Of guarantees & hikes: Karnataka govt walks a tightrope amid calls to limit benefits

Congress leader Rahul Gandhi, along with Karnataka CM Siddaramaiah and Deputy CM DK Shivakumar.

When the Siddaramaiah-led Congress came to power in Karnataka with a thumping majority (135 of 224 MLAs) in May 2023, a senior bureaucrat suggested that the government implement the five promised poll guarantees, costing around Rs 50,000 crore annually, in a phased manner.

"I tried to convince them about the difficulties in implementing all guarantees at once, and suggested that it would be financially more prudent to roll them out in phases," the bureaucrat told Moneycontrol on condition of anonymity. But the idea found few takers and the state Congress leadership pushed for it as it was a key poll promise, added the now-retired bureaucrat.

But after the implementation of the guarantees, Congress ministers and party MLAs expressed mixed reactions, with some MLAs openly criticising the lack of funds for developmental projects in their constituencies for spreading disaffection among the people.

Also, read: Karnataka cabinet approves 15% hike in bus fares for four RTCs from January 5

Public ire is also growing due to a series of hikes, the latest being a 15 percent fare revision of all road transport corporations, including KSRTC and BMTC. There's also the Rs 3 per litre hike in fuel prices, 15-30 percent hike in property guidance values, increase in stamp duty fees, liquor prices , and 3 percent cess on transport vehicles. Karnataka, which has the highest road tax in India, will also impose an additional Rs 500 cess on two-wheelers and Rs 1,000 on cars on registration. Additionally, a lifetime tax has been introduced for EVs costing above Rs 25 lakh, and charges in government hospitals have risen.

Some of the proposed hikes include water tariff increase in Bengaluru, hike in Nandini milk prices, cess on movie tickets, OTT subscriptions, and aggregator platforms like Zomato, Swiggy, and Uber. There are also proposals to revise fares for the Bengaluru metro and auto rickshaws.

"The guarantee scheme is nothing but a freebie culture that started in Tamil Nadu. Of the five guarantees, except  the free bus travel for women and free power, all are cash transfers. Cash transfers have no impact on services or infrastructure, but free travel and power affect the quality of the service," said MG Devasahayam, a former haryana cadre IAS officer.

"As a Bengaluru resident, I am experiencing power cuts daily. Public transport is crucial, and the 15 percent bus fare hike forces people to cut back on essentials like food. There is no need to give free rides state-wide, and it should be for working women only. The power subsidy should be capped at 100 units, and not given to the wealthy," said Devasahayam.

Also, read: Bengaluru faces transport fare hikes: After BMTC, autos and metro set to increase prices

He said that due to the consequent revenue loss, the government can't provide quality services, which should be the priority.

Congress MLC Nagaraj Yadav said, "The Shakti scheme isn't responsible for the bus fare hike. Our government is reimbursing RTCs. Opposition parties should question the union government and ask them to reduce VAT for transport corporations. Rising taxes, soaring diesel prices, and salary demands under the seventh pay commission are all because of the union government."

Siddaramaiah undeterred

The state government has also faced criticism for using funds allocated for Scheduled Castes and Scheduled Tribes for the guarantee schemes. While the opposition BJP claims that people are burdened with hikes and that development has suffered, Siddaramaiah, who is set to present his record 16th budget in March 2025, remains undeterred. It is unclear how long the guarantee schemes will continue, and many believe a few tweaks are required.

Congress MLA HR Gaviyappa recently embarrassed his party by publicly urging Siddaramaiah to drop at least two of the five guarantee schemes to free up funds for developmental works. State ministers have voiced similar opinions. Public Works Minister Satish Jarkiholi suggested that excluding the wealthy from guarantee schemes could save the state exchequer at least Rs 10,000 crore annually. Minister for Large and Medium Industries and Infrastructure Development, MB Patil, supported revising the guidelines of the guarantee schemes to target only the poor.

Also, read: Rs 9.5 crore fee for 6 months: Inside the terms of Karnataka govt’s deal with Boston Consulting Group

Meanwhile, the Karnataka government has roped in Boston Consulting Group (BCG) as a consultant to boost revenue and plug leakages. Sources say BCG’s draft report recommends focusing on new revenue sources in departments such as mining, and asset monetisation in and around Bengaluru.

In line with this, the Karnataka government tabled the Karnataka (Mineral Rights and Mineral Bearing Land) Tax Bill, 2024, in the Assembly, allowing the state to levy taxes on minerals, which will generate additional revenues estimated at over Rs 4,700 crore. The government also introduced a one-time settlement (OTS) option for mining violators, particularly those mining beyond their licensed areas, aiming to collect over Rs 6,105 crore in penalties.

While the opposition alleges that development schemes have taken a hit due to the guarantees, the state is also acting as a guarantor to secure loans for various departments. The quantum of credit it has guaranteed is: Rs 2,000 crore in loans to  four state-run road transport corporations; Rs 5,000 crore loan for the Karnataka Industrial Areas Development Board; a Rs 19,000 crore loan for BBMP’s tunnel project; Rs 13,700 crore for power distribution companies, and others.

Also, read: Karnataka govt ropes in Boston Consulting Group to boost revenue amid poll guarantee schemes

A senior government official said that the guaranteed schemes should target the intended beneficiaries. “For instance, 200 units of free electricity per month are being availed of by almost all households. Those who can afford to pay should opt out. However, revising the eligibility criteria for these schemes is a policy decision,” the official said.

Siddaramaiah has said that Karnataka’s fiscal deficit stands at Rs 14,000 crore this financial year, with borrowings rising from Rs 90,280 crore last year to Rs 1.04 lakh crore. “We are hoping to reduce the deficit by cutting down on wasteful expenditure,” he had added.

Also, read: In Karnataka, lacklustre Congress performance casts a shadow on guarantee schemes

“We have allocated Rs 52,009 crore for the five guarantee schemes as part of the Rs 3.71 lakh crore budget for 2024-25,” he had explained.

The Chief Minister has also said that his government has managed the finance for the guarantees by increasing taxes, taking loans, and reducing corruption. He dismissed opposition claims that the guarantees had burdened the state, explaining that Karnataka sends Rs 4.5 lakh crore in taxes to the union government but receives only Rs 60,000 crore in return—just 13-14 paisa per rupee.

While the Congress won 135 seats in the 2023 polls, it managed  to win only nine of the 28 seats in the recently-concluded Lok Sabha polls. Despite this, the Congress credited the guarantees for its victories in three recent bypolls—Channapatna, Shiggaon, and Sandur.

Also, read: Congress party's poll guarantees: A tightrope walk awaits new Karnataka government