Karnataka tax ratio highest in India: RBI

Bangalore, May 14 (IANS) The Reserve Bank of India (RBI) Thursday praised Karnataka for having the highest tax to gross state domestic product (GSDP) ratio in the country.

'The state tax to the gross state domestic product (GSDP) ratio at 1 percent is by far the highest in the country. To the best of my knowledge, Karnataka is one of the better states as far as state finances are concerned,' RBI Governor D. Subbarao told reporters here.

After a series of meetings with Chief Minister B.S. Yeddyurappa, top officials and bankers here, Subbarao said the state government had also no specific overdraft problem.

'We have not discussed the issue of overdrawing with the chief minister or the officials. Karnataka has an effective fiscal discipline and prudent financial management,' Subbarao noted.

In response to Yeddyurappa's plea to increase the credit-deposit ratio in the state, which has declined by five percent over the last two fiscal years, Subbarao has directed the state level bankers to speed up financial inclusion across the state.

'Karnataka has claimed that it has covered cent percent of the household with financial inclusion, which means at least one member of every family has no-frills account in a bank. An evaluation of the records showed the claim was not accurate. There is no widely shared understanding of what financial inclusion is,' Subbarao pointed out.

After the meeting, Yeddyurappa told reporters that even advances to the agriculture sector and weaker sections out of the total advances had declined by one-two percent.

'I have sought RBI's help in stepping up credit flow to the agricultural sector by allowing higher refinance by Nabard to state cooperative credit institutions to 50 percent from 40 percent and to prompt private banks to advance educational loans to students at six percent interest rate per annum,' the chief minister said.

The state government has also appealed to the RBI to bring down the interest rate to less than 10 percent from 13 percent currently for micro and small industries and appropriate provisioning norms and mechanism for refinance at lower rates.