Budget making in Kerala’s context is always a tightrope walk; it is immaterial whether the times are testing or not. Otherwise Dr Thomas Isaac, an economist of standing, had little reason to present a budget that leaves everybody happy after predicting apocalypse through a white paper. Of course, the task cut out for him is unenviable. On the one hand, he is overburdened by expectations of a huge mandate. On the other are the empty coffers and a society attuned to competitive populism of coalition ministries over the decades.
It is against this backdrop that the budget presented by Isaac has to be viewed. Kerala’s economy is facing grave challenges from within and outside. Unless the state invests heavily in infrastructure projects, it is not possible to attract investments in a big way. Undaunted in the face of acute fiscal stress, Isaac has put forwarded a road map for infrastructure development outside the budget. The money mobilised through a special purpose vehicle is proposed to be used for roads, rail, water transport and electricity. His proposals for power generation are indeed innovative. The allocations for solar power and the initiatives to reduce transmission loss can go a long way towards solving power shortage. It is reminiscent of the initiatives of Pinarayi Vijayan when he was the power minister in a previous LDF Government. The proposal for acquiring 5,000 acres of land for industrial proposes is crucial considering the acute shortage and high cost of land.
There is a slew of schemes for Information Technology sector. The budget aims at increasing the space for IT companies and incentivising young start-ups. The allocations for developing 20 locations as tourist centres and the reduction of luxury tax rate from 12.5% to 10% can provide the much-needed fillip to the recession-ridden tourism sector. In the agricultural sector, vegetables, paddy, rubber and coconut have received special allocations. Allocations meant for social sectors, marginalised communities and public sector only reaffirm the commitment of the LDF Government to its core constituencies.
The weakness of the budget, however, lies on the revenue side. Isaac’s target is to increase tax collection every year by 25 %.
He is not off the mark. Kerala stands top among major states in per capita consumer expenditure. While Kerala accounts for 14.79% of durable consumer goods consumed in the country, the state’s share in the total Value Added Tax collected in the country is only 5.49 %. This points towards the massive tax evasion going on in the state. He has proposed a series of measures to arrest this through intensive application of Information and Communication Technology and human resource development. Except tinkering with the tax rates of a few commodities, there are not many proposals to mobilise additional resources. The proposals related to Stamps and Registration and Motor Vehicles tax are sure to invite opposition and possibly withdrawal. He does not have a single proposal to raise resources by hiking the fee in educational institutions or the service charges in the government-run medical institutions. Not that he is unaware of the huge subsidies flowing to the upper middle class and the rich.
Over the years, Kerala’s performance in public resource mobilisation has only deteriorated. While Kerala mobilised 4.46% of the total own revenue mobilised by all states and Union Territories in 1970-71, it is only 4.30% in 2013-14. Note that during this period, the capacity of Malayalis to contribute towards public purposes registered many fold increase.
One can only sympathise with Dr Isaac, the Finance Minister. This society long accustomed to a culture of free lunches on borrowed funds (public debt running to Rs 1.55 lakh crore) will not permit him to exhibit the audacity to tell the people on their face that it’s time to break with this. Maybe, the economist in him wants to declare it atop the roof but the politician in him calms him down.
Dr Jose Sebastian
(The author is a faculty at Gulati Institute of Finance and Taxation.
The views expressed are his own)