THIRUVANANTHAPURAM: Ahead of the second budget of the Pinarayi Vijayan Government 2.0, all eyes are on Finance Minister KN Balagopal who is expected to take tough measures to manage the worsening state finances and also introduce novel initiatives to attract investments.
Measures to increase the government’s revenue are inevitable to ensure funds for development and welfare activities, feel experts. Some expect measures to take forward the knowledge economy programme announced in the last budget of the previous government.
“Kerala’s economy is not in a good shape, obviously because of Covid. The finance minister’s challenge would be to transform adversity into an opportunity, by making the economy more vibrant. The government’s revenue has to be increased. For that, tax rates need to be raised,” says K J Joseph, director of Gulati Institute of Finance and Taxation (GIFT). He expects Balagopal to take steps to get rid of borrowing dependence by raising taxes and by making the economy more vibrant.
“For that, we need to attract more investment,” he says. Increasing tax revenue and making the collection more efficient are imperative for the government to tide over the crisis, feels K P Kannan, development economist and former director of the Centre for Development Studies. “The government’s own tax revenue is expected to come down by 20% this fiscal as against what was budgeted.
The borrowing will increase subsequently and, already there are reports that the state has already exceeded the borrowing estimates,” he says. He says the tax collection was the lowest in the last 30 years in terms of percentage of tax collected out of the state income. “The only way forward is to strengthen tax collection. That should be the first priority,” he says.
The government should also ensure that the tax collected by public enterprises lands in its coffers. “For instance, KSEB has not paid over Rs 1,400 crore it had collected as electricity duty,” he adds. Kannan feels the government should show the courage to take long-term decisions like raising the retirement age. Economist and chairman of the Fifth State Finance Commission B A Prakash says the fiscal crisis faced by the state is a structural, persistent and fundamental problem.
“You cannot tackle it with ad hoc measures limited to a government’s tenure. There should be a big change at the policy level. There should be bold and effective steps for expenditure cuts,” he says. He feels that the recent pay revision of government employees and pensioners has put a big liability on the exchequer. “The government employees and pensioners were not affected by the pandemic-induced economic crisis. The Pay Revision Commission pegged the additional burden due to salary revision at Rs 6,000 crore. But the government says it would come around Rs 10,000 crore,” he says.
Fiscal deficit 3.5% of GSDP
Total expenditure in the ongoing fiscal, 2021-22, is estimated to be Rs 2,14,479 cr. This will be met through revenue receipts of Rs 1,31,335 cr and borrowings of Rs 76,866 cr
The estimated fiscal deficit in 2021-22 is 3.5% of GSDP or Rs 30,698 cr. Estimated revenue deficit is 1.93% of GSDP or Rs 16,910 cr. Revised estimate on revenue deficit in 2020-21 was Rs 24,206 cr. This was 59% higher than the original budget estimate of Rs 15,201 cr. The revised estimate on fiscal deficit in that year was 4.25% of GSDP.
