Kerala Budget: Welfare in the time of fiscal crisis

With the objective of building a new Kerala, the Finance Minister announced 25 projects. Yet, most of the projects were extensions of older projects with an increased budgetary allocation.

Published: 01st February 2019 03:35 AM  |   Last Updated: 01st February 2019 04:52 AM   |  A+A-

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Kerala Finance Minister Thomas Isaac | Facebook

By Express News Service

With the objective of building a new Kerala, the Finance Minister announced 25 projects. Yet, most of the projects were extensions of older projects with an increased budgetary allocation.

One of the major announcements was with regard to industrial parks and corporate investment. It is a positive signal that the government has finally accepted the need for private investment in a state with highest unemployment rate in the country.

The decision to procure coffee beans at a higher-than-market price might eventually kill the sector, as we have seen in other sectors such as cashew, coir, and paddy. And there is no estimation of how much it might cost the exchequer.

The FM is confident of turning around more PSUs into profit-making units. However, the financial burden of this exercise on the exchequer has not been properly factored in.In most of the 25 projects announced by Thomas Isaac, KIIFB has marked its presence. Considering the nature of schemes, it needs to be looked into how successful KIIFB will be in repaying the loan. There was also no mention on the total amount that KIIFB was able to garner from the market or through Pravasi Chitty. It means that KIIFB is still highly dependent on motor vehicles tax, petrol cess, and grants from the government.

As the infrastructure development costing rS 11,000 crore is routed through KIIFB, it needs to be looked how successful KIIFB will be in executing these projects considering the shortage of funds.

As expected, the finance minister didn’t cut down the expenditure, but mentioned a growth rate of around 12 per cent. On the other hand, deficit targets were lowered, with fiscal and revenue deficit at 3 per cent and 1 per cent of the GSDP, respectively. The government plans to meet the deficit targets by expecting a huge increase in its revenue receipts. The state is expecting a 27 per cent increase in GST collection compared to last year.

With the tax rate on all foreign liquor increased by 2 per cent, state excise is expected to register a growth rate of 15 per cent. The government has also imposed a flood cess on the supply of goods in the GST tax bracket of 12 per cent, 18 per cent and 28 per cent and all services. This would clearly lead to an increase in price levels and add to inflationary pressures.

If the argument that cutting down the expenditure will push the economy to the crisis, the same argument could be applied in the case of additional cess applied across various goods and services for an economy that has just begun to recover from the devastation caused by the floods.

By and large the budget has so many announcements which lack the sound economic principles. The welfare schemes are growing while the per capita income of Kerala is growing whilst the state ponders over how to fix the losses due to the floods. Many of the provisions lack public policy decisions from the Government side which are imperative before announcing them.

The situation leads to contradicting viewpoints to meet both the ends of fiscal management and growth of the economy.

(The writer is Senior Research Associate, Centre for Public Policy Research)

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