Fiscal Management Principles

(1) The State Government will be guided by the following fiscal management principles: (a) maintain Government debt at prudent levels; (b) manage guarantees and other contingent liabilities prudently, with particular reference to the quality and level of such liabilities; (c) ensure that policy decisions of the Government have due regard to their financial implications on future generations; (d) ensure that borrowings are used for productive purposes and accumulation of capital assets, and are not applied to finance current expenditure; (e) ensure a reasonable degree of stability and predictability in the level of the tax burden; (f) maintain the integrity of the tax system by minimizing special incentives, concessions and exemptions; (g) pursue tax policies with due regard to economic efficiency and compliance costs; (h) pursue non-tax revenue policies with due regard to cost recovery and equity; (i) pursue expenditure policies that would provide impetus for economic growth, poverty reduction and improvement in human welfare; (j) build up a revenue surplus for use in capital formation and productive expenditure; (k) ensure that physical assets of the Government are properly maintained; (l) disclose sufficient information to allow the public to scrutinize the conduct of fiscal policy and the state of public finances; (m) ensure that Government uses resources in ways that give best value for money; and also ensure that public assets are put to best possible use; (n) minimize fiscal risks associated with running of public sector undertakings and utilities providing public goods and services; (o) manage expenditure consistent with the level of revenue generated; (p) formulate budget in a realistic and objective manner with due regard to the general economic outlook and revenue prospects, and minimize deviations during the course of the year; (q) ensure discharge of current liabilities in a timely manner. (2) The State Government shall take appropriate measures to eliminate the revenue deficit and contain the fiscal deficit at sustainable level and build up adequate revenue surplus. (3) In particular, and without prejudice to the generality of the foregoing provisions, the State Government shall – (a) reduce revenue deficit to nil within a period of four financial years beginning from the initial financial year on the 1st day of April, 2002 and ending on the 31st day of March, 2006; (b) reduce revenue deficit as a percentage of Gross State Domestic Product (GSDP) in each of the financial years beginning on the 1st day of April, 2002, in a manner consistent with the goal set out in clause (a); (c) reduce fiscal deficit to not more than three per cent of the estimated gross state domestic product within a period of four financial years beginning from the initial financial year on the 1st day of April, 2002 and ending on the 31st day of March, 2006; (d) reduce fiscal deficit as a percentage of Gross State Demostic Product (GSDP) in each of the financial years beginning on the 1st day of April, 2002 in a manner consistent with the goal set out in clause (c); (e) not to give guarantee for any amount exceeding the limit stipulated under the Karnataka Ceiling to Government Guarantees Act, 1999 (Karnataka Act 11 of 1999); (f) ensure within a period of thirteen financial years, beginning from the initial financial year on the 1st day of April, 2002, and ending on the 31st day of March, 2015; that the total liabilities at the end of the last financial year do not exceed twenty five per cent of the estimated gross state domestic product for that year; 1[(g)ensure that the outstanding debt at the end of financial year 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 shall be at 26.2 percent, 26 percent, 25.7 percent, 25.4 percent and 25.2 percent respectively of the estimated Gross State Domestic Product for that year;] Provided that revenue deficit and fiscal deficit may exceed the limits specified under this sub-section due to ground or grounds of unforeseen demands on the finances of the State Government due to national security or natural calamity, subject to the condition that the excess beyond limits arising due to natural calamities does not exceed the actual fiscal cost that can be attributed to the calamities; 1[Provided further that the fiscal deficit during the year 2008-09 may exceed the 1. Inserted by Act 13 of 2011 w.e.f. 19.03.2011. limit up to 3.5 percent of estimated Gross State Domestic Product as a part of economic stimulus package. The additional market borrowings availed under the limits so relaxed shall be used for undertaking capital expenditure during the year 2008-09. As a measure of compliance an accompanying Report with details and stating the likely impact of such capital expenditure shall be placed before both the Houses of the Legislature.] 1. Inserted by Act 6 of 2009 w.e.f. 28.2.2009. 1[Provided also that the fiscal deficit during the financial year 2009-10 shall not exceed four percent of estimated Gross State Domestic Product.] 1. Shall be deemed to have been inserted by Act 14 of 2009 w.e.f. 01.04.2009. 1[Provided also that the fiscal deficit during the year 2010-11 may exceed the limit but not more than 3.44 percent of estimated Gross State Domestic Product as a part of counter recessionary measures. As a measure of compliance a report with details of measures taken and expenditure incurred thereby shall be placed before both Houses of the Legislature.] 1. Inserted by Act 13 of 2011 w.e.f. 19.03.2011. Provided further that the ground or grounds specified in the first proviso shall be placed before the House of Legislature, as soon as may be, after it becomes likely that such deficit amount may exceed the aforesaid limits, with an accompanying report stating the likely extent of excess, and reasons therefor.

1. (a) maintain Government debt at prudent levels;
2. (b) manage guarantees and other contingent liabilities prudently, with particular reference to the quality and level of such liabilities;
3. (c) ensure that policy decisions of the Government have due regard to their financial implications on future generations;
4. (d) ensure that borrowings are used for productive purposes and accumulation of capital assets, and are not applied to finance current expenditure;
5. (e) ensure a reasonable degree of stability and predictability in the level of the tax burden;
6. (f) maintain the integrity of the tax system by minimizing special incentives, concessions and exemptions;
7. (g) pursue tax policies with due regard to economic efficiency and compliance costs;
8. (h) pursue non-tax revenue policies with due regard to cost recovery and equity;
   • (i) pursue expenditure policies that would provide impetus for economic growth, poverty reduction and improvement in human welfare;
9. (j) build up a revenue surplus for use in capital formation and productive expenditure;
10. (k) ensure that physical assets of the Government are properly maintained;
11. (l) disclose sufficient information to allow the public to scrutinize the conduct of fiscal policy and the state of public finances;
12. (m) ensure that Government uses resources in ways that give best value for money; and also ensure that public assets are put to best possible use;
13. (n) minimize fiscal risks associated with running of public sector undertakings and utilities providing public goods and services;
14. (o) manage expenditure consistent with the level of revenue generated;
15. (p) formulate budget in a realistic and objective manner with due regard to the general economic outlook and revenue prospects, and minimize deviations during the course of the year;
16. (q) ensure discharge of current liabilities in a timely manner.

1. (2) The State Government shall take appropriate measures to eliminate the revenue deficit and contain the fiscal deficit at sustainable level and build up adequate revenue surplus.
2. (3) In particular, and without prejudice to the generality of the foregoing provisions, the State Government shall –
   • (a) reduce revenue deficit to nil within a period of four financial years beginning from the initial financial year on the 1st day of April, 2002 and ending on the 31st day of March, 2006;
   • (b) reduce revenue deficit as a percentage of Gross State Domestic Product
   • (GSDP) in each of the financial years beginning on the 1st day of April,

2002, in a manner consistent with the goal set out in clause (a);

1. (c) reduce fiscal deficit to not more than three per cent of the estimated gross state domestic product within a period of four financial years beginning from the initial financial year on the 1st day of April, 2002 and ending on the 31st day of March, 2006;
2. (d) reduce fiscal deficit as a percentage of Gross State Demostic Product
3. (GSDP) in each of the financial years beginning on the 1st day of April, 2002 in a manner consistent with the goal set out in clause (c);
4. (e) not to give guarantee for any amount exceeding the limit stipulated under the Karnataka Ceiling to Government Guarantees Act, 1999 (Karnataka Act 11 of 1999);
5. (f) ensure within a period of thirteen financial years, beginning from the initial financial year on the 1st day of April, 2002, and ending on the 31st day of March, 2015; that the total liabilities at the end of the last financial year do not exceed twenty five per cent of the estimated gross state domestic product for that year; 1[(g)ensure that the outstanding debt at the end of financial year 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 shall be at 26.2 percent, 26 percent, 25.7 percent, 25.4 percent and 25.2 percent respectively of the estimated Gross State Domestic Product for that year;] Provided that revenue deficit and fiscal deficit may exceed the limits specified under this sub-section due to ground or grounds of unforeseen demands on the finances of the State Government due to national security or natural calamity, subject to the condition that the excess beyond limits arising due to natural calamities does not exceed the actual fiscal cost that can be attributed to the calamities; 1[Provided further that the fiscal deficit during the year 2008-09 may exceed the

¹ Inserted by Act 13 of 2011 w.e.f. 19.03.2011.

limit up to 3.5 percent of estimated Gross State Domestic Product as a part of economic stimulus package. The additional market borrowings availed under the limits so relaxed shall be used for undertaking capital expenditure during the year 2008-09. As a measure of compliance an accompanying Report with details and stating the likely impact of such capital expenditure shall be placed before both the Houses of the Legislature.]

¹ Inserted by Act 6 of 2009 w.e.f. 28.2.2009.

1[Provided also that the fiscal deficit during the financial year 2009-10 shall not exceed four percent of estimated Gross State Domestic Product.]

1. Shall be deemed to have been inserted by Act 14 of 2009 w.e.f. 01.04.2009.

1[Provided also that the fiscal deficit during the year 2010-11 may exceed the limit but not more than 3.44 percent of estimated Gross State Domestic Product as a part of counter recessionary measures. As a measure of compliance a report with details of measures taken and expenditure incurred thereby shall be placed before both Houses of the Legislature.]

¹ Inserted by Act 13 of 2011 w.e.f. 19.03.2011.

Provided further that the ground or grounds specified in the first proviso shall be placed before the House of Legislature, as soon as may be, after it becomes likely that such deficit amount may exceed the aforesaid limits, with an accompanying report stating the likely extent of excess, and reasons therefor.