Compliance Financial Performance

Report of 2009 - Compliance, Financial and Performance Audit on State Finance of Government of Karnataka

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Sector Finance


In Karnataka, fiscal reforms and consolidation were brought to the forefront with the State Government formulating the first Medium Term Fiscal Plan (MTFP) for the period 2000-05 based on broad parameters of fiscal correction laid down by the Eleventh Finance  Commission (EFC). MTFP became a rolling annual document and the fiscal targets and policies set out in MTFP were dovetailed to the annual budgetary exercises to operationalise the restructuring plan. Karnataka was the first State to enact (September 2002) Fiscal Responsibility Act (FRA) providing statutory backing to MTFP. The Act aims at ensuring fiscal stability and sustainability, enhance the scope for improving social and physical infrastructure and human development by achieving revenue surplus, reducing fiscal deficit,removing impediments to effective conduct of fiscal policy and prudent debt management through limits on borrowings, debt and deficits, greater transparency in fiscal operations by the use of medium-term fiscal framework.
By adhering to the policy changes in revenue generation strategies and expenditure control envisaged in MTFPs, the State achieved the fiscal targets laid down in the Act one year ahead, with the year 2004-05 ending in revenue surplus and fiscal deficit for the year at less than three per cent of GSDP. During the period 2005-09 also, the State continued to maintain the revenue surplus and kept the fiscal deficit relative to GSDP below the limit laid down under the Act. Outstanding guarantees given by the Government were within the limit prescribed under the Karnataka Ceiling to Government Guarantees Act. The ratio of fiscal liabilities to GSDP continued to decline from 2004-05 and was around 27 per cent in 2008-09. As a result of these achievements, the State received the full benefit of incentive grants of Rs 286 crore for the EFC award period. Under GOI's scheme of States' Debt Consolidation and Relief Facility (DCRF) recommended by the Twelfth Finance Commission (TFC), the State got the benefit of interest relief of Rs 1,051 crore for the period 2005-09 along with waiver of GOI loan of Rs 1,433 crore.
The civil audit report of the Comptroller and Auditor General (CAG) of India hitherto included two chapters on State finances. In the scenario of increased emphasis on public financial management particularly in the aftermath of FRA, a stand alone report on State Government finances is considered appropriate by the CAG. Accordingly, from the report year 2009 onwards, it is decided to bring out a separate volume titled 'Report on State Finances'.

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