KOCHI: When Chief Minister V D Satheesan, who holds the finance portfolio, presents the UDF government’s maiden budget on June 19, he will walk a tightrope between political compassion and fiscal prudence.
The Congress-led government has sought to define itself through what senior officials describe as “good governance with empathy.”
This was evident in some of its earliest decisions, including raising the monthly honorarium of ASHA workers to Rs 12,000 and monthly remuneration of Anganwadi workers, helpers and ayahs by Rs 1,000.
Sources in the CMO say the same philosophy will underpin Satheesan’s first budget. Yet, economists caution that empathy comes at a time when Kerala’s finances offer little room for manoeuvre.
“The first few decisions of the government have certainly created a good vibe,” says development economist K P Kannan, former director of the Centre for Development Studies.
“But the budget cannot be entirely different from the one passed by the previous government. Satheesan can make changes, but there is no way he can alter committed expenditure.”
He says the government’s promise of free travel for women in KSRTC ordinary buses alone will require an annual allocation of over Rs 800 crore. Beyond that lies the larger challenge of inherited liabilities.
The UDF government’s recently released white paper on Kerala’s finances paints a grim picture. It estimates the state’s public debt at Rs 5.07 lakh crore and notes that nearly 77% of revenue receipts are absorbed by committed expenditure such as salaries, pensions, and interest payments.
The report also highlights severe treasury stress, large arrears in Dearness Allowance (DA) and Dearness Relief (DR), and mounting liabilities to contractors and financial institutions.
According to Kannan, one of Satheesan’s most difficult decisions will concern the DA and DR arrears accumulated by the previous government. “He may have to postpone them further or release them in small installments,” he says.
Kannan argues that Kerala cannot afford another round of salary revisions. The previous government had constituted a pay commission and given it three months to submit its report.
“The new government is not bound by that decision. Appointing a pay commission at the end of a government’s tenure was effectively passing the burden on to the next administration,” he says.
To create fiscal space, Kannan suggests politically difficult reforms. Raising the retirement age of government employees to 60 years could save around Rs 6,400 crore annually by reducing pension outgo and delaying recruitment.
Another option is ending the practice of annual leave encashment and restricting it to retirement, a norm followed by most other states and the Centre. “That alone can save around Rs 3,000 crore,” he says.
More fundamentally, Kannan believes Kerala’s tax effort has weakened. “For every Rs 100 of income, Kerala now collects only Rs 7.8 as tax revenue. Historically, we have collected as much as 12%. Improving tax efficiency to at least 10% should be a priority,” he says.
Economist Jose Sebastian, former faculty member at Gulati Institute of Finance and Taxation, sees scope for raising additional resources without burdening the poor.
He points to options such as taking over property tax collection through a tax-rental arrangement with local bodies, increasing user charges for certain health and education services, raising electricity duty, and monetising government assets.
He also believes pension reform is inevitable. “Moving towards a need-based universal pension system will be a game-changer. Sooner or later, the government will be forced to go for it,” he says.
For Satheesan, the challenge extends beyond presenting a budget. It is about signalling a new administrative philosophy while confronting a very difficult fiscal inheritance. On Friday, the CM will have to demonstrate whether a government built on empathy can also deliver financial sustainability.