KOCHI: Ideally, a state should finance capital expenditure from its revenue surplus. Kerala has been running revenue deficits since 1984 and borrowing to meet them. Living beyond the state’s means and borrowing recklessly is the state’s bane and the root cause of the state’s fiscal crisis.
Unlike other states, Kerala is a ‘money-order economy’ driven by remittances. Poor crude prices, economic woes and increasing indigenisation of the workforce in West Asia has led to a sharp decline in
remittances. With no trend reversal in sight, this has the potential to reduce Kerala’s growth rate in the short to medium term.
The 2018 Budget expectations regarding fiscal and revenue deficit are unrealistic. The revenue buoyancy of the state has plummeted below 9 per cent. Further deterioration of revenue deficit and ballooning of the state’s debt burden are looming large. The real villain in Kerala’s fiscal crisis is the salary and pension expenditure, which increased by more than 300 per cent in the last eight years. This Budget does not offer any solution for this structural fiscal crisis.
That said, there are many laudable social security and welfare measures listed, like providing `1,200 crore to women-centric programmes, gender justice initiatives, SC-ST welfare programmes, homes for the
homeless and a plethora of small programs for the welfare of the marginalized and vulnerable.
If we read Isaac’s budget speech while he was FM in the V S government, we come across declarations of making KSRTC profitable in two years. The saga continues!
The KIIFB alternative is a big gamble, with a high chance of failure. The government will have to repay around `1 lakh crore in nine years at nearly 9 per cent interest. Since many projects being funded by KIIFB are not revenue generating, repayment will be problematic, particularly in the context of unsustainable revenue deficit and ballooning debt.(The writer is Chief Investment Strategist, Geojit Financial Services)
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