The state has been facing a financial crisis and the Finance Minister is likely to resort to fiscal prudence, say experts.

Kerala budget on Friday Will the state see some major austerity measures
news State Budget 2018 Thursday, February 01, 2018 - 15:51

On Friday, when Finance Minister Thomas Isaac, who is a renowned economist, presents the LDF government's state budget, it is likely that he will resort to fiscal prudence, given the financial crunch the state has been facing.

In a media interaction as part of pre-budget consultations, Isaac had said that he runs a tight ship. 

"I run a tight ship, mainly because the state's revenues didn’t grow as expected after the roll out of the Goods and Services Tax," he had said.

With the worsening financial crisis, it is indeed a tough task for the economist-minister to find balance in the budget. Experts believe that Isaac will rather resort to fiscal prudence, a deviation from his style of the expenditure-push strategy.

The FM had hinted that he would resort to austerity measures which have become unavoidable given the fiscal position of the government.

The focus in the budget will be to keep fiscal deficit below three per cent.  

Revenue generation is the biggest challenge and the FM is likely to come up with measures to increase non-tax revenue.

Speaking to TNM, Jose Sebastian, Associate Professor Gulati Institute of Finance and Taxation, says the budget will increase the lease for government-owned buildings and royalty from mines. 

“It is also likely that the budget will revise the building tax. The last time the revision was made was in 1993. Also, the government will take over the buildings currently run by the panchayats by giving them compensation. The property tax for the buildings is huge. Revising the tax and getting the government to manage them is a potential source of revenue generation. Another possibility is the option to pay land revenue for 10 or 15 years at one time as a measure to mobilise money,” he predicts. 

The FM, Sebastian says, will be a bit aggressive when it comes to measures for revenue generation. There is likely to be an increase in service charges in hospitals, rent for pay wards and university fees.

 GST and Kerala Economy

Post-GST, the state’s tax revenue saw only a 10 per cent growth. The expenditure, however, continues to register a 15-16 per cent growth. 

“I had hope on GST as Kerala is a consumer state and GST is a destination based tax. About 80 per cent goods sold in Kerala have just 14.5 per cent tax and also most of these are yet to be realised. The fact that the monitoring system at the national level is not yet ready has affected the state’s revenue,” Isaac had said, adding that he is optimistic about the GST in the long run.

“Post-GST the tax revenue hasn’t risen as expected. Also since 50-52 per cent of the revenue of the government is spent on salary and pension, not much money is pushed to the market for spending, which leads to a market glut,” Sebastian explains.

Former chairperson of Public Expenditure Review Committee Mary George counters the arguments that post-GST tax revenue of the state hasn’t increased.

"The Centre has said that it will compensate the post-GST revenue loss of states for three years and the compensation is being dispersed once in two months. The third installment of it, Rs 1372 crore, was given in the first week of January. There is a tax arrear of Rs 8665 crores to be collected. Of this, there is no dispute for Rs 2879 crores, which implies that the amount can be easily collected," she says. 

"Why the government is not keen on collecting this amount? The 14th Finance Commission had sanctioned a special grant of Rs 9519 crores to tide over the fiscal deficit which the state has been facing since 2013. The final installment of the grant, Rs 1520 crores, should have been allotted in 2017-18. The overspending on salary and pension is the prime reason for the crunch that alternating governments in the state face,” she argues.

Would the FM cut spending on social security and welfare schemes?

There is concern that, given the fiscal position, the budget may see a cut in allocation for social justice and welfare schemes.

Noted economist and State Planning Board member KN Harilal says, “The budget will be in line with promises given by the LDF government. Allocation will be there for welfare pensions, social security and welfare schemes for senior citizens, the differently-abled and transgender persons. There will be no compromise on social security schemes. No need for any cynicism about boosting infrastructure development. Focus will also be on decentralised planning. There won’t be any cut on the spending on agriculture and allied activities and adequate amounts will be set aside for the coastal regions,” he says.

About post-GST revenue fall, Harilal says, “Post-GST, the revenue increase was 14 per cent while the annual growth should be 17 to 20 per cent. 14 per cent growth is not that desirable. Also, the central government’s assistance is not coming as a stream, there are gaps."

The state’s revenue showed an average annual growth of 20 per cent till 2012-13, the second fiscal under the former United Democratic Front government. In 2012-13, the growth was 24.16 per cent. Then the fall was quick; in 2014-15 it was 8.08 percent. The state has still not risen from it. Revenue growth rose to 14 per cent in 2016-17, but demonetisation pulled it down to nearly 10 per cent.


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