THIRUVANANTHAPURAM: Mounting public debt and a steep increase in revenue and fiscal deficits are leading Kerala towards an unprecedented financial crisis, if numbers are anything to go by. The latest state account report for the April-to-September period, compiled by the Comptroller and Auditor General, has waved a red flag and clearly hinted at the need for strong measures to check spending and increase tax and non-tax revenue in the coming months.
If Finance Minister KN Balagopal takes the cues in a constructive way, the first full budget of the second Pinarayi Vijayan government, likely to be presented in February next year, will spell out stringent cost-cutting measures.
According to the report, the state’s revenue deficit was Rs 30,282 crore on September 30. The figure is alarming when projected against the revenue deficit for the entire 2020-21 fiscal, which was only Rs 23,256 crore. The revenue expenditure for the first six months of the fiscal was Rs 75,417 crore, which means the ratio of revenue deficit to revenue expenditure is a staggering 40%. Even during the worst financial years, like during 2001 to 2004, this ratio hadn’t gone beyond 28%.
In the first six months, the state has borrowed Rs 37,784 crore. In comparison, the total borrowing for the entire 2020-21 was Rs 38,190 crore. The estimate in the last budget was for a borrowing of only Rs 34,231 crore for 2021-22, which means the state has already borrowed 110% of the budget estimate. In the audit report for 2019-20 tabled in the assembly on November 11, the CAG had advised the state to closely monitor the debt sustainability so that it wouldn’t land in a debt trap. The cumulative public debt of the state is estimated to cross Rs 3.27 lakh crore by the end of this year.
Implementation of pay revision for state government employees and pensioners in April seems to have worsened the financial crisis. In six months, the state spent more than Rs 40,000 crore on paying salaries and pensions alone. This amounts to 89.25% of the total revenue earned during this period. The salary/pension expense for the entire last year was only Rs 37,600 crore.
The trend in fiscal deficit — the total borrowing required to meet the total expenditure — is alarming too as in six months fiscal deficit has touched Rs 37,783 crore. The deficit for the entire last fiscal was only Rs 38,189 crore. The ratio of fiscal deficit to total expenditure is 46%, which also broke the record of the worst-performing years when it had touched 32%. The total expenditure, including revenue, non-revenue and capital expenditure of the state was Rs 81,578 crore in the first half of the financial year.
“The foolishness of implementing a pay revision when the world was facing the worst financial crisis since the Second World War has been exposed by these figures. In 2012, the public expenditure review committee suggested that pay revision needed to be implemented once in 10 years only. Later, pay commissions also recommended against pay revision every five years. But, the government ignored all these,” said B A Prakash, former chairman of Kerala Public Expenditure Review Committee and Fifth State Finance Commission. “The crisis Kerala is facing is unprecedented on many counts. The government should initiate strong measures to tide over this,” he said.
State will have to cut plan size if downfall continues
R K Singh, additional chief secretary (finance), said statistics for two quarters wouldn’t be representative of the figures for the entire financial year. Agreeing that there is a crisis, Singh said there are rays of hope like a steady increase in GST revenue and revenue from fuel tax. “A robust recovery in the economy and in revenue receipts are the only ways out of this,” Singh told TNIE.
According to Prakash, 13 states in the country have reported revenue surplus in the last financial year. “A prudent financial management and elimination of all unavoidable expenses have helped them. Covid crisis led to a situation where there was a steep fall in investment, production of goods and services and in employment. There was a fall in indirect taxes too as recession has hit almost all sectors,” he said.
If the downfall continues, the state will have to cut its plan size considerably and reduce allocation for all departments in the last quarter. The Union government has recently approved an additional borrowing limit of 0.5% to the state this year as Kerala is one among the 11 states which could achieve the capital expenditure target for the first two quarters. That means, the state can borrow an additionalsum of Rs 4,000 to Rs 4,500 crore this year.
