Banking on GST to bail Kerala out

When Kerala Finance Minister T M Thomas Isaac delivers the second budget of the Pinarayi Vijayan-led LDF government, on March 3, there are several headwinds that he needs to tackle.

Published: 15th February 2017 04:00 AM  |   Last Updated: 14th February 2017 10:30 PM   |  A+A-

When Kerala Finance Minister T M Thomas Isaac delivers the second budget of the Pinarayi Vijayan-led LDF government, on March 3, there are several headwinds that he needs to tackle. Isaac would also do well to glance through the Economic Survey.

India is poised to gain from the ‘demographic dividend’. But the Survey notes Kerala and a few other states are ‘negative outliers’, with a low future dividend.

The survey adds: “(The) relatively-rich Kerala will probably converge, to the average, as its growth momentum declines rapidly.” There are other concerns as well: Kerala has the third highest unemployment rate in the country (12.5 per cent), after Tripura (19.7 per cent) and Sikkim (18.1 per cent).


Kerala has not been able to record significant gains of late on the human development indices front. From a life expectancy of 73.5 years in 2002, it could go up by only about 1.27 years by 2013.

In comparison, Uttar Pradesh’s growth expectancy grew by three years in the same period, from 60.8 years. Isaac will face some immediate concerns: Falling crude prices and the resultant slowdown in the Gulf economies affecting Keralites working there; demonetisation has pole axed the State’s critical tourism industry; the plantation sector is in the doldrums, though there is some hope for rubber growers.


Isaac promised to contain the revenue deficit, at 1.9 per cent of the GSDP in 2016-17, it is more likely to touch 2.9 per cent. Anomalies in gold transaction tax and automobile registration fees need to be fixed too.

With the uniform GST coming up soon, it is likely that he will not tinker with tax rates. Kerala is a consumer-led economy, where only 2.78 per cent of India’s population accounts for almost 15 per cent of consumer durables sales in the country. Therefore, GST should yield a 20 per cent increase in tax in the first year itself. Therefore, Isaac can’t be blamed for banking on GST to bail out the State’s near-empty exchequer.

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