The decision to impose the fuel surcharge has triggered an instant opposition that is likely to eclipse all other issues, especially the persisting problems of declining tax collection efficiency, the interest burden of past debt and of course the larger question of the debt trap. Let me, therefore, focus on these issues.
The good news is the more-than-full recovery from negative growth. The 12.01% real economic growth rate for the year ending March 2022 has come against a negative growth rate of 8.43% the previous year. This translates to a net growth rate of 3.58% for two years since 2019-20. The finance minister should be a happy man since he has also collected Rs 8.4 for every Rs 100 of state income as against Rs 6.9 in 2020-21 and Rs 7.6 in 2021-22.
But Kerala’s public finance problems are persistent in nature. Its expenditure has been increasing while revenue declined as a proportion of income despite high per capita income for some time. Some of the income problems could be due to the changing policies and norms of the central government. But they are not Kerala-specific and hence need the cooperation of other states to seek meaningful remedies.
Karnataka has been reporting a revenue surplus for quite some time while Tamil Nadu’s deficit trend has been persisting since 2013. This is not due to Kerala spending a higher share of income on the social sector. In fact, all three states are on par at around 5.5% to 5.6%. The national average is higher at 6.9%.
The revenue deficit is due to a relatively higher burden on pensions and interest payments for Kerala than in other states.
If one takes a nine-year annual average ending in the pre-Covid year of 2019-20, Kerala’s debt burden was 29% of income compared to 18% for Karnataka and 21% for Tamil Nadu and the national average of 24%. After Covid, it rose to 38% for Kerala and 23% for Karnataka and 31% for Tamil Nadu. As for interest burden, it constitutes about 90% of revenue deficit for Kerala for a nine-year period ending 2019-20 whereas Karnataka has a revenue surplus and Tamil Nadu finds itself with a share of 65% of its revenue deficit. Nationally it is a mere 9%.
There is no alternative for Kerala but to enhance its tax collection efforts and bring it to the level of the 1975-86 period of Rs 12.4 for every Rs 100 of state income. Last year seems to have been one when some concerted efforts were made in terms of checking establishments, booking tax dodgers and so on. There is urgent need to strengthen the tax collection system with adequate staff, technology, data analysis, hand-holding wherever required for easy filing and a strategic management team to continuously monitor the collection.