Has CM Siddaramaiah Further Risked Karnataka's Fiscal Stability? CAG Report Highlights Loan Guarantees To Loss-Making Firms

The Chief Minister Siddaramaiah-led Karnataka government, already under considerable fiscal pressure due to its key ‘guarantee’ schemes now faces a new challenge in form of government guarantees for loans taken by state-owned enterprises.

According to the latest findings from the Comptroller and Auditor General (CAG), the government has guaranteed Rs 52,335.74 crore for borrowings by electricity supply companies and the Karnataka Power Corporation Ltd.

The auditor has warned that these liabilities could ultimately fall on the state government due to the losses incurred by the electricity supply companies, as per a report by the Deccan Herald.

This warning comes as the Congress government has allocated Rs 52,000 crore for its five ‘guarantee’ schemes this fiscal year, compared to Rs 36,857 crore spent on these schemes last year.

In the 2022-23 fiscal year, the government's outstanding guarantee amount for loans taken by 151 state-run institutions was Rs 38,356 crore, covering both principal and interest. The largest guarantees were allocated to the power sector, followed by sectors like irrigation, housing, cooperation, and transport.

The Karnataka Ceiling on Government Guarantees Act 1999, mandates that outstanding guarantees as of 1 April each year should be less than 80 per cent of the state’s revenue receipts from the second preceding year. The total guarantees given currently stand at 30.59 per cent of the prescribed limit.

The CAG has further expressed concern about the government’s continued investment in loss-making companies.

However, Additional Chief Secretary (Finance) L K Atheeq has stated that no government guarantee has been invoked so far, and guarantees are extended only to institutions with government funding sources.