KARNATAKA - of Planning Commission

Financing Human DevelopmentThe state governmentwould have to incuradditional expenditure tothe extent of at least 2.5per cent of GSDP in orderto be able to achieve theTenth Plan targets.have to be redoubled. In the case of education,although there has been a sharp decline in thepercentage of out-of-school children in recentyears, according to the NSSO, almost 25 per centof the children in the age group of 6-14 did notattend school in 1999-2000. It is also likely thatKarnataka might not be able to achieve the TenthPlan literacy rate target. This issue is particularlyproblematic as there is a considerable gendergap, as well as gaps in the achievements of theScheduled Castes, Scheduled Tribes and backwardclasses. Similarly, the state continues to have ahigh infant mortality rate (IMR) compared toKerala and Tamil Nadu, and reaching the targetedIMR of 25 per thousand will mean signifi cantlyhigher allocation of resources for the health andfamily welfare sector.It is diffi cult to form any kind of a scientifi c estimateof the additional investments required to reachthe Tenth Plan targets in human development. Inpart, in many cases, the existing infrastructure byitself will help to improve the human developmentindicators. It is estimated that universalisationof elementary education itself requires that theelementary education expenditure as a proportionof GSDP be increased from the present level of1.6 per cent to 2.5 per cent. Similarly, fi nancialresources for anti-poverty interventions wouldhave to be doubled from the present level of 0.5per cent of GSDP to reach the Tenth Plan targets.On the health and family welfare front, at presentonly about 0.9 per cent of GSDP is spent onthis sector and this needs to be increased to 1.5per cent of GSDP at the very least. In addition tothese, it may also be necessary to increase outlayon items such as water supply and sanitation,nutrition and housing by about 0.5 per cent ofGSDP. Thus, the state government would have toincur additional expenditure to the extent of atleast 2.5 per cent of GSDP in order to be able toachieve the Tenth Plan targets.At the same time, the prospect for additionalresource mobilisation in the state is somewhatrestricted. The three-year average tax-GSDP ratiofor the period 1999-2002 at about 8.2 per centof GSDP in Karnataka is quite high - next only tothat of Tamil Nadu (8.6) among the states in thecountry (Government of India, 2005). Similarly,under the Twelfth Finance Commission award, thetax devolution to the state at 4.459 per cent of thetotal will be lower than that under the EleventhFinance Commission’s award (4.930 per cent).However, Karnataka is likely to get Rs.4,054 crorefor the period of fi ve years or Rs.811 crore per yearon an average as grants for the maintenance ofroads, buildings, forests, heritage conservation, statespecifi c needs, local bodies and calamity relief. Ofthis, excepting the last two items (about Rs.1,700crore for fi ve years), all items are additional.However, this gain from grants is only likely to offsetthe loss on account of lower tax devolution, and noadditional resources are likely to be available.On the plan side, however, there may be someincrease in the outlay on the social sectors byway of Central assistance, which will increase theoutlay on human development, though it is diffi cultto quantify the extent. In any case, the increasedoutlay to these programmes is likely to be about 0.5per cent of GSDP on the grounds that Karnataka isan economically developed state. Such a view doesnot take into account the regional disparities thathave resulted in the concentration of deprivation incertain regions, with adverse implications for thequantum of Central grants that Karnataka receives.Thus, the state will have to provide for an additional2 per cent of GSDP for human development, eitherby raising its own revenues or by compressingexpenditures in other, non-productive sectors.As already mentioned earlier, the tax-GSDP ratioin the state is reasonably high and it has shownhigh buoyancy in recent years. However, thelong-term gains in both, revenue and economicactivity, can come about only when there is areasonable and stable tax environment. Thedecision to replace the existing cascading typesales tax with value added tax (VAT) in the statefrom April 1, 2005 is likely to create a more stableand predictable consumption tax environment. Theself-enforcing nature of the levy will hopefully bringin gains in revenue productivity in the mediumand long term, making it possible to generateadditional revenue. Even in the short term, theCentral Government has agreed to compensatethe states for any loss on revenue – 100 per cent46