture. While revenue growth has been noted, with collections crossing ₹83,000 crore, the state faces significant liabilities. These include a debt burden of ₹5.6 lakh crore, an increasing borrowing requirement, and an unbridled fiscal deficit of ₹60,581 crore. The implementation of these large-scale welfare schemes has raised concerns about their long-term sustainability and their impact on the state's fiscal discipline.
To mobilize the necessary funds to meet the cost of these schemes, with beneficiary lists soaring to over five crore, the state government has resorted to several fiscal measures. These include a steep hike in stamp duties. There have also been reports of delays in paying salaries to the permanent staff of some government institutions, and Anganwadi workers in certain districts did not receive their salaries on time.
The financial strain has also led to direct price increases for consumers. The government has raised milk prices twice since assuming power: an increase of ₹3 per litre in July 2023, followed by another hike of ₹2 per litre in June 2024. Furthermore, fuel prices were increased by ₹3 per litre through a revision in the state sales tax. The tax on petrol was raised from 25.92% to 29.84%, and the tax on diesel was increased from 14.34% to 18.44%. As a result, the average price of petrol in Karnataka reached ₹103.50 per litre, and diesel costs ₹89.40 per litre after these hikes.
The state-run transport corporations have also been financially impacted. On January 2nd, the government announced a 15% increase in bus ticket fares, effective January 5th, across four state-run corporations: Karnataka State Road Transport Corporation (KSRTC), Kalyana Karnataka Road Transport Corporation (KKRTC), North Western Karnataka Road Transport Corporation (NWKRTC), and Bengaluru Metropolitan Transport Corporation (BMTC). The government defended this move, stating it would raise an additional ₹7.84 crore daily for the financially strapped corporations. The increased ticket prices add to the financial burdens of the middle class and poor. The Shakti free bus travel scheme for women is cited as a key factor contributing to the financial miseries of these transport corporations.
A proposal for a "green cess," levying ₹2 to ₹3 on monthly water bills for municipalities and corporations drawing water from rivers in the Western Ghats, was also considered. While Deputy Chief Minister DK Shivakumar dismissed the proposal as "bogus" and accused the opposition of misinformation, his cabinet colleague, Forest Minister Eshwar Khandre, was the one who initially proposed the green cess, creating an embarrassing situation for the government.
The debate extends to the economic philosophy behind such policies. Economists, experts, and the Supreme Court of India have repeatedly cautioned against offering freebies, calling them detrimental to long-term economic health. Critics argue that these freebies are at a huge opportunity cost to the Karnataka state, leaving behind loans for payment and robbing the opportunity to generate income by incurring capital expenditure. This is believed to have a deleterious economic impact in terms of transaction cost, affecting the growth rate. There is concern that Karnataka, which had earned a reputation as a financially disciplined state, may fall into the trap of financial indiscipline due to indiscriminate freebies that drastically increase revenue expenditure.
The ruling Congress government has defended its policies, arguing that the ticket price hike for transport corporations is necessary to keep them running and that the schemes provide crucial support to the public. However, the state exchequer is reported to not have the required resources to implement all the flagship schemes, leading to a dilemma for Chief Minister Siddaramaiah. The guarantees, once a source of electoral success, have been described as a "millstone around his neck." The government's response has been characterized as a series of "knee jerk reactions" to mobilize funds, with the financial implications of the promises appearing not to have been fully assessed prior to the election.
The situation highlights the complex trade-offs between social welfare and fiscal prudence. While the schemes are intended to lift up the downtrodden segments of the population, the associated financial burden of ₹62,000 crore, or 20% of the state's budget, raises questions about their sustainability. The debate continues over whether these policies represent a beneficial social investment or an unsustainable burden on the state's economy, with significant consequences for public services and the cost of living for all citizens.
Conclusion
The implementation of Karnataka's five major freebie schemes by the Congress government has created a significant fiscal challenge for the state. With an estimated cost of ₹62,000 crore, or 20% of the state budget, these policies have strained public finances, leading to increased borrowing, a substantial fiscal deficit, and delayed payments in some government sectors. To fund these programs, the state has implemented several revenue-generating measures, including increased taxes on fuel and milk, a steep hike in bus ticket fares, and delayed salary disbursements. While these schemes provide direct benefits to millions of women, the poor, and the unemployed, the financial strain has raised serious concerns about long-term economic sustainability and the potential for decreased investment in capital expenditure. The debate underscores the ongoing tension between providing social welfare and maintaining fiscal discipline, with the state's financial health and the cost of living for its citizens directly impacted by these policy choices.