I rise to present the Budget of the Karnataka Government for the year 2000-01,
the very first year of the 21st Century and of the Third Millennium.
Five months ago, confounding all pollsters, the wise people of Karnataka gave an
overwhelming mandate to the Congress Party.
We thank the people of this great state for the confidence and trust they have
placed in us. We are conscious of the awesome responsibility that has devolved
upon my colleagues and myself.
The hopes, the aspirations, the expectations, the dreams, of over 5 crore
Kannadigas and other residents of this cosmopolitan state now have to be
We will strive our utmost to do so in significant measure.
That is our solemn pledge, that is our firm resolve.
The time for promises is over. It is now time for performance.
Sir, the Budget is not just an accounting exercise, not just an annual statement
of revenue and expenditure.
It is more than that.
The Budget is an opportunity for the government of the day to unveil its
economic agenda, articulate its social priorities and support intent with
investments. I propose to do precisely that today.
This Budget stands in the future and shapes our present priorities, policies and
Today is confined.
But tomorrow can be defined.
Hence, this Budget is about defining Karnataka’s tomorrow and about reaffirming
our faith in Karnataka’s leadership in development.
Karnataka has made great progress. Its achievements are being recognized not
just in India but across the world.
But many challenges await us, many unfinished tasks demand our attention.
First, my Government’s topmost priority is to eradicate poverty, to empower
women and to provide food & nutritional security to the vulnerable sections of
society. While the state has been implementing several poverty alleviation
schemes for the last two decades, the challenge is now to enhance their
effectiveness, make a direct attack on poverty and improve the standard of
living of the poor.
Second, in the 1990s, economic growth in Karnataka has averaged 5.8% per year.
This is an improvement over the 1980s when the average growth rate was just
around 5% per year. But a 5.8% growth rate is not good enough. We must aim to
achieve and set in motion policies and programmes in agriculture, in industry
and in the services sector to actually achieve a minimum growth rate of 7 to 8%
per year for the next ten years. Only through higher growth can we hope to
address our social concerns in a fiscally sustainable manner.
Third, while Karnataka has earned justifiable recognition for its achievements
in industry and science and technology, we cannot forget that agriculture
provides the foundation of our economy. Karnataka’s farmers need better seeds
and fertilisers, they need more credit, they need more reliable power, they need
remunerative prices and insurance against natural calamities. While giving a
renewed thrust to traditional agriculture, a new momentum has to be imparted to
horticulture, floriculture, fisheries and animal husbandry as well. My
government is a government of the farmers, by the farmers, and for the farmers.
Fourth, there is no substitute for irrigation to stimulate rural prosperity. A
large number of irrigation projects have been started. These have to be
completed quickly. The irrigation potential that has been created should be
utilized fully. We also have to make the irrigation establishment more
commercially viable and involve farmers in their management in a more meaningful
Fifth, the infrastructure of the state needs substantial expansion. This is as
true of rural infrastructure as it is of urban infrastructure. Power, roads,
water supply and sanitation are four specific areas that are crying out for new
investments and for better management. New investments are undoubtedly required
but equally important is to improve the productivity and efficiency of
investments already made and to ensure that infrastructure projects yield
adequate returns which can then be ploughed back for further expansion.
Innovative organizational mechanisms to accelerate infrastructure projects must
be put in place.
Sixth, we need a determined assault on social backwardness. There are still
large parts of the state where female literacy is unacceptably low. In recent
years, health facilities have expanded, but here again access to primary health
care for the weaker sections and in the poorer regions of the state has to be
increased in substantial measure. We have to expand productive employment
opportunities for the youth of the state, particularly for those who have
acquired some degree of educational skills.
Seventh, Karnataka must continue to provide a climate conducive to new
investments in industry, both in the traditional sectors like engineering,
textiles and manufacturing and in the newer areas of information technology,
pharmaceuticals, biotechnology and knowledge-based industries.
Eighth, we are committed to providing the people of Karnataka a transparent
government, a responsible and responsive administration, a government that
derives its strength and sustenance from the citizens of the state. Karnataka
has pioneered democratic decentralization for which I acknowledge the
contributions of many of my distinguished predecessors. These panchayats and
nagarpalikas are not the third tier of development. They are the first tier of
democracy and need to be suitably empowered to fulfill this role.
Ninth, Karnataka is more than Bangalore although it is Bangalore that is
routinely ranked among the ten top cities of the world. We need to develop all
regions of the state and use all our resources to ensure that the backward
regions of the state particularly in the north are fully integrated into the
mainstream of the development process.
Finally, we must have a fiscal system that serves the needs of the poor, a
pattern of public expenditures that supports the achievements of our pressing
socio-economic concerns and that keeps the state away from a debt trap.
My first Budget takes a series of measures in support of these ten objectives.
It is only the first milestone in a long journey. Budgets do not work miracles.
They provide thrusts and set the direction. It is easy to make grandiose
announcements. I have resisted that temptation. Instead, what I offer to the
people is a credible set of policies and programmes.
Sir, in the last five months, we have interacted with various financial
institutions in order to attract funds for development. I am happy to report
here that our labours have borne fruit.
First, the World Bank which has been having a dialogue with the state for the
past four years on a sporadic basis, has now after detailed discussions agreed
to make Karnataka a focus state. A firm commitment of Rs 12,000 crores is being
made for disbursement over the next five years. This would finance projects in a
wide variety of areas–watershed development, agriculture, irrigation, power,
roads, water supply, primary education, municipal services and health. These
projects are currently under preparation. 70% of the money would be in the form
of loans and 30% in the form of grants. The loans have to be repaid at 12%
interest over a twenty year period with an initial moratorium period of five
years. These are extremely liberal terms and will not lead us into a debt trap.
Second, we have signed a detailed agreement with HUDCO which will make available
Rs 1580 crores over the next two years for housing, water supply, sanitation and
Third, following an Agri-Summit that was held in Dharwad on February 6th and
following a visit by me and some of my ministerial colleagues to Anand, the
National Dairy Development Board (NDDB) will invest Rs 505 crores in the state
in dairy development, horticulture, animal husbandry, social forestry, oilseeds,
fruits and vegetables marketing.
Fourth, the Japanese Government has agreed to a Rs 3,600 crores investment
programme. The project being taken up under this programme includes the Cauvery
Phase IV to augment drinking water supply to Bangalore.
Fifth, Karnataka is the first state to sign a Memorandum of Agreement on Power
Reforms with the Central government. This MOA will bring Rs 3500 crores of new
investment in transmission and distribution in the state over the next five
Sixth, the state has established excellent working relationships with both the
Infrastructure Development and Finance Company (IDFC) and the ICICI. I will be
highlighting some of the specific projects to be taken up with the IDFC and the
ICICI later in my speech. We are also pursuing strategic alliances with NABARD
and the REC.
Sir, I will now highlight some important sectoral programmes. But before I do
so, I wish to digress a little. Economic and social development can take place
only if the law and order situation is maintained. Karnataka has been known to
be one of the most peaceful states in the country. It will continue to be so. We
have cracked down and will continue to crack down on violence of all kinds. We
will not allow mafias to operate in the state. We are coming forward with a
legislation to combat organized crime. The security of life and property of all
those living in Karnataka–Kannadigas, those from outside the state and those
from outside the country–will be our first responsibility.
Sir, the Congress Party has always believed in the empowerment of women. It was
the Congress that introduced one-third reservation for women in local bodies. We
are irrevocably committed to the full legal, educational, nutritional, economic
and political equality of women.
As a reflection of this commitment to provide micro-finance to women, I am
introducing a new self-help group scheme for women called Stree Shakti.
In the first year itself, we will cover 1,00,000 groups. We expect to give over
Rs.50 crores in the first year as revolving fund. An apex Committee under the
Chief Minister will lay down broad guidelines. The Scheme will be implemented
through Deputy Commissioners. Anganwadi Workers will be primarily the
organisers of the Groups. A Commissioner for Self- Employment at the State
level will oversee the Scheme. The records of all Self Help Groups (SHGs) will
be computerised and stored in the rural bank branches.
In every government scheme like housing, distributing house sites, assistance
for borewells, etc, women will be made the first owner. Houses under Ashraya,
Ambedkar and other housing schemes will be in the sole name of the woman of the
Educate a boy, educate an individual. Educate a girl, educate a family. But not
only do we believe in it but we propose to do something about it. Hence, I am
making education free for all girls in all respects in government-run
institutions upto the pre-university level.
There are about 11000 incomplete school rooms in the state. These will be
completed by March 31st 2001 at a cost of Rs. 45 crores.
There is an existing scheme to supply free textbooks to all students of classes
I to IV and for SC/ST students of classes V to VII. This scheme will now be
extended to all students upto class VII. This scheme will cover an additional
16 lakh students at a cost of Rs 5.3 crores.
My government is committed to improving the quality of education in schools
through the use of Information Technology. While others talk of IT education
only, we are focussing on IT based education as well. IT based education will be
started initially in 1000 schools.
All the 77 engineering colleges in the state will be networked in the next
twelve months. The Karnataka Open University has joined a consortium of renowned
educational institutions worldwide, to start distance education programme on the
We have been providing grant-in-aid to educational institutions. Most of these
institutions have now stabilized and can raise their own resources. Therefore, I
am reducing the grant-in-aid to higher education by 15%. However, I am
maintaining the present level of grant-in-aid to both primary and secondary
education. The resources that we save will be used to spread primary education
particularly in the educationally deprived areas of the state.
There is also a crying need for increasing the fee structure in government
colleges. In our state, the fees for B. Com, for example, is Rs 180 per year, as
compared to Rs 800 in Maharashtra and Rs 360 in Andhra Pradesh. But the present
situation cannot continue for long. Simultaneously, I am initiating a dialogue
with banks and financial institutions to offer a student loan scheme so that no
deserving student is denied college education, when the fee structure is
Honourable Members are aware that a Task Force on Health has been set up. The
Task Force is expected to submit a comprehensive report on revamping the state’s
health system in the next two to three months. Meanwhile, it has made some
important suggestions for immediate implementation to improve the quality of
rural health care.
The major cause for high infant mortality in villages is unhygienic delivery
methods. Therefore, I am introducing a new scheme called Suraksha Herige
by which sterilised sealed delivery kits will be made freely available to all
midwives through the network of PHCs. The subsidy on account of this scheme will
be Rs 1 crore per year.
Rural women also require personal hygiene kits. I am sure Honourable Members are
aware of the unhygienic practices in many parts of rural Karnataka which causes
infection and is, in many way, a blot on our social conscience as well. What we
have decided, therefore, is to distribute personal hygiene kits through the PDS
and through Anganwadi workers throughout rural Karnataka. We shall be providing
a subsidy of Rs 18 crore during the year for this scheme.
These two subsidies are the type of subsidies that my government believes are
socially desirable and justifiable.
The Government will improve 1000 PHCs to begin with. Each of these PHCs will
have a laboratory and be fully equipped and staffed. The process of
district-wise recruitment of laboratory technicians has already started.
Honourable Members will be glad to know that the World Bank has hailed the
Karnataka Health System Development Project as one of the best examples of
implementation. Under this project, we will make at least 100 secondary
hospitals to be fully functional by the end of the year.
new programme for extending health care for urban slum dwellers is being
launched in Mysore, Hubli-Dharwad, Raichur, Gulbarga, Belgaum, Bijapur, Tumkur,
Davanagere, Shimoga, Bhadravathi and Bellary, apart from Bangalore, under the
World Bank-aided India Population Project VIII (IPP) at a total outlay of Rs 26
crores this year.
Health Information System that monitors epidemics in all parts of the State will
be in place in the next three months. The project involves initiatives from the
private sector. All District Hospitals will be interconnected to the Health
Secretariat in Bangalore to enable better monitoring. This is being done as a
public service by a Bangalore-based private company.
mentioned earlier about the Agri-Summit that was held in February at Dharwad,
and that was attended by some of the most distinguished experts of the country.
An Agricultural Commission will be set up and the immediate task of this
commission will be to identify missions for bridging the gap between actual
yields and possible yields in the ten different agro-climatic zones of the
We have already set up a multi-disciplinary Directorate of Watershed
Development. This will give a new thrust to watershed management in the arid
zones of the state. Karnataka has the second largest arid zone area in the
country, after Rajasthan. My government attaches the highest priority to
watershed-based projects, an area which Karnataka had pioneered but which
unfortunately has stagnated.
We have decided to participate in the Rashtriya Krishi Bima Yojana that has been
announced by the Central government. This scheme is to cover both loanee and
non-loanee farmers and will cover more crops. We do not agree with the way the
Central government has formulated the scheme. However, we have decided to
participate in it in the interests of our farmers. I shall be making a provision
of Rs 100 crores during the year. The magnitude of this allocation can be gauged
by comparing it with the Rs 6 crores that the state spent on crop insurance last
new scheme, called Ryot Mitra, is being launched to set up farmers
contact centres in each of the 745 Hoblis of the state. These centres will make
available scientific and technical advice on a continuing basis to farmers at
network of 100 cold storages will be set up in the state with private sector
participation. This will give a boost to horticulture development. Cold
storages, both existing and proposed, will get concessional power tariff.
Industrial power tariff will be made applicable instead of commercial
electricity rates as at present. In addition, a subvention of Rs 1 per kwh will
be given by the state government. A policy directive to this effect is being
issued. This policy will remain in place for the next five years.
am proposing a new policy initiative to attract private investment for the
development of agri-businesses and for the development of barren, arid and
degraded lands with the full involvement of local communities. The details of
this policy will be announced within the next sixty days.
The state government has 415 horticultural farms. The returns from them are very
meagre. The productivity of these farms will be increased and model production
centres developed. A few of them will be disposed off to the private sector as
The current level of agricultural credit disbursement by the cooperative
institutions is around Rs 1010 crores. I am making a commitment that this will
be doubled in the next three years with particular focus on bringing small and
marginal farmers under the umbrella of institutional credit. We will make use of
the RBI’s new scheme to strengthen cooperative credit institutions. Even though
NABARD has increased the rate of interest on its refinance facility, we have
decided not to pass on the additional burden to the farmers. The burden of this
concession is Rs.15 crores. It will be borne by the co-operative lending
Sir, in recent days, concern has been expressed in the House on the spread of
the coconut mite disease. I share the worries of Honourable Members. We are
mobilizing the best available technical expertise from all over the country
through the Indian Council of Agricultural Research and whatever funding is
required will definitely be provided.
will be making more announcements on concessions to farmers later in Part B of
my speech. These will demonstrate our commitment to Karnataka’s farming
This year, we will create an additional irrigation potential of 2 lakh hectares.
This will comprise about 1 lakh hectares in the Upper Krishna Project and
another 1 lakh hectares in other projects. During this year, we are expecting a
substantial increase in assistance from the central government for the Upper
Krishna, Malaprabha, Hirehalla and Karanja projects.
We have completed the NABARD assisted Votehole and Manchanabele irrigation
projects this month. The Bennithora, Taraka, Chulkinala, Lower Mullamari,
Amarja, Devraj Urs Canal (Varuna Canal) and the Maskinala Projects will be
commissioned by March 31st, 2001.
The active and full participation of all farmers is essential for realizing the
benefits from irrigation schemes and projects. I am, therefore, bringing forward
legislation in this session of the Assembly itself to give teeth to water user
associations so that they can not only collect irrigation charges but also be
involved in the management and maintenance of the projects from which they draw
Water rates have not been increased for the past fifteen years. This has been
one of the main reasons why irrigation projects are poorly maintained with
consequent adverse impact on farmers. I believe that farmers will pay more
provided they are assured of reliable, timely and adequate supply. A consensus
will be evolved on this issue before any final decision is taken.
Honourable Members are aware that for centuries, tanks have provided not only
water for irrigation but have also provided employment opportunities in the
state. There are about 50,000 such tanks which, unfortunately, have fallen into
disuse because of silting and no maintenance. We are formulating a Jala
Samvardhana Yojane to be taken up as a poverty alleviation project as
part of the World Bank package. To begin with, 25,000 tanks will be taken up for
rejuvenation under this scheme for completion in a period of five years.
comprehensive project for combating sea erosion on the west coast of the state
is being prepared. This project will be posed to the Government of India for
am happy to announce that the scheme for enrolling SC/ST persons in state
cooperative institutions, that was discontinued three years ago, is being
revived immediately. In addition, the scheme will be made applicable to minority
communities as well.
Under the Floor Price Scheme, the government conducted effective market
interventions in the last three months to help onion and potato farmers. Good
quality onions were purchased at Rs 300 a quintal.
Housing for the economically weaker sections of society is a matter of
overriding priority for my government. We will construct 2,00,000 houses this
year. We are setting up the Rajiv Gandhi Rural Housing Corporation to act as a
vehicle for mobilizing greater resources for social housing. Through this
Corporation, we will construct houses under the Ashraya and the Ambedkar schemes
during the next twelve months. The Indira Awas Yojana will continue to be
implemented by the zilla panchayats.
The Karnataka Housing Board will be thoroughly revamped and restructured. It
will concentrate on providing housing to lower income and middle income groups.
It will enter into joint ventures with private sector agencies and its land will
be utilized as its equity share.
The quality of life in slums has to be improved. Slums have to be rehabilitated.
The resources of the Karnataka Slum Clearance Board will be augmented with the
assistance of HUDCO. The additional funds that will be made available during
2000-01 in this manner will be Rs 24 crores.
My government has established a norm for rural drinking water supply of 55
litres per person per day to be achieved within the next three years.
Substantial funds from HUDCO and the World Bank will augment our own resources.
A World-Bank assisted Integrated Rural Water Supply and Sanitation Project
covering 1110 villages in 16 districts of the state will be completed by
September 2000. Another Dutch-assisted project in 200 problem villages in the
districts of Dharwad, Gadag, Haveri, Bagalkote and Bijapur will be completed in
the next few days itself.
Technology Mission for Water Supply and Sanitation has already been established.
This will give a new impetus to all drinking water supply programmes. It will
also catalyse interventions to eliminate the problem of brackishness and excess
fluoride in ground water sources.
An action plan for drinking water schemes in 47 small and medium towns of the
state has been formulated for completion within the next four years at a total
cost of Rs 321 crores. The funds for this project have been tied up with HUDCO.
am launching a new scheme Swachcha Grama for total village
sanitation which will involve paving of internal roads, construction of drainage
systems and sanitary latrines, provision of community compost yards and
provision of household sanitation. I am starting the scheme with a budgetary
allocation of Rs 20 crores that will, in turn, enable us to obtain about Rs 160
crores of HUDCO loans. 1000 villages will be taken up in the first year of the
Honourable Members will recall that I have already announced that the annual
grants given to gram panchayats will be doubled from Rs 1 lakh to Rs 2 lakhs.
You will be happy to know that this assurance has been implemented and the first
instalment of this enhanced grant for the last quarter of the financial year
1999–2000 has already been released to all the 5675 gram panchayats of the
The Abdul Nazeer Sab Institute of Rural Development in Mysore will take up the
task of organizing orientation courses for nearly 80,000 panchayat members.
These courses will be completed by December 2000. Honourable Members would be
interested to know that we will be using satellite technology for this purpose,
showing our commitment to the social applications of high technology.
Honourable Members will be very pleased to know that the target for SC/ST houses
is being doubled from 50,000 to 100,000 a year. Two days ago, the Bangalore
Development Authority cleared 2500 sites for distribution among SC/ST families
whose applications were pending since 1988.
Announcements for the construction of new hostels have been made in the past.
This year while making the announcement, I wish to reiterate that they will be
constructed at all costs. I will personally be monitoring progress. We will
build 50 new hostels all over the state for SC/ST boys and 20 for SC/ST girls.
The government will continue to pay all boarding charges. 20 new post-matric
hostels for girls belonging to backward classes will be constructed at taluka
All SC/ST boys and girls from the state who get admitted to IITs, IIMs, IISc and
IIIT Bangalore will each get a one time scholarship grant of Rs 50,000.
For the purchase of agricultural land, the ceiling on subsidy given by the state
government to the Karnataka SC/ST Development Corporation is being raised from
Rs 50,000 per beneficiary to Rs 60,000 per beneficiary.
We are enhancing the share capital of the Karnataka Backward Classes Development
Corporation by Rs 1 crore.
The Budgetary allocation for the Karnataka Minority Development Corporation has
been enhanced by 25% this year. 1700 minority beneficiaries will be trained
under various trades. 5 post-matric hostels for minority girls will be opened
this year along with five community halls (Shadhi Mahals).
Honourable Members would be pleased to know that we are launching a new scheme
called yuva.com for the rural youth. Under this scheme, training
centres will be established in each of the 225 Assembly constituencies over the
next twelve months. These centres will train about 1 lakh educated unemployed
youth in IT-related services. The private sector will participate in setting up
and running these centres. The first four yuva.com centres will take off on July
1st in Belgaum, Bidar, Chitradurga and Mandya.
There are 90 government-run Industrial Training Institutes. With the assistance
of the private sector, the government will upgrade facilities in these
institutes which will be used for additional training of rural youth.
Sir, it is well-known to all of us that sericulture is extremely important to
the state. It provides employment to 25 lakh people, most of whom are women. To
further accelerate the employment potential of the industry and to enhance the
production of high-quality silk cocoons, I am introducing a new scheme called
Reshme Sampathu Yojane. This scheme will be targetted at scheduled
castes and scheduled tribes, small and marginal farmers and physically
handicapped persons in all the 27 districts of the state. Under the scheme,
borewells will be drilled and pumpsets fitted, superior variety of mulberry will
be planted and maintained and high quality bivoltine silkworms will be reared.
We are seeking multilateral and bilateral funds for launching this programme.
The Government of Karnataka has already provided all sanctions to the 11 new
sugar factories that are to come up in the cooperative sector, each with a
capacity of 2500 tonnes per day. NABARD and the NCDC have agreed to sanction the
share capital and to accord the necessary credit authorization.
The potential for generating power by sugar mills in the state through
cogeneration is substantial. So far, less than one-fourth of the potential has
been utilized. A time-bound programme for utilizing the cogeneration potential
is being launched by the Karnataka Renewable Energy Development Limited (KREDL).
The Government will also facilitate the establishment of the Karnataka Sugar
Institute in collaboration with the sugar industry. My friends and colleagues
will be happy to know that this Institute will be located in Belgaum.
The government is fully committed to protecting the welfare of fishing
communities. The existing scheme of providing subsidy on diesel to marine
fishermen is cumbersome and involves time-consuming procedures. I am happy to
announce that the scheme will now be drastically simplified and will be
implemented by the Fisheries department.
Forests, Environment and Ecology
The forest cover in our state is now estimated at about 20%. This will
progressively be increased to 22% in the next five years.
The availability of fuelwood is coming down over the years. The Forest
Department will take up extensive fuelwood plantations to help the poor
villagers, particularly the tribals.
and Civil Supplies
Honourable Members are aware that very recently the Central Government has
increased the prices of rice and wheat for ration card holders and have sought
to transfer the burden of food subsidy to the state governments. My government
is committed to ensuring food security to all those genuine green card holders.
For instance, the price of rice which is presently bought by poor green-card
holders has been raised from Rs 3.50 per kg to Rs. 6.60 per kg. We have already
protested against this most insensitive and unilateral decision of the
Government of India.
If we continue to distribute foodgrains at original prices, the state requires
an allocation of Rs 966 crores. Last year’s allocation for food subsidy,
however, was Rs. 305 crores. It is obvious that the state finances cannot
support such a huge increase. The honorable members also appreciate that several
non-genuine people have been given green-cards in the state. Unless such richer
beneficiaries are weeded out from the list the food subsidy cannot reach the
poor and the needy. I seek the cooperation of all Honourable Members to weed out
blatantly ineligible cardholders so that more foodgrains can be made available
to the really needy. A decision will soon be taken to resolve the problem
arising out of the Government of India’s announcement.
Monitoring will be facilitated if the ration cards are computerised. This
process will be completed in Bangalore by March 31st 2001 and in all other
places in a phased manner.
My government is committed to balanced regional development. This will involve
shifting of government offices and functions that will, in turn, trigger other
economic activities. The Karnataka Handloom Development Corporation has already
been relocated from Bangalore to Hubli. We have now decided to relocate the
Directorate of Sugar from Bangalore to Belgaum, the Textile Commissioner’s
Office from Bangalore to Hubli, Sericulture Directorate from Bangalore to
Mysore, the Karnataka Oilseeds Marketing Federation from Bangalore to Raichur
and the Karnataka Neerawari Nigam from Bangalore to Dharwad. Krishna Bhagya Jala
Nigam is the most prestigious corporation of the State Government that
implements the Upper Krishna Project. I am happy to announce that this
corporation will now be shifted from Bangalore to Bhimarayanagudi, in Gulbarga
district. This is just the beginning and I seek the cooperation and support of
each and every Honourable Member in this important task.
The performance of public enterprises in the state has been dismal. Enterprises
making losses or marginal profits are a drain on the state’s exchequer and erode
our capacity to invest in essential social infrastructure. A Public Sector
Restructuring Committee has been set up to recommend to the government future
options for each of our public sector companies. I wish to reassure the
Honourable Members that in the process of public sector restructuring, the
legitimate interests of workers would be fully protected.
The Karnataka Small Industries Marketing Corporation was set up to market
products of small-scale industries. Its working in recent times, however, has
left a lot to be desired. This House itself has been a witness to discussions
on several irregularities in KSIMC purchases. It is hence necessary to refocus
the role of the KSIMC.
The Karnataka Construction Corporation was set up as a role model for the
construction contractors. The Government, however, is unhappy to note that the
KSCC has not lived up to its expectations. The State now has also good
contractors in the private sector with better technological expertise. It has,
therefore, been decided to wind up the KSCC. The Government will merge all the
resources of KSCC with the PWD.
Over 90% of the labour force in India and in Karnataka is in the unorganized
sector. To protect their interests, a Karnataka Manual Workers (Regulation of
Employment and Conditions of Work) Bill will be shortly introduced. This will
enable the provision of social security to these vulnerable groups.
We must protect the interests of small investors who have put their hard-earned,
lifetime savings into chit funds and related non-banking financial companies
(NBFCs). During this session itself, I will bring a legislation to ensure that
Karnataka is a state where urbanization is taking place rapidly. This is
creating new demands for municipal services and amenities. There is urgent need
to strengthen the revenue base of urban local bodies. The present property tax
structure of the municipalities is not very scientifically determined and is
amenable to misuse by all parties. Therefore, I am proposing to make property
tax assessment more simple and to make clear and transparent the method for
calculating the rateable value of the property. The system will also provide for
self-assessment. This self-assessment procedure has already been initiated in
Bangalore. Other cities will see the improvements in the next three months.
We have taken up a number of urban development projects with the assistance of
HUDCO. We are negotiating projects with the World Bank and the Asian Development
Bank. All these projects will be implemented by the Karnataka Urban
Infrastructure Development Finance Corporation.
While negotiating with financing institutions like the World Bank, HUDCO, ADB
and bilateral organizations, I have been acutely conscious of the need to
substantially step up investments in social and physical infrastructure in the
backward northern region of the state. Even in my negotiations with the NDDB, I
specifically included horticulture, being aware of the great potential that
exists in this area in northern Karnataka. My efforts to launch a process of
shifting government offices away from Bangalore is also part of my government’s
desire to bring about a better regional balance. In addition to these
initiatives, I am proposing other steps to further develop northern Karnataka
The Tadri port will be developed with the assistance of a private investor, the
contracts for which will be issued shortly. This will involve an investment of
at least Rs 800 crores.
Software Technology Park will be commissioned in Hubli by May 31st with a fibre
optic link to Belgaum. Similarly, a food processing park will be started at
Bagalkote within the next two months. A north-eastern road transport corporation
will be launched with headquarters in Gulbarga. We are also taking measures to
revive and reactivate the Belgaum and Hubli airports. A perspective plan for
developing tourism in the northern region specifically is under preparation.
Honourable Members are aware that Karnataka has substantial mineral resources.
These have to be surveyed systematically with the aid of modern technology and
developed in an ecologically sustainable manner. We will announce a New Mining
Policy within the next 60 days.
The concept of an Infrastructure Development Corporation of Karnataka (IDeCK)
was initiated by the previous Finance Minister in 1998-99. While complimenting
him, I am pleased to announce that IDeck
has now become a reality. The Government and the IDFC have agreed to form this
Corporation in the private sector. The Government will contribute Rs.200 crores
to this Corporation as one time support. The IDFC shall hold 51% Equity and the
IDeck will take a large number of small projects all over
Karnataka. IDeCK will emphasise user charges, fiscal discipline in local
bodies, community participation etc. IDeCK has target to spend over Rs. 600
crores on infrastructure projects in the first year itself.
wish to draw attention of the Honourable Members to a disturbing situation in
regard to rural infrastructure. Since 1995-96, NABARD has been operating a Rural
Infrastructure Development Fund (RIDF) under which Karnataka has been sanctioned
close to Rs 744 crores. Unfortunately, our record of utilization has been
disappointing and has been just around 48%. My government is extremely concerned
with this and will take corrective steps immediately. Project preparation will
be improved. Agencies like the Karnataka Land Army Corporation will be involved
in project implementation. This is an area that requires greater professional
Honourable Members are aware that an Infrastructure Cess is being levied on
sales tax, excise license fees, motor vehicle tax and non-judicial stamps. The
collection from the cess is to be used for investment in IDeck.
This cess is being extended for another two years.
Honourable Members would undoubtedly have been disappointed with this year’s
Railway Budget. Many important rail lines in the state have received meagre
allocations and at present levels of funding would take years to be completed.
We need a bold new initiative to expand the rail network in the state.
Consequently, I am proposing the establishment of a Karnataka Rail Development
Corporation with 26% equity from the state government through IDeCK. IDFC and
HUDCO have already agreed to be joint venture partners and I have written to the
Railways also to participate. The Corporation will raise resources for the
completion of key lines like Hubli-Ankola, Gadag-Sholapur, Sakleshpur-Mangalore
and doubling of Bangalore-Mysore. This is a new idea and it would be my earnest
endeavour to ensure that we succeed.
Over 60% of this year’s revenue deficit is on account of explicit power
subsidies alone. This cannot go on. The power sector must be made commercially
viable with subsidies targetted at the truly poor and the needy. Subsidies must
also be provided in a transparent and explicit manner through the state Budget.
I also wish to bring to the attention of Honourable Members that only 37% of the
total electricity supply in the state is metered. We must move to universal
metering in a phased manner. The T&D losses of the KPTCL at 34% according to
present estimates is also unsustainable.
The government has already announced its decision to privatize the distribution
system. A total investment of about Rs 6500 crore is on the anvil for
strengthening the transmission and distribution system in the state. We will add
2500 to 3000 MW of new capacity by 2005. This will be achieved at all costs.
Work on the seventh unit of the Raichur Thermal Power Station with a capacity of
210 MW will commence by July 31st 2000. I am also happy to announce that the 500
MW Vijayanagar power project will be developed on a joint venture basis. Talks
are on with the ICICI for its participation.
have already extended Bhagya Jyoti connections to 16 lakh households. In
2000–01, an additional 2,00,000 households will be covered. I am aware that many
deserving families cannot be covered under the existing Bhagya Jyoti norms if
their house is more than one pole away from the LT line. This restriction is
being removed immediately to enable houses that are up to two poles away from
the LT line to become eligible for Bhagya Jyoti connections. These initiatives
to expand the Bhagya Jyoti and rural electrification schemes will cost the state
Rs 180 crores in 2000–01. KPTCL has also taken up the task of completing the
electrification of 18,000 hamlets within the next five years with assistance
from the REC.
The high-level committee to evaluate escrow capacity for private power projects
has submitted its report to the government. Financial institutions are also now
having second thoughts on the very concept of escrow. Our policy is clear-we
will actively encourage private power producers with proven track record and
managerial and technical expertise with state government guarantees.
The Government has already taken up a special programme for the improvement of
rural roads with a total outlay of Rs 1 crore in each of the 175 talukas of the
state. About 10,000 kms of rural roads will be upgraded as part of this special
programme this year. Discussions are also on with the World Bank and a major
highway project is being finalized. 78 roadless villages will be provided with
metalled roads this year. The Karnataka Road Development Corporation will be
spending Rs 200 crores to improve the state highways and construct 100 bridges
in the state.
Honourable Members will be pleased to know that the state government has given
all clearances to the Bangalore-Mysore Infrastructure Corridor being implemented
in the private sector. At the insistence of the state government, the project
will begin at two points, Bangalore and Mandya. The project will go for
financial closure shortly.
The performance of KSRTC has improved after its split into three corporations.
But there is still great scope for both financial and operational improvements.
These corporations must function in a commercial and autonomous manner. They
will be allowed to automatically revise their tariff to absorb increase in
have been repeatedly saying that ultimately modern technology must make a
difference to the lives of ordinary people. The government will take up specific
projects to mobilize technology for social applications. I am making a solemn
commitment in this House that by the 31st of March 2001, RTCs in computerised
format will be made available to every single ryot in the state.
our eagerness to embrace IT, we must not forget traditional industries like
textiles for which there is still further scope for growth in the state. We will
utilize concessional funds under the newly introduced Technology Upgradation
Fund of the Government of India to modernize the textile industry. We will also
establish new units for the wet processing of fabrics, powerloom complexes and
product development centres through the Karnataka Powerloom Development
Corporation. Bangalore itself is a leading centre of garment exports, a position
that will be consolidated and strengthened. An Apparel Export Park is being set
up in Whitefield. This will create sizeable employment opportunities.
The state government will continue to proactively woo both Indian and foreign
investors. A Global Investors Meet is being organized in June 2000 in
collaboration with the Confederation of Indian Industry. The state has
positioned itself as a major destination not just for traditional industry but
also for value-added services. Karnataka is marketing itself as a major
investment destination for research and development activities.
have recently unveiled Mahiti - the Millennium IT Policy in the service of the
common man. We propose to use the IT in the pursuit of social goals and
The Government will encourage new colleges in IT. We will also actively support
private universities in IT started by professionals. Existing colleges will be
encouraged to convert other streams into IT. In addition, a State council for
IT Education and Training will be set up to establish standards. The
Government will double the number of students that graduate in IT from 9620 to
The Government understands the concerns of industry regarding uncertainty in
taxation. I am pleased to announce that tax stability would be maintained for
five years for knowledge-based industries including IT, communications,
biotechnology and pharmaceutical research.
While Karnataka is the acknowledged leader in IT, I would like the State to lead
the next revolution in Biotechnology. Karnataka already has the training and
knowledge base necessary to drive the revolution. We have the critical mass of
biotech companies and the best research institutions. The immediate challenge is
how to nurture that innovation, promote entrepreneurship and facilitate
effective technology transfer to the end users. I am happy to announce a Vision
Group on biotechnology is being set up to advise the government on future
The government is setting up in collaboration with STPI, an incubation centre
for the IT entrepreneurs. In addition, two incubation centres one for IT and one
for biotechnology are being set up in active collaboration with ICICI. I am also
happy to announce that ICICI would be setting up a professor chair at the Indian
Institute of Information Technology, Bangalore.
government recognizes the enormous employment potential of tourism. Tourism
development will also help stimulating growth in backward areas. A Tourism
Policy was announced by the previous government. That policy now has to be
translated into specific projects. We will make an all-out effort to attract
private investment in this sector. Special emphasis will be laid on eco- and
Honourable Members are aware that a Bangalore Agenda Task Force has been set up
and the Task Force has galvanized action across a wide variety of fronts to
improve the quality of life in the state’s capital. I would like to commend this
as a true example of public-private partnership, which my Government will
emulate in other cities of the state.
addition to what the Task Force has already unveiled and which are being pursued
aggressively, I am now proposing two initiatives to decongest the city. I have
already mooted the idea of shifting the Race Course away from its present
location to outside the city limits with the Turf Club. Let me make it clear
that the land so freed will under no circumstances be used for real estate
development but will be earmarked as vital lung space for the city. Similarly,
the Central Jail will also be shifted to a more suitable location.
The Bangalore Mahanagara Palike has committed to undertake several initiatives
which will improve the efficiency of public services and create a citizen
oriented administration. These steps include: self assessment of property tax;
instituting zonal level administration; massive slum development programme and
urban rejuvenation of the old ‘petes’. To raise resources, an infrastructure fee
on vehicles between Rs 50 and Rs 100 and a solid waste management cess on
property tax is being introduced. I am bringing forward amendments to the
Karnataka Municipalities Act very soon.
the past, property tax collections of the BMP have increased by around 2%
annually. Because of our untiring efforts in the past six months, property tax
collections have doubled and will amount to Rs 120 crores by March-end. In
2000–01, the increase will be 50% and this trend will be maintained.
Government offices are spread all the city and are paying an annual rent of Rs
5.5 crores. I am pleased to announce that we will construct Vidhana Soudha South
Block to bring all offices under one roof. This will be of great convenience to
the public. The aesthetics of the new structure will be in harmony with that of
the Vidhana Soudha.
Transparency in Administration
government is fully committed to transparency at all levels. This will empower
the people of Karnataka and make the government truly accountable. The power of
IT will be used to modernize and open up the administration that has
traditionally operated behind a veil of secrecy. I will bring forward a Right to
Information Bill later in the session. I would also like to take a leaf out of
my predecessor’s Budget speech last year and once again propose a Karnataka
Transparency in Tenders and Procurement Act. I have no hesitation in borrowing
ideas from others, including my political opponents, if I see the benefits to
am determined to usher in a new work culture in all government departments. I
would like the government to be more polite to people, clear the files faster
and deliver better service. I am also aware of the complex rules and regulations
under which the government functions. A typical file in Vidhana Soudha may have
to be seen by 15 to 25 layers for the final decision to reach the citizen. The
government will set up an Administrative Reforms Commission to recommend steps
to offer better service to Karnataka citizens. I am also sensitive to genuine
and reasonable grievances of the government employees, I propose to set up a
committee to examine the demands of government employees in respect of anomalies
arising out of the implementation of the report of the official pay committee
am also introducing concurrent social audit of all government schemes and
programmes to be conducted by independent agencies and institutions. This will
improve the quality of our delivery systems.
Sir, Karnataka has a vibrant network of NGOs who are doing extremely valuable
work. We look at NGOs as partners in development. Accordingly, I am establishing
Seva Mitra, a service facility for NGOs which will troubleshoot on
their behalf with both the state government and the central government.
Development of Kannada
model art village will be established at Ramanagaram in collaboration with
Janapada Loka. This will preserve and highlight the different facets of our folk
culture and serve as an important tourist destination.
Honourable Members are already aware that one of the central objectives of
Mahiti is promoting Kannada. The Government of Karnataka with the active
cooperation of the Kannada Abhivruddhi Pradhikara, Kannada Ganaka Parishad as
well as several Kannada researchers has already evolved a common keyboard for
all Kannada software. A Committee under the chairmanship of Secretary, Kannada
and Culture Department is being set up to standardize the formats and codes so
that the development of Kannada software can take place rapidly.
Commission is being set up to study and report on the problems of Kannadigas
living in the border areas of Kerala, Maharashtra, Andhra Pradesh, Goa and Tamil
Nadu. The report of the Commission will be made available in the next four
have entered into an agreement with HUDCO and the HDFC to provide Rs 160 crores
specifically for police housing. The police system will be modernized with the
massive application of information technology. The State Crime Records Bureau
will be improved, all police stations in Bangalore will be connected to begin
with and the capabilities of the Intelligence Wing will be enhanced. Ten new
police stations will be opened this year for the convenience of the citizens of
Karnataka’s finances are comparatively in a better shape than most other states.
We are not in a crisis situation. But there is no room for complacency. Our
financial position is grim and because of the repayments on account of the
Krishna Bhagya Jala Nigam Bonds and the Fifth Pay Commission Recommendations,
will be under severe stress over the next three years. The public at large needs
to be informed about the state finances. A consensus needs to be created about
the tough measures that will be required to bring about reductions in
non-productive, non-development expenditure. That is why I will be presenting to
the House a White Paper on the State’s Finances on the 31st of March. The
objective of our fiscal restructuring policy is to enhance the capacity of the
state to increase investments in social and physical infrastructure and in
agriculture. A medium-term fiscal management policy will be tabled in the House
There is no running away any longer from the objective of eliminating the
revenue deficit altogether. I propose to do so by 2004. In addition, our
objective would be to stabilize the fiscal deficit at around 3% of GSDP by 2004
and substantially step up capital spending. This will help us to invest more in
agriculture, irrigation, education and other critical sectors that affect the
lives of ordinary citizens of the state.
The state has been following a prudent borrowing policy so far. Honourable
Members are also aware that a Ceiling on Government Guarantees Act has already
been passed. We must, under no circumstances, fall into the temptation of
fiscal profligacy. I want to state here that our borrowing programme will be
confined to the priority sectors and would be restricted to capital spending.
About 80000 posts in government have been vacant for the past six years. These
posts had been created on a normative basis in the fifties and sixties. There is
a need to change these norms in line with new management techniques and advances
in technology. I propose to retain 20% of the existing vacancies and to abolish
the remaining 80% of the vacant posts. We are not freezing recruitment but only
ensuring that future recruitments are need-based. Let me repeat, we are not
freezing recruitment but only ensuring that future recruitments are need-based.
Honourable Members may be surprised to know that almost 75% of our revenues are
consumed by committed expenditures. Salaries and pensions alone account for over
half of our revenue receipts. This is simply unsustainable and is only working
against the interests of the poor of the state. The greatest anti-poverty
measure we can take is to make the structure of our public expenditure consonant
with the needs of the poor and weaker sections of society and of the backward
regions of the state.
Inspite of these difficulties, Hon’ble members would be pleased to know that the
size of our Annual Plan for 2000-2001 is being fixed at Rs. 7274 crores, as
against the revised Annual Plan size of Rs. 5231 crores in 1999-2000. This
increase of almost 40% is unprecedented and shows our commitment to rural
Karnataka. There is a substantial increase in the allocation for Irrigation,
Rural Development, General Education, Health, Water Supply & Sanitation and
Social Welfare as outlined in Annexure - I.
have already announced the introduction of VAT by April 2001. In order to
prepare a detailed roadmap, a Taxation Reforms Commission is being set up.
Karnataka will also be among the first states to set up the Second State Finance
Commission. The Commission is being requested to examine not just how local
bodies can reduce their dependence on subventions and develop independent
sources of revenue but also how resource flows within the state can discriminate
in favour of backward and laggard regions.
Sir, the contribution of the services sector to the state’s GDP is over 45%. The
State government has invested heavily on the development of infrastructure for
the service sector. But the state government has no Constitutional power to tax
this sector. I am going to lead an All-Party delegation from Karnataka to the
Prime Minister shortly to press our case for a Constitutional Amendment.
The final report of the 11th Finance Commission is awaited. The gap filling
approach of the earlier commissions has not helped. We sincerely hope that
states like Karnataka which practice fiscal discipline and are carrying out hard
economic reforms should be adequately rewarded. We request the Union Government
to adopt the alternative devolution formula with retrospective effect and also
to enhance the percentage of devolution from 29% to 40%.
Sir, there is one announcement that I know my colleagues have been eagerly
awaiting. There are special requirements in executing development works that are
not covered by existing government schemes and programmes. Legislators have a
crucial role to play in our democracy and in being responsive to the genuine
needs of constituents. Therefore, I am seriously considering the introduction of
a Legislators Area Development Fund and a decision on this will be announced
now go to the tax proposals,
Commodity taxes form a vibrant source of revenue to the State. To realize
optimal levels of tax, the tax administration should be placed on a sound
footing. It should also be ensured that taxation instruments do not influence
the choice of economic agents. This requires rationalisation of tax policy, its
instruments and administration. With this end in view I earnestly desire to
introduce Value Added Tax (VAT), an ideal and fair tax system which causes the
least distortion to the economy, from 1st April 2001, The introduction of VAT
would result in expansion of the tax base, help in harnessing the buoyancy
available in all value addition points of a commodity, and also rationalize the
existing tax system.
There is an urgent need to further the pace of adoption of technologies in
agriculture and horticulture to improve the income levels of farmers. It is also
necessary to remove any hurdles in the way of entrepreneurship. The small scale
industry which plays a very innovative and significant role in the economic
development of the State needs support. We have to make our export industry
globaly competitive. The interface between the businessman and the Government
shall be built on trust, understanding, and regard for each other. With the
above objectives, measures towards further rationalization of taxation system,
certain reliefs and concessions that would lessen the inhibitions that tax
imposes along with a few additional resource mobilization measures are being
now present the measures that I propose to take under the various tax
Reduction in Tax Rates
Reliefs to agriculture sector
Agriculture forms the backbone of our economy. While some in the farming
comunity have adopted the modern package of practices in agriculture operations,
the small and medium farmers have not been able to have full access to the
technology. To give fillip to modernization of agricultural sector, I propose to
offer the folowing reliefs:-
i) to exempt the tax on (i) chemical fertilizers and its mixures, (ii)
tractors and its trailers, (iii) power tiller and its trailers and (iv) all
kinds of sowing seeds (whether certified or not) and certified oil seeds.
ii) to reduce the tax on (i) sprinklers and drip irrigation equipment to
4%, (ii) PVC pipes used for irrigation to 4%, (iii) insecticides and pesticides
to 2%, and (iv) plant growth nutrients to 2%.
Although the minimum floor rates (MFR) of tax as decided in the conference of
Chief Ministers were given effect to from 1st January 2000, some of the
neighboring States have kept the rates of tax on certain commodities lower than
the floor rates. This resulted in trade diversion during the last few months. To
protect our tax base, I propose to reduce the rates of tax on commodities like
edible oil, camphor, autorickshaws, plastic granules, PVC pipes, oil seeds,
coconut and copra etc., The detailed list of such commodities and the rates of
taxes are furnished in Annexure - II.
The minimum floor rates in respect of certain commodities were revised by
States' Finance Ministers' Committee in consultation with the State Governments.
In pursuance of that, I propose to bring the rates of tax on commodities like
agarbathi, animal feed, brass utensils, bronze utensils, copper utensils,
chemicals of all kinds, cardamom, pepper, sewing thread etc., on par with the
revised floor rates. The detailed list of such commodities and the rates of
taxes are furnished in Annexure - III.
The trade and industry have requested the Government to reduce the rate of tax
on various commodities. After examining such requests I propose to reduce the
rates of tax on commodities like coffee seeds, exim scrips and the like, folding
umbrellas, blasting gun powder, barks and herbs etc., used in the manufacture of
Ayurvedic medicine, etc. The detailed list of such commodities and the rates of
taxes are furnished in Annexure - IV.
B. Reliefs and concessions:
Concessions to Small scale Industries :-
Raw materials and components sold to an industrial unit for use by the latter in
the manufacture of goods for sale are liable to tax at concessional tax rate of
3% under section 5-A and if they are sold to SSI units, a concessional rate of
tax at 2% is levied. I propose to reduce the rate of tax on all goods sold by
SSI units to any other industrial unit for use by the latter as raw materials
and components to 2 per cent.
Reduction of TOT on inputs to industries :-
In addition to the above concessions, I propose to reduce the TOT on the goods
sold as inputs to industries against form 37 to a uniform rate of 1 per cent.
Relief to Film Industry :-
The Film industry in the State needs support for its development. Towards this I
propose to exempt the tax on transfer of the right to use feature films for
exhibition (film leasing).
Relief to Coffee Exporters:-
Coffee purchased against an existing foreign buyers' export order and exported
is exempt from tax. Coffee exporters have requested that coffee purchased
without an existing export order should also be exempted from tax if such coffee
is exported within 6 months from the date of purchase. To encourage exports, I
propose to exempt the purchase tax on coffee, if such coffee is exported outside
the country within 4 months from the date of purchase of such coffee. I propose
to extend this facility to pepper and cardamom also.
Reliefs to Export Oriented units :-
At present only 100% Export Oriented Units and those industrial units who export
not less than 25% of their production are eligible for refund of tax under KST
paid on raw materials and components if goods manufactured out of such raw
materials and components are exported outside the country. I propose to extend
the above benefit to all the exports undertaken by the industrial units without
any limits. I propose to extend the benefit available under Entry tax Act to
these units also. Further I propose to allow a set off of the tax paid on the
purchase of raw materials and components against the tax payable, if any, by
them under the KST/Entry Tax Act to the extent of export of the goods
manufactured out of such raw materials and components, subject to adjustments
after the final assessments under the relevant tax Acts.
Other reliefs :-
I propose to give the following further reliefs and concessions:
(a) To allow the benefit of set off of tax paid under KST Act 1957 in excess
of 3 per cent in respect of cement used in the manufacture of RCC poles and
pipes from the tax payable under KST on the goods manufactured and sold out of
such tax paid cement. However there would be no refund of any excess tax on this
(b) To include casurina and eucalyptus for the benefit of concessional rate of
tax under section 5-A.
(c) To include consumables, other than petroleum products, for the benefit of
concessional rate of tax under section 5-A.
(d) To exempt tax under section 5-C, if the goods leased have already been
subjected to tax under the KST Act.
(e) To exempt sales made to United Nations Organisation and its specialized
(f) To rationalize the levy and collection of taxes from granite jelly
crushers by providing a composition scheme on the basis of the capacity of the
rock crushers used by them.
(g) To extend the benefit of paying taxes on composition basis to women caterers
of food and drinks.
(h) To amend form 32B retrospectively to remove certain difficulties faced by
7). Exemptions :-
(a) Due to introduction of floor rates, Aluminium domestic utensils are
subjected to tax. I propose to exempt the above goods.
(b) On account of the revision of floor rates, bicycles, tandem cycles, cycle
combination etc., and their parts and accessories including tyres, tubes and
flaps have been brought to tax at 4 per cent. Further jaggery is subject to
both basic tax and turnover tax. As these commodities are used by the common
man, I propose to exempt both the commodities from turnover tax. I also
propose to exempt the purchase turnover of old gold and silver jewellery used in
the manufacture of new jewellery on which tax is paid, from the levy of turnover
(c) For short periods, Coconut husk (from 1.4.97 to 31.3.98), raw silk and raw
silk yarn (1.1.2000 to 5.1.2000), Country bricks and tiles, salt (processed),
renewable energy devices and equipments for utilizing ocean waves and thermal
energy in the oceans (from 1.1.2000), have been subjected to tax. Further
purchase turnover of seeds used in obtaining sowing seeds. during the period
1.4.93 to 1.4.99 has been wrongly subjected to turnover tax levy. I propose to
exempt the liability on the above commodities for the period mentioned against
them and to continue the exemptions.
(d) Goods such as coconut husk, coir fibres, coir yarn, coir ropes, avalakki,
mandakki (puri), clay, glass chimnies, lantern, oil lamp wares, hay, ragi flour,
rice soji are exempt from tax for a long period of time by way of notifications.
I propose to continue exemptions by incorporating these goods in the exemption
Rationalization of SalesTax :-
(i) In the minimum floor rate list, certain category of goods, i.e., vaccum
cleaners, washing machines, voltage stabilizers, etc., are subjected to tax at
12 per cent. Some related goods like electrical appliances which are commonly
dealt under the same roof have lesser rates. This gives scope for
mis-classification and also require the dealers to maintain classified
accounts. Therefore I propose to have a common basic tax and common rate of
turnover tax in respect of such commodities. The details of the commodity and
the rates of taxes are furnished in Annexure - V.
(ii) At present diesel is taxed at 20% under Karnataka Sales Tax Act, 1957 and
entry tax at 5% but exemption is available to oil compnies. Exemption of entry
tax given to oil companies has shifted the liability to the petrol bunks and
bulk consumers under the Entry Tax Act. To rationalise this, I propose to
reduce the rate of tax on diesel to 15.5 per cent under Sales Tax Act and impose
an entry tax of 4 per cent on all. The retail selling price of diesel remains
almost at the present level.
(iii) Gutka is taxable at the rate of 15 per cent under KST Act and at 4 per
cent under KTEG Act. It is noticed that most of the second and subsequent
dealers in the said commodities are petty shop keepers who do not become liable
to pay TOT of one per cent as their turnovers fall below the prescribed limit.
In view of the above I propose to increase the rate of tax from the existing
rate of 15 per cent to 16 per cent and exempt the T.O.T on the second and
iv) Presently tax is levied on IML at all stages of sale at the rate of 60%
excepting the last point of sale which is at 10%. There is a need to rationalize
the tax structure. I also take this opportunity to add some additional revenue
by increasing the rate of tax on these commodities. I propose to levy tax at
the point of first and last sale at the rate 115% and 10 % respectively for
effective realization of taxes. The intermediary sales will not be liable to tax
under this scheme since this tax is loaded onto the first point.
Turnover tax :-
As the present exemption limit of rupees five lakhs has given scope for some
dealers to remain within the exemption limit, I propose to remove the exemption
limit of rupees five lakhs. This measure would not only expand the tax base but
is a step towards Value Added Tax (V.A.T) where tax-habit by all in the value
chain of the commodity is an essential requirement.
Further, I propose to reduce the present three slabs of turnover tax to two
slabs, with a rate of 1.5 per cent upto 1000 lakhs and 3 per cent for the
turnover exceeding 1000 lakhs. I also propose to give the benefit of paying
turnover tax at the rate of 1.5 per cent for turnover upto one thousand lakhs
and at three per cent on the turnovers exceeding rupees one thousand lakhs for
dealers who cross one thousand lakh rupees turnover for the first time in the
year. Further there would be no change in rate of TOT on second and subsequent
Rationalization of tax provisions :-
(i) To redefine the definition of ‘brand name’ to give the meaning as was there
prior to 01.04.1999.
(ii) To exclude the time for the purpose of computing the time limit for
assessments in case of dealers who have been given eligibility certificates
under any of the packages of incentives and concessions offered by the State and
when such eligibility certificate is disputed and referred for resolution.
(iii) To provide for calculation of penalty at the rate of 2 per cent per month
from the date of close of the year to which such default relates, in lieu of the
existing penalty under section 12 -B (4).
(iv) To allow the dealers who are eligible for assessment under section 12-C to
file the declaration and statements within six months from the close of the
year or before the assessment which ever is later.
(v) To increase the turnover limit under section 12-C from the existing rupees
25 lakhs to rupees 40 lakhs in case of dealers and to rupees 50 lakhs in case
(vi) To provide for a levy of uniform rate of interest under section 13 (2) at 2
per cent for each month of default
(vii) To prescribe conditions for notifying the dealer eligible for exemption
from deduction of tax under section 19-A (1) (ii).
(viii) To restrict the TDS under section 19-AA only to Government departments
and Zilla panchayats.
(ix) To extend the time limit under section 22-B upto 31.3.2001 in respect of
cases initiated and pending as on 31.3.2000.
(x) To modify the penalty payable under section 28-A (4) (a) from the existing
one half of the amount to not less than one fourth of the amount of tax and not
exceeding one half of the amount of tax.
(xi) To amend the provisions of the section 28-AA to provide for prescription of
transit pass in respect of goods imported into the state and subsequently
transported to a place outside the state.
(xii) To make provision to provide for levy of tax on the value added portion
at the hands of the brand name holders.
(xiii) To provide for publishing of photographs of chronic tax defaulters along
with the details of default in the newspapers.
(xiv) To delegate the power of recognition under section 7-A and 42-A of the
fifth schedule to the Joint Commissioners of Commercial taxes.
(xv) To extend the time limit for filing revision petitions against the orders
of the Karnataka Appellate Tribunal before the High court from the existing 60
days to 120 days.
(xvi) To provide for recovery of taxes or any other amount due for the period
before transfer of business created subsequent to transfer both by the
transferor and transferee.
(xvii) To introduce a system of filing of returns and payment of taxes on a
quarterly basis under section 12-B in respect of dealers having turnover upto
rupees 7.5 lakhs per year, and,
(xviii) To provide for concluding assessments under KST, CST and KTEG Acts
summarily, by accepting the return of turnover filed on or before 31.3.99, upto
to the year 31.3.98, in respect of dealers having a total turnover upto rupees
5 lakhs without any condition and in respect of dealers having a total turnover
upto rupees15 lakhs, subject to the following conditions :
a. the returns of turnover are filed on or before 31.3.99
b. the dealers file all the statutory declarations, and,
c. the asessments for the immediate preceeding two consecutive years have
been completed by accepting the returns under section 12 (2) of KST Act as a
one time measure.
Additional Resources Mobilization measures
Increases in the rates of tax:
In view of the requirement of additional resources, a few commodities like
batteries including dry cells batteries, cassette tape recorders (audio and
video) and their parts, electrical appliances, mineral water, granite stones
etc., have been identified for increase in the rates of tax. The detailed list
of such commodities and the rates of taxes applicable are furnished in
Removal of exemptions :-
At present only specified canteen stores sold to Canteen Stores Department, are
subjected to tax at the rate of four per cent. I propose that all taxable goods
sold to Canteen Stores Department be subjected to tax at four per cent or at
such lower rate if the rate of tax is lower than four per cent.
Increase in the rate of tax on beer :-
With effect from 1.4.99 the rate of tax on beer was reduced from 55% to 45% at
first sale point and from 10% to 5% at the last sale point. This reduction was
made at the behest of the beer manufacturers who suggested that the reduction
of tax to the suggested level would increase the volume of sales and
consequently there would not be any loss of revenue to the state ex-chequer. But
this measure has adversely affected revenues during the year 1999-2000. Hence I
propose to bring the rate of tax on beer to the original level of 55 per cent at
the first sale point and at
10 per cent at the last sale point.
THE KARNATAKA ENTRY OF GOODS TAX ACT, 1979
(i) to exempt tyres and tubes used in bicycles, tandem cycles, cycle
combinations, cycle rickshaws, perambulators and children’s tricycles and on
windmills and its parts and accessories.
(ii) to levy entry tax on Lifts, Elevators & Escalators and its parts and
accessories, Films (all kinds), Photographic paper, at the rate of 5 per cent,
and neutral spirit and ethyl alcohol at the rate of 4 per cent .
(iii) to increase the rate of tax on sugar from 1 per cent to 2 per cent.
(iv) to delete section 9-A dealing with TDS in respect of Sugar.
(v) to make the Government departments other than State Government liable for
entry tax, and
(vi) to amend provisions under KTEG Act, so as to bring them on par with
similar provisions under KST Act. 1957.
THE KARNATAKA AGRICULTURE INCOME TAX ACT, 1957
(1) At present persons holding land upto 50 acres are only eligible for
composition benefit. To rationalise the tax structure, I propose to extend the
benefit of composition upto 150 acres to all the assessees, other than companies
at the following rates.
Sl.no. Extent of Land Rate of Composition
Acre to 100 Acres in respect
of persons holding
50 acres but not more than
100 acres. Rs. 1150 per
Acre to 150 Acres in respect
of persons holding more than
100 acres but not more than
150 acres. Rs. 1250
The tax payable under the above composition system would be on the entire
holdings without any exemption.
(i) to amend section 18 (2-A) (b) clarifying the point of time from which
penalty is to be calculated,
(ii) to amend section 17 for empowering the Commissioner to give jurisdiction
to his subordinate officers, and
(iii) to amend section 35 empowering the Commissioner to revise the orders of
THE LUXURY TAX ACT, 1979
(i) With a view to overcome the splitting of amounts collected by the
marriage halls to avoid the payment of tax, I propose to reduce the exemption
limit to rupees 2000 and tax the marriage halls at a uniform rate of 15 per
cent on the gross amount received. For this purpose the provisions of the Luxury
Tax Act will be amended suitably,
(ii) I propose to amend the definition of hotel to include clubs with
(iii) I propose to exempt telephone call charges and laundry charges from levy
of luxury tax,
(iv) I propose to reduce the maximum rate of luxury tax from 15% to 12.5% to
THE KARNATAKA ENTERTAINMENT Tax
(i) to continue the exemption given to Kannada films for the year 2000-2001,
(ii) to increase the rate of entertainment tax (other than Kannada Films) to 100
(iii) to restrict exemption given at 100% under section 7 to 50% of tax,
(iv) to empower the Joint Commissioner of Commercial Taxes with the power of
(v) to increase service charges under section 4-AA from 25 paise to 50
paise, and from 50 paise to one rupee, respectively,
THE MYSORE BETTING TAX , 1932
(i) to fix the composition totalizator tax at Rs. 800 lakhs for Bangalore
Turf Club and Rs. 30 Lakhs for Mysore Race Club,
(i) to prescribe penalty at 2 per cent per month for default in making payment
of taxes due under Act.
REVIEW OF NOTIFICATIONS :
All the existing notifications issued under several acts exempting/reducing the
rate of tax and turnover tax for various commodities are reviewed and I propose
to continue the exemption and reduction with the revised rates of TOT in
respect of the commodities other than those mentioned in Annexure - VII.
Kara Samadhana Scheme
A number of assessments relating to the past years in respect Sales tax, Entry
tax, Agricultural Income tax are under dispute and considerable revenue is
locked up by way of stay orders issued by appellate authorities and courts.
There are also other cases of default. To give finality to such disputes, and to
reduce the arrears, as a one-time measure, I offer the following schemes:
1. If a dealer who has challenged the assessment orders and filed cases
before appellate authorities or courts and such cases are pending adjudication
for over 5 years as on 27th March 2000 pays the assessed tax in full and also
withdraws the cases filed by them on or before 30th September 2000, the
penalties and interest levied/ leviable would be waived/written off
2. Dealers who are in arrears of assessed tax or any other amount due in
respect of the above Acts relating to years upto 31.3.98 would be given the
benefit of waiver of 50% of penalties and interest due on such amounts if they
pay the tax and 50% of the penalties and interest on or before 31st July 2000.
I expect that the above measures will result in better tax compliance by the
trade and industry and create an effective, efficient, and transparent tax
The above measures necessitate amendments to the provisions of respective tax
enactments. These amendments to gether with other amendments for rationalization
will be placed before the house for consideration and approval.
order to maintain parity with the licence fee structure prevailing in the
neighbouring States, it is proposed to increase the licence fee on Distilleries,
Breweries, Wineries, Bottling of Liquor, Wholesale liquor and Retail liquor
licences etc. The details are given in the Annexure - VIII.
The duty on Arrack is proposed to be increased from Rs. 17 to Rs. 20 per bulk
litre. The lable approval fee levied for liquor bottled within the State is
proposed to be increased from Rs. 4000 to Rs. 10,000 and for liquor bottled
outside the State but for Sale in Karnataka it is proposed to be increased from
Rs. 10,000 to Rs. 25,000. These three proposals will be made effective
from the beginning of the Excise year i.e., 1st July 2000. In order to
rationalise the differential duty levied on liquors manufactured out of molasses
based spirit and malt spirit, it is proposed to levy a uniform duty of Rs. 45
per bulk litre. The litre fee on IML (other than Beer) is proposed to be
increased from Rs. 20 to Rs. 30 per bulk litre. A litre fee of Rs. 1.50
per litre will be levied on beer sold for sale in Karnataka.
The fee on rectified spirit for local use and issued for export (non potable
purposes) is proposed to be increased from Re. 1 to Rs. 2 per bulk litre.
However to encourage local distilleries, it is proposed to increase import fee
on rectified spirit from Re. 1 to Rs. 3 per bulk litre. In order to encourage
local industries, the Government intends to increase import fee on beer from Rs.
3 to Rs. 6 per bulk litre and import fee on IML from Rs. 5 to Rs. 10 per bulk
litre. For the same reason, it is proposed to reduce the export fee on Beer from
Rs. 1 to 50 paise per bulk litre.
order to regulate indiscriminate shifting of liquor shop premises, it is
proposed to levy a fee equivalent to 25% of the licence fee for permitting
shifting of shops from one premises to another at the request of the licensees.
The net additional resources mobilisation out of the above measures would be Rs.
100 crores for the financial year.
There are arrears in the department right from pre-independence days (i.e. 1946)
to an extent of Rs. 306 Crores. The interest on arrears is mounting from year to
year and now the outstanding principal amount is Rs. 142 Crores and interest
there on is Rs. 164 Crores indicating that the interest is more than the
principal amount. It has become very difficult to collect old arrears. Now my
Government is determined to recover these dues by introducing a scheme like 'Kar
Vivadh Samadhan'. Therefore it is proposed to introduce a scheme for waiver of
interest wherever the defaulters come forward to pay the outstanding principal.
The scheme will be in operation for a period of three months only and it is
expected that this measure would help in speedy recovery of arrears.
The scheme of selling toddy through tappers co-operative societies as a
socio-economic measure for the betterment of the tappers and to provide good
toddy to the consumers, introduced few years back has not resulted in
benefitting the toddy tappers due to steep fall in the number of toddy trees
being tapped. Therefore it is proposed to revert back to the old system of
disposing of the right to sell toddy through public auction. However initially
this change will be given effect to in Sedam, Chincholi, Chittapur and Yadgir
taluks of Gulbarga District and Raichur and Devadurga taluks of Raichur district
from the Excise year 2000-2001.
Stamps and Registration
duty, Registration Fee and Societies Registration Fees :
propose reduction of rates of stamp duty on Sale Deeds, to help the farming
community and also the people residing in areas other than Bangalore
Metropolitan Regional Development Authority (BMRDA) limits. Against the existing
common rate of stamp duty of 10 per cent on Sale Deeds irrespective of the
areas, there will be a reduction of 1 per cent of the stamp duty on the
properties situated in urban areas other than BMRDA limits and reduction of 2
per cent of Stamp duty in respect of properties situated in Rural Areas, which
will help substantially the farmers.
Depending upon the value of an apartment, the Stamp duty of 4 per cent, 6 per
cent and 8 per cent is levied under the existing system. The said Stamp duty
structure is now rationalised by providing stamp duty ranging from 2 per cent
to 8 per cent depending upon the value of the Apartment. This will encourage
building activity and encourage more people to come forward to this sector and
is likely to increase the registration of Apartments.
Efforts are made to Rationalise the Stamp duty, Registration Fee and Fees under
the Societies Registration Rules. For the benefit of all Women and SC/ST
Societies, I propose 50 per cent concession in payment of Fees.
Government shall consider 100% stamp duty exemption for key projects in Core
Areas on a case to case basis.
The details of the above proposals are in Annexure - IX to Annexure - XI.
There are a large number of undervaluation cases pending under Section 45-A of
the Karnataka Stamp Act in Bangalore and other areas of the State. Previously,
the said scheme of remission of 30 per cent of difference of duty chargeable on
the values assessed by the Sub-Registrar and duty already paid for documents
presented for registration on or before 16-3-1999, existed for a period of 6
months. The said scheme lapsed on 20-10-1999. Even though, the response to the
said scheme was good, but, it was not up to expectation. Still there is a
demand for reintroduction of the said scheme and a huge number of
undervaluation cases are pending. In order to encourage early settlement of
cases and to avoid possible litigation, I propose for the benefit of the Tax
Payer, a revised “One Time Settlement Scheme“. The scheme is applicable to all
the documents presented for registration on or before 16-8-1999 and pending
the first phase, the scheme will be in operation from 1-4-2000 to 30-6-2000.
Whoever has presented a document for registration on or before 16-8-1999 and
comes forward to settle his undervaluation case during the first phase, will be
allowed a remission of 30 per cent of the difference of stamp duty, additional
stamp duty and registration fee chargeable on the values assessed by the
Sub-Registrar and the duty already paid.
This facility of 30% concession is valid for initial 3 months. This will be
reduced by 10% for those who pay after the expiry of 3 months. Even this 20%
concession will be available for the next 3 months (1-7-2000 to
The levy of Stamp duty on instruments of Gift, Settlement and Release is on the
market value of the property. Gift and Settlement are already subjected to the
provisions of Section 45-A, which enables the authorities to act in case of
undervaluation. Now it is proposed to bring the instrument of Release also
within the ambit of Section 45-A.
the rationalisation of tax and non-tax structure, there is likely shortfall of
Rs. 77 crores. But, through additional resources mobilisation, higher compliance
and increase in registrations, we anticipate an increase in revenue of Rs. 107
crores. Thus, the net increase in revenue will be around Rs. 30 crores.
When compared with the tax rates prevailing in Southern States, Karnataka is
levying the lowest rate of tax in respect of Tourist vehicle and vehicles
covered by Tourist Transport Operator Permit. Therefore, I propose to enhance
the rate of tax. Inspite of this enhancement, the rate of tax now levied is
less than the tax prevailing in neighbouring States.
propose to enhance the existing rate of tax in respect of Omnibuses,
Private Service Vehicles and Motor cabs. I also, propose to levy a uniform
rate of tax in respect of Motor cars and Jeeps whose cost exceeds Rs. 6
lakhs, irrespective of the cubic capacity of the vehicle. A separate rate of
tax has been proposed for Omnibuses and Private Service vehicles covered
under Lease agreement and permits held by Industrial Undertakings or
Companies for providing transportation to its employees.
Automobile Industries are introducing new models of Omnibuses and Private
Service Vehicles under Light Motor Vehicle category. Hence, it is proposed
to introduce one more clause for levy of Life Time Tax for vehicles having
floor area exceeding Four (4.00) Square Meters but not exceeding Five (5.00)
propose to reduce the rate of tax in respect of motorcabs having seating
capacity of six, Maxicabs and Luxury Buses belonging to other States, plying in
Karnataka to encourage tourism.
The changes proposed are detailed at Annexure - XII. These means will
yield an additional revenue of Rs. 10.00 crores.
Revised Estimates 1999-2000
178. The Revised
Estimates of total receipts are Rs. 16442.21 crores as compared to budget
estimates of Rs. 17747.36 crores for 1999-2000. The total expenditure is
expected to be Rs. 16681.32 crores as per the revised estimates as against the
budget estimates of Rs. 17818.63 crores for 1999-2000. After taking into
consideration the surplus in the Public Account, the closing deficit for the
year is likely to be Rs. 254.40 crores as against the expected deficit of Rs.
124.99 crores at the time of presentation of 1999-2000 budget.
Budget Estimates 2000-2001
The total receipts are expected to be Rs. 19664.76 crores comprising of
revenue receipts of Rs. 15212.65 crores and capital receipts of Rs. 4452.11
crores. The total expenditure is estimated to be Rs. 20061.06 crores, out of
which the revenue expenditure will be Rs. 17154.94 crores and capital
expenditure will be Rs. 2906.12 crores.
Apart from the major tax revenues which I have already covered in my speech, the
Government expects to raise Rs. 1454.86 crores from Small savings, Rs. 825.18
crores from market borrowings (net), Rs. 332.28 crores from negotiated loans and
Rs. 1227.12 crores as total loans from the Central Government.
With these estimates, an overall deficit of Rs. 396.30 crores is expected for
the year. Taking into account the opening balance of Rs. (-) 254.40 crores the
closing balance as per the present rates of tax and non-tax revenue is estimated
to be Rs. (-) 650.70 crores. After considering the impact of various changes in
taxation, totalling to (+) Rs. 360 crores, the details of which are given in
Annexure - XIII, the final closing balance for 2000-2001 will be Rs. (-) 290.70
crores. I hope to cover this deficit through expenditure control and buoyancy of
taxes during the year.
would like to express my appreciation to Sri Gopal Reddy, Finance Commissioner
and his team who have strived hard in preparing this Budget.
now commend the Budget Estimates 2000-2001 for the consideration and approval of
the House. The entire budget will be discussed on the floor of the house in
April. The Government will then seek approval of the full budget. I seek a Vote
on Account for a period of four months ending July 31, 2000.
Jai Hind — Jai Karnataka