Karnataka's economic growth this yr may get contracted due to havoc caused by floods

Karnataka's economic growth for the current year may get "contracted" due to the havoc caused by floods, the mid-year review of state's finances tabled in the legislative assembly on Friday said. It also said the Union Finance Minister's announcement of a reduction in Corporate Income Tax for the year 2019-20 may have an adverse impact on the devolution from the government of India, as the divisible pool of taxes may come down.

"The state's economic growth (GSDP) was 9.6 percent during FY 18-19. The havoc caused by the floods in the state in 2019-20 has affected the socio-economic conditions. This has had an adverse impact on the investment in infrastructure and other development activities because of which the growth may get contracted for the current year," the mid-year review stated.

With the increased demand for flood relief and other contingent liabilities, the Karnataka Chief Secretary, who is also the head of the Fiscal Management Review Committee, has advised the Finance department to propose additional resource mobilization measures to ensure that all fiscal parameters will be maintained. The Committee noted the increased pressure on the state government to take up relief activities in flood hit districts and consequent requirement of funds,the review said.

The committee also noted that around Rs Rs 5,000 crore was already made available through reallocation of budgetary grants and supplementary estimates for flood relief work. It also said the Chief Secretary has advised the finance department to follow up with the union government through the disaster management cell of the Revenue department for early release of funds under NDRF.

A total of 2,798 villages in 103 taluks of 22 districts were affected by floods in which around seven lakh people were shifted to safer areas. Ninety-one people died and about 3,400 heads of cattle perished in the rains and floods.

The review noted that devolution from the government of India in the first six months of 2019-20 was Rs 14,668 crore at 36.8 percent of budget estimate of Rs 39,806 crore However the union government in its July 5 budget indicated that devolution to the state was Rs 38,134 crore, which was Rs 1,672 crore lower than the amount indicated in the budget February 2019. "Subsequent to the budget presented by the Union government in July, the Finance Minister has announced a reduction in Corporate Income Tax for the year 2019-20.

This may have an adverse impact on the devolution as the divisible pool of taxes may come down,"it further said, noting that devolution as a proportion of actuals of 18-19 was 41.7 percent in the first half of last year. The review also noted that Karnataka has been maintaining revenue surplus since 2004-05 and up September 2019, the revenue surplus was Rs 12,376 crore, compared to the budget estimate of Rs 258 crore, "reflecting a comfortable mid-year revenue position for the state." "Revenue surplus would also be maintained at the end of FY 19-20," it added.

The review also pointed out that with prudent fiscal management, continuing revenue mobilization efforts, pruning down non-essential expenditure and identification of savings to partly finance new expenditure commitments included in the Supplementary Estimates, it should be possible to remain within the fiscal deficit limit proscribed.

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