JJEM: Special Edition 4 (May 2025)
JJEM: Special Edition 4 (May 2025)
2025-05-31
Fiscal Challenges in Karnataka: Examining Budget Deficits and their Financing
Venkatesha B M
This study examines Karnataka's fiscal challenges, focusing on budget deficits and their financing mechanisms. Budget deficits, arising when expenditures exceed revenues, demand efficient fiscal management and sustainable financing strategies. Through a temporal analysis, the study identifies trends in Karnataka's budget deficits and explores the primary financing sources utilized by the state government. A descriptive methodology is adopted, relying on secondary data sourced from the Reserve Bank of India (RBI). The study period covers FY 2004-05 to 2022-23 for analyzing fiscal indicator growth rates and FY 2004-05 to 2020-21 for Gross Fiscal Deficit financing strategies. This analysis sheds light on Karnataka's reliance on financing mechanisms such as market borrowings, loans from the center, and contributions from the National Small Savings Fund (NSSF). Findings reveal that market borrowings are the most preferred method for financing deficits in Karnataka and other states/UTs, accounting for a significant share of funding. However, this heavy reliance poses risks, including the crowding-out effect on private investment. The study emphasizes the need for reducing unproductive expenditures and prioritizing developmental investments that can generate sustainable revenue streams, ensuring fiscal stability and economic growth. By addressing deficit trends and financing strategies, this research contributes to public finance literature, offering valuable insights for policymakers seeking to balance fiscal responsibility with growth objectives.
Budget Deficits, Deficit Financing, Fiscal Management, Public Finance