Kerala Finance Minister Thomas Isaac
Kerala Finance Minister Thomas Isaac

Kerala Budget: A Balancing Act In Times Of Distress?

No major slashes in welfare scheme expected as local body polls are nearing, say sources

Rejimon Kuttappan

Rejimon Kuttappan

On Tuesday, Kerala’s finance minister Dr Thomas Issac had said in the state assembly that the state is reeling under severe economic crisis.

''Apart from demonetisation, GST and the floods affected the state in 2018 and 2019 which hurt the financial sector, the centre had cut down the state’s share of approved loan which worsened the situation,” he had said.

According to the minister, the state had expected approval for a loan of Rs 4908 crore from the union government during the final quarter of the current financial year, but it approved only Rs 1920 crore.

However, sources in the state finance department cite that there will be no major slashes in allotment for social welfare schemes as the local body elections are nearing in the state, which is scheduled to be held in Kerala in November 2020.

Hike in Liquor Tax?

“The finance minister is not going to touch the social welfare schemes. He is not going to face public ire. However, he may go for an increase in tax on liquor and lottery,” the source said adding that it is the only way to overcome the financial crisis especially when the state has suffered in a dip in tax share.

“Additionally, it is expected that the state budget will declare hike in the fair value of the land to increase revenue,” the source added.

In January itself, Issac had said that the union government was strangulating the state by even reducing grants and loans due to it.

"Rs 10,233 crore loan is due from the union government in the last quarter of FY20. But we have received only Rs 1900 crore. Last year, Rs 19,500 crore was received. Even the allocation under the goods and services tax (GST) is not coming," Issac had alleged.

Stating that Kerala is passing through one of its worst financial crises, Issac had said that the situation is so bad that more stringent treasury curbs will have to be put and spending caps imposed.

And speaking on union budget for the financial year 2020-21, Isaac said that Kerala’s tax share was Rs 17,800 crore last year and now it will be only Rs 15,000 crore.

“It is an absolute decline to the devolution to the state," he had said hinting that severe measures would be adopted in the state budget to run the show.

On Monday Isaac had tweeted that the 15th (UFC) Union Finance Commission had ‘awarded’ Rs 74,000 crore as revenue deficit grants to states. “In an unprecedented move, the union government has slashed it down to Rs 30,000 crores. It is a serious blow to those states who suffered a serious reduction in tax share because of population factor," his tweet read.

The UFC had recommended post-devolution revenue deficit grants for 14 states in 2020-21. Of the Rs 74,340 crore revenue deficit grants, Rs 37,917 crore were meant for Andhra Pradesh, Kerala, Punjab, Tamil Nadu, and West Bengal. The remaining Rs 36,423 crore was for Assam, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.

No Change in Pension Age

Meanwhile, the source in the finance department said that there would be no possibility of regularising the retirement date as of March 31.

It was rumored that the government would increase the retirement age to extend the disbursement of retirement allowances due to the financial crisis. At present, the retirement age of state government staff is fixed at 56. Political party associations unanimously had demanded a hike in retirement age to 58.

“At the same time, a major declaration on salary revision in the next financial year will be included in the budget,” the source said.

Salary commission is likely to submit its report in June and two installments of welfare allowance are pending for the staff. Kerala’s revenues are growing at about 10%, while the expenditure is rising by 15-16%.

Additionally, the state’s economy is also facing a major threat from the return of thousands of migrants from the Arab Gulf countries that are under the grip of an economic crisis.

According to the latest audit report by the Comptroller and Auditor General (CAG) on state finance, even though Kerala’s ratio of fiscal deficit to GSDP (gross state domestic product) improved from 4.3% in 2016-17 to 3.9% in 2017-18, the state did not achieve any of the targets fixed in its medium-term fiscal plan or Kerala Fiscal Responsibility (KFR) Act.

“As per the recommendation of the 14th Finance Commission, fiscal deficit to GSDP was to be anchored at 3%,” said the audit report for the year ending March 2018.

When the revenue receipts in 2017-18 witnessed a growth rate of 9.8% from the previous year, the expenditure recorded a 9.72% increase, it said.

The report added that the revenue deficit increased from Rs 15,484 crore in 2016-17 to Rs 16,928 crore in 2017-18, and this increase indicates that the state may not be able to eliminate revenue deficit by 2019-20 as prescribed in KFR Act.

The CAG report pointed out a decrease of state’s tax revenue share from 65% in 2013-14 to 56% in 2017-18 “indicating a low growth rate of tax revenue when compared to other components of revenue receipts”.

Though receipts under state lotteries were Rs 9034 crore (81% of non-tax revenue), an equally high expenditure of Rs 7628 crore was incurred on the distribution of prizes and agent commission.

The Lede