For the welfare of the poor

Interview with Deputy Chief Minister Siddaramaiah.

A backward class leader of reckoning, Siddaramaiah is Karnataka's Deputy Chief Minister and Finance Minister. He has always been seen as a man of the rural masses. The Janata Dal (Secular) leader has the distinction of presenting five successive budgets between 1995 and 1999. But those were during the heady days of the Janata Dal. Now, having been forced to enter into an "inevitable partnership" with the Congress, thanks to a fractured mandate, Siddaramaiah has quickly adapted himself to the situation, presenting a Budget that largely reflects the coalition's Common Minimum Programme (CMP). Excerpts from an interview he gave Ravi Sharma:

What, in your view, are the priorities before the government?

This [coalition government] is the first experiment of its kind in Karnataka. Though we [Janata Dal - Secular] and the Congress have fought each other for 20-25 years, we had to come together to form a coalition government for two reasons. First, to contain the growth of the BJP in Karnataka, and second, the people's verdict was fractured, so it became inevitable for us to join with the Congress. Our first priority is that we have to run the government for five years. The second priority is that we have to attend to the problems of the farmers and other poorer sections of society. With this in mind I have already announced some programmes in my Budget speech. We [the partners of the coalition government] have formulated a CMP and we are running the government on the basis of this CMP. Most of the promises that we made in our election manifestos have been transferred onto the CMP, like the supply of rice to families living below the poverty line at Rs.3 a kilogram. More than 70 lakh cardholders will benefit by this decision and the scheme is being implemented from September 1. It is a big financial burden, costing the state exchequer Rs.900 crores, but we are committed to the welfare of poor people.

I have also announced the starting of 40 residential schools for poor children from the backward classes, the Scheduled Castes, the Scheduled Tribes and the minorities. Poorest of the poor children will be selected and all facilities like clothes, books and food will be given free of cost. The entire burden of educating these children will be taken up by the government. For the first time in Karnataka I have earmarked Rs.20 crores to enable members of the backward classes to take up self-employment activities by upgrading their skills and strengthening village industries.

Any other measures?

I also announced a number of programmes for farmers in my Budget speech. Karnataka suffered drought for three consecutive years. In order to give some relief to farmers we have decided that they should get loans at a simple interest rate of 6 per cent per annum. From October 2 cooperative societies and agricultural credit banks should not charge levies, compound interest and penalties. They have to collect only simple interest. I am clearing crop insurance worth around Rs.250 crores, which was pending for the last two years. I have also kept Rs.100 crores as a revolving fund, which is to be used for market intervention, as and when the price of agricultural produce falls below the minimum support price. The government has to intervene and stabilise the prices. The quantum can be increased if required. The plan allocation for the agriculture sector has been enhanced from Rs.412 crores to Rs.840 crores, a 106 per cent increase, something that has never happened before in Karnataka. The government is committed to giving justice to those people who have been denied justice. Other priorities are irrigation, power, education and health.

As you are aware the third tranche of the World Bank's Karnataka Economic Restructuring Loans/credit (KERL) is yet to be released. This is mainly because of the State's slow pace of power sector reforms. How do you plan to push forward the rather unpopular reforms process?

Yes, the third instalment of the KERL is awaited. We have to increase our tax base, plug leakages and cut down on wasteful expenditure. We also have to bring discipline into the administration. As far as the PSUs [public sector units] are concerned, there is a disinvestment scheme. PSUs that cannot be restructured have to be disinvested. We have also taken up power sector reforms, and reforms in health, education and administration.

Karnataka's fiscal position deteriorated sharply during the second half of the 1990s, with its revenue balance falling from a surplus of Rs.159 crores in 1995-96 to a deficit of Rs.2,325 crores in 1999-2000. Fifty per cent of the State's revenue goes towards paying public debt. Where will the revenues come from?

They will come. For example, I have announced a new policy in the arrack trade aimed at eliminating the problem of non-duty paid arrack. I have reduced the excise duty (per bulk litre of arrack) from Rs.20 to Rs.2. Because of this new policy, the State exchequer will be richer by at least Rs.500 crores, compared to last year. Last year the growth when compared to the previous year was hardly 3 per cent. This year the growth [compared to last year] is more than 60 per cent. This sort of growth has never been seen before in Karnataka. Even if I deduct the Rs.18 excise duty (per bulk litre), the growth will be 33 to 35 per cent. In the past we were getting around Rs.70 crores every month as rentals. This month, after the new policy, we are getting Rs.112 crores, an increase of more than Rs.40 crores a month. Besides this I am getting Rs.2 as excise duty (per bulk litre), which works out to about Rs.100 crores In the area of commercial taxes we are maintaining a very good growth of revenue collection. About 25 per cent.

Your budget was more an exercise in revenue enhancement than expenditure compression. What other measures are you contemplating to augment revenues? The ban on online lotteries will result in a loss of Rs.250 crores to the exchequer.

Yes. But I have imposed a 2.5 per cent surcharge on diesel, as a result of which we will net an additional Rs.100 crores. I also hope to make up the shortfall through other tax rationalisation measures and a simplification of tax structures. By doing this we will get around Rs.100 crores. And as I said, we are cutting down on wasteful expenditure.

For the first time in eight years Karnataka has a Budget with a small revenue surplus (Rs.72.83 crores). You have spoken of public financial management and accountability (PFMA), and fiscal responsibility. Are you happy with the Budget?

Not fully happy. There is room for further improvement. The revenue surplus is very, very small, but it is the beginning of a major fiscal correction and reiterates our commitment to reform our finances and ensure that our current expenditures are met by current revenues. We will not have to borrow to meet our revenue expenditure. But the debt burden is still there and we want to further reduce the fiscal deficit from 4 to 3 per cent.

Karnataka's average real economic growth rate in the 1990s was around 7 per cent. It was also the only State in the country to have a growth rate in excess of 8 per cent during the second half of the 1990s. What sort of economic growth rates are you envisaging for the State?

I estimate that there should be a sustainable economic growth of more than 6 to 7 per cent. This year, agricultural production will be according to our expectations and targets. So we can expect some growth in this sector. The service sector is also doing well. We should reach a 7 per cent growth.

Karnataka's place on the Human Development Index (HDI) has slipped from six to seven. What are the chief reasons for this?

So many. We have had a drought for almost four years. The debt burden has increased and 50 per cent of our revenues is going to service our debt. The expenditure on salaries and pensions alone increased from Rs.4,900 crores in 1998-99 to Rs.8,700 crores in 2003-04, an increase of 77.6 per cent. Non-developmental expenditure today pre-empts 75 per cent of the State's revenues, leaving a meagre 25 per cent for development programmes. Also, a serious effort had not been made to cut down wasteful expenditure. Off-budget borrowings, uncontrolled administrative and employee costs, inflated costs of large projects, cost overruns, poorly targeted subsidies, have all pushed the State down. Our slipping up on the HDI was because of a cumulative effect of all these things.

You had said in your Budget: "unless hard decisions are taken urgently, (the) government will soon be doing little else but paying salaries, pensions and interest on loans". But fiscal reforms and fiscally prudent measures are not always popular. Successive governments have not been able to solve the power sector deficit (currently at Rs.3,000 crores). How do you convince your voters?

We need not tell the people all these things. What do the people want: good governance, shelter, food, education, health. Farmers want us to look into their problems. People are not bothered about fiscal deficit, revenue deficit, how the government is getting money, and so on. It is for the government to take care of all these things. People will be happy if we give them a clean, transparent, people oriented government that is pro-people.

Being part of a coalition have you been forced to cut back on your party's programmes?

Yes, that is there. All the programmes and promises that we made in our election manifesto cannot be implemented because of the nature of the government. We cannot put all our programmes in the CMP. The Congress also cannot do it. Both parties have agreed to implement certain programmes. It is happening in all coalition governments.

Four months of Karnataka's first coalition government. Are you personally satisfied?

The only [disheartening] thing is the long-pending Cabinet expansion. It should have been done earlier. It has not been done. Hopefully it will be done after the Bidar Parliamentary elections.