Fund allocation to projects, especially infrastructure projects, slowed down in Karnataka following a decline in revenue surplus in the last two financial years, officials said.
Revised salaries of state employees, farm loan waiver and social security pensions had eaten into state revenues.
The revenue balance position had improved substantially from 2004-05 and reached a peak surplus of Rs 4,152 crore in 2006-07, but tumbled to Rs 2,981 crore in 2007-08, according to the medium-term fiscal plan (MTFP) 2008-13 tabled in the ongoing Karnataka legislative assembly session.
The reduction in revenue surplus was partially on account of implementation of the state?s fifth pay commission award leading to higher expenditure under the salaries and pensions head.
This trend is likely to continue till the current fiscal ending March 2009, during which arrears of the fiscal 2007-08 are to be paid.
Almost Rs 1,400 crore is expected to be disbursed in 2008-09 over and above normal increases in revenue expenditure because of the revision of salaries and pensions.
The revenue surplus has also taken a hit on account of the substantial, one-time expenditure of Rs 1,250 crore on the farmers? loan waiver scheme and hike in the rate of social security pensions from Rs 200 per month to Rs 400, which increased revenue expenditure almost by Rs 400 crore by the state exchequer.
From the current fiscal onwards, while financing operating expenditure, there will not be any abrupt increase in revenue expenditure that could raise revenue surplus to boost infrastructure development like construction of airports, roads, flyovers, bridges and underpasses.
In fact, due to the decrease in the revenue surplus, the government has made more borrowings, as there is high demand for infrastructure investment, official sources said.
Higher borrowings will weaken the fiscal health while increasing the volume of debt service funds.
The MTFP also noted that over 37% of the expenditure incurred during the final month of March in fiscal 2006-07 indicated the extent of mismanagement in mplementing budgetary programmes.
This back-loading of expenditure in the last month of a fiscal compromises the quality of expenditure and leads to a spillover of expenditure to the next fiscal that would result in pushing expenditure into areas where absorptive capacity is high even though they may not be the targeted sectors.
The revenue surplus is projected to further decline to Rs 1,527 crore in the current fiscal but will increase to Rs 4,523 crore in the next fiscal and touch Rs 5,872 crore in 2010-11.