Karnataka Budget: Loan Waiver to Make Fuel, Liquor & Power Dearer

The loan waiver has been pulled off while staying within the K’taka Fiscal Responsibility Act, at least on paper.

Karnataka Chief Minister HD Kumaraswamy all set to present the budget. 

(Photo: The News Minute)

Fulfilling his electoral promise, Karnataka Chief Minister HD Kumaraswamy on Thursday, 5 July, announced a farm loan waiver for all defaulting loans.

In the run-up to the assembly polls, the Kumaraswamy-led JD(S) had promised to waive farm loans borrowed both from cooperative and nationalised banks. But unlike his election promise, the loan waiver was only partial and came with several conditions and restrictions.

Too busy to read? Listen to the story instead.

A cap of Rs 2 lakh has been set for the loan waiver. The families of government officials, officials of cooperative sectors, farmers who have paid income tax for past three years and ineligible recipients of farm loans will not benefit from the waiver.

Presenting the Congress-JD(S) coalition government's maiden budget, Kumaraswamy announced:

I have decided to waive all defaulted crop loans of farmers up to 31 December 2017 in the first stage. Farmers who repaid the loan within time, as an encouragement to the non-defaulting farmers, I have decided to credit the repaid loan amount or Rs 25,000 whichever is less.

Around 44.39 lakh farmers are expected to benefit from the scheme. Among them, 17.32 lakh farmers whose defaulted loans run up to Rs 30,266 crores will get their loans waived. The rest of 27.57 lakh farmers, who have repaid their loans will get up to Rs 25,000 credited to their bank accounts.

These conditions have brought down the cost of the loan waiver from the initial estimate of Rs 53,000 crore to Rs 34,000 crore. However, the farm loan waiver will make liquor, fuel and electricity in the state costlier.

Apart from the loan waiver announced by Kumaraswamy, Rs 4,000 crore has been allocated in the budget to complete the Rs 8,165 crore waiver of farm loans from cooperative banks, announced by the previous Congress government.

In order to allow farmers to take fresh loans, clearance certificates will be issued to farmers following the waiver, said Kumaraswamy.

Loans to be Paid Over Four Years

During a post-budget press conference, when asked how will the government pay Rs 34,000 crores, Kumaraswamy said the government has come to an understanding with the bankers on how the loans will be repaid over the next four years.

“We are not allotting Rs 34,000 crore at the same time. We have discussed with the bank representatives and they have principally agreed to release the money in four annual instalments. In this budget Rs 10,500 crores will be released and the rest of the amount will be released over the next three years,” he said.

Loan Waiver to Make Liquor Costlier

The ambitious project of the government to waive farm loans has made liquor in the state costlier.

Taxes on the Indian Made Liquor (IML) has been increased by 4% percent on all 18 slabs (different kinds of alcohols). This 4% increase in the excise duty, is over and above the 8% increase already announced by Siddaramaiah in his last budget in February.

The excise department’s target for year 2018-19 has been increased to Rs 19,750 crore from Rs 18,750 crore.

Pay More For Fuel and Electricity

Taxes on fuel and electricity have been increased to accommodate the need for additional revenue. “Keeping in view the need to augment resources for the welfare needs of the state, I propose to increase the rate of tax on petrol from present 30% to 32% percent. And diesel from 19% to 21%,” Kumaraswamy said in his budget speech.

This increase in the tax will result in the increase of petrol prices by Rs 1.14 per litre and that of diesel prices by Rs 1.12 per litre. However, Kumaraswamy argued that the prices of fuel in Karnataka will be lower than its neighbours.

In Motor Vehicle Taxes, an increase of 50% is proposed for private sector service vehicles and taxes on electricity has been increased from 6% to 9%.

Can I Print Notes? Asks Kumaraswamy

Responding to BJP leaders’ criticism that the coalition government has put additional burden on the common man by increasing taxes on fuel, Kumaraswamy said BJP should know the taxes have been raised for a good cause.

“Can I or Parameshwara print notes (to fund the loan waiver)? BJP should know taxes have been raised for a reason. Also, we have the lowest fuel prices in comparison with other states. Why didn’t BJP leaders oppose when Modi government increased the taxes on fuel by almost 230%?” asked Kumaraswamy.

Despite Loan Waiver, HDK Presents a Surplus Budget

A complete farm loan waiver was opposed by many, including former chief minister Siddaramaiah, claiming it would put pressure on the state’s economy. But Kumaraswamy presented a surplus budget, with a revenue surplus estimated at Rs 106 crore.

The fiscal deficit of the state (2.89%), also remains within 3% of the GSDP and total liabilities of the state – estimated to be 20.75% – is less than 25% of GSDP as mandated by Karnataka Fiscal Responsibility Act.

Kumaraswamy has managed to pull off the loan waiver while staying within the parameters of the Karnataka Fiscal Responsibility Act, but the real picture will be clearer towards the end of the financial year. Only if the departments can match their revenue targets will Kumaraswamy truly have pulled it off.