DK Shivakumar Flags Financial Strain From State Guarantee Programs
Deputy CM warns state guarantee schemes are straining Karnataka’s finances and require careful handling.
Karnataka Deputy Chief Minister D. K. Shivakumar on Thursday described state-backed guarantee schemes as a significant financial burden on the government, highlighting concerns over rising contingent liabilities and fiscal sustainability. Speaking at a press briefing, Shivakumar said the schemes, while intended to support small businesses and entrepreneurs, have strained the state’s budget due to mounting defaults and delayed repayments.
He noted that government-issued guarantees often expose the exchequer to large risks without immediate returns. “While these schemes aim to promote entrepreneurship and credit access, the financial obligations they create can become unsustainable if not monitored carefully,” the deputy chief minister said. Officials are reportedly reviewing several guarantee programmes to evaluate their fiscal impact and explore measures to reduce potential losses.
Karnataka has rolled out multiple guarantee schemes over the years to encourage lending to micro, small and medium enterprises (MSMEs), farmers and women entrepreneurs. These initiatives are designed to facilitate bank credit by providing government-backed assurances. However, experts say that increasing default rates in certain sectors have amplified the government’s contingent liabilities, prompting calls for stricter oversight and risk assessment.
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Shivakumar emphasised the need for balancing support for economic growth with prudent financial management. He suggested that the state would consider introducing more targeted, need-based guarantees and improved monitoring mechanisms to ensure sustainability. The deputy chief minister also urged banks and implementing agencies to follow robust appraisal and recovery procedures.
Financial analysts note that while guarantee schemes can catalyse credit flow and investment, unchecked exposure can adversely affect the state’s fiscal health. Karnataka’s move to reassess these programmes reflects growing attention to long-term budgetary implications, with policymakers aiming to strike a balance between developmental objectives and responsible governance.
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