What the Kerala budget says about the state’s economy
Bengaluru: The Kerala budget presented on 2 February paints a dark picture of the state’s economy. The budget speech showed the state’s revenues are flat or falling, while spending is up.
Finance minister Thomas Isaac blamed the goods and services tax (GST) for most of the revenue shortfall.
“The common assumption that tax revenue will increase with the rollout of GST has not become a reality. The reason is simple: the administrative system for GST is not yet functional,” he said in his budget speech.
“I expected Kerala’s revenues to increase by 20-25% after GST, but it is still growing below 10%. The Rs1.35 lakh crore IGST (integrated goods and services tax, one of the three categories of tax under GST) collected so far has not been distributed to the states. The IGST is also leaking. Seventy-five percent of goods used in Kerala comes from outside the state. This should mean the IGST should be at least the double of the SGST (state goods and services tax), but that has not happened,” he said.
However, he admits the shrinkage of state’s own revenue has contributed to the problem. “Revenue from the tax on petroleum products and registration stamps (the two main taxes which are still under the state’s control) are also growing at a slower pace than expected (at 18% and 11.3%, respectively). Kerala’s tax revenue income increased only at 5.2%, contrary to the estimated 16.08% increase in the previous budget. The total revenue income increased 7.7% only, while the plan fund expenditure increased 22% and unplanned expenditure increased 21%,” he said.
The mismatch between the revenue and expenditure, Isaac says, has made it hard for the government to find money for new projects. In turn, the budget calls for severe fiscal discipline. Including this budget, each budget ahead will try to narrow revenue deficit by 20-30 basis points and keep it below the 3% limit allowed for states, Isaac said. One basis point is a hundredth of a percentage point.
However, the government has not sacrificed expenditure on social welfare. The government will continue with its plan to spend Rs 4,000 crore to build social and physical infrastructure under a recently floated government company called Kerala Institutional Investment Fund Board or KIIFB.
“If we have to look for capital expenditure under the usual budgetary schemes, we will have to wait for at least two decades to find the money. That will mean a generation will lose out on opportunities. Instead, we will do it today under KIIFB,” Isaac said.
The budget has given a grant of Rs4,270 crore for KIIFB to foot its bills for the next four months. For the rest of the year and projects, it is expected to raise the money from the market in the form of chit funds, bonds and guarantees—all of which will be outside budget borrowings, planned to be repaid using the state’s own tax revenue and other means.
The budget has also kept funding intact for most ongoing welfare schemes, including a plan to build houses for the homeless, urban and rural food security measures, projects to give public schools a facelift, and healthcare and pension schemes.
Isaac announced Rs2,500 crore for the affordable housing project, Rs954 crore for food subsidy measures, about Rs1,000 crore for reviving public schools and Rs6,000 crore for distributing welfare pensions. There are even certain fresh expenditures, like an allocation of Rs2,000 crore for coastal area development in the wake of destruction caused by cyclone Ockhi and a Rs3,400 crore loan to revive the state road transport company.
A new health insurance scheme announced in the Union budget on Thursday to provide Rs5 lakh cover each to 100 million families would have saved Kerala some money, as it is already giving over five million families health insurance of about Rs10 lakh using both central and state funds. Instead, Isaac’s budget states it will foot the premium of those who may be left out once the new scheme is implemented, and ensure the beneficiary list is unchanged.
The budget has discouraged departments from buying cars priced above Rs14 lakh and promoting the use of rental cars and cab aggregators. The finance minister also wants public officials to use video conferencing more so as to reduce travel expenses. Foreign trips will be allowed only if they are absolutely necessary, he said. Government offices are also asked to consider switching away from high-cost landline telephones to low-cost mobile connections to cut phone bills. Creation of new government posts, as well as allowing new grants for aided institutions, will be judicious.
The budget also proposed not to give welfare pensions to those having houses bigger than 1200 sq. ft, or two acres of land or non-taxi cars with more than 1,000cc engine capacity. Such measures could turn controversial, said one CPM leader, requesting not to be named, as people are used to a particular level of state support.
A proposal to raise the fair price of land by 10% and service charges for registration of land deals by 5%, may also prove unpopular, he said. A similar revision was introduced by the previous Congress-led government in 2015, he said, but it was reversed after a severe backlash from the public and local bodies, including those ruled by the Left. “At any rate, it is clear that going ahead, it will not be business as usual.”
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