Kerala Budget 2023: Should have clubbed tax hikes with austerity measures, say experts

FM took a political call as 2024 polls would have made it difficult to raise levies next year
Finance Minister K N Balagopal presenting the state budget at the legislative assembly in Thiruvananthapuram on Friday (Photo | B P Deepu, EPS)
Finance Minister K N Balagopal presenting the state budget at the legislative assembly in Thiruvananthapuram on Friday (Photo | B P Deepu, EPS)

THIRUVANANTHAPURAM: Undoubtedly, the acute fiscal constraints in store for 2023-2024 have prompted Finance Minister K N Balagopal to go for additional resource mobilisation to the tune of around Rs 3,000 crore. He took the extreme step to impose a fuel cess after the Centre conveyed its decision to cut Rs 2,700 from the state’s borrowing limit. Sources said the minister kept the chief minister and party in the loop before taking the final call on the hike that could politically backfire.

In his budget speech, Balagopal pointed out that the state anticipates a shortage of Rs 8,400 crore in revenue deficit grant compared to 2022-23, a loss of around Rs 5,700 crore due to cessation of GST compensation, resource loss of around Rs 5,000 crore due to restriction on borrowing limit, as well as the reduction on account of the debt likely to be borne by KIIFB and the Social Security Pension Company.
Many feel that Balagopal was taking a political call by introducing these measures this year. With elections coming up in 2024, it would be difficult to go for taxing measures next year. Financial experts however aired concerns on how realistic these proposals would be.

Even when they believe that resource mobilisation is unavoidable, such steps would have proved more convincing, had these been clubbed with austerity measures on the part of the government.Many have pointed out the contradiction in opting for Rs 2,000 crore measures to tackle inflation while levying a fuel cess that in turn could lead to a price hike. It’s a fact that inflation affects the poor badly. But they will be covered under social security support, pointed out K J Joseph, director, Gulati Institute of Finance and Taxation. 

“There’s a price rise in general. However, many of those who cannot afford are protected. Still, there could be segments that are not protected. In a society like Kerala, such social equalisation processes would prove useful. This can also be an instrument to promote EV transmission,” he said.  He said these measures could have been less painful, had they been coupled with socially-appealing economic measures which would have been appreciated by the common man. Ideally, the government should have gone in for a drastic cut in non-plan revenue expenditure, opined economist B A Prakash. Increasing expenditure due to the payment of salaries and pensions is one of the major financial burdens borne by the government. If Rs 46,754 crore was required to disburse salary and pension in 2020-21, it went up to Rs 71,393 crore in 2021-22, he pointed out.

“The cess on fuel price is going to affect all sectors.  For the last two years, the government had sustained itself on a revenue deficit grant from the Centre. Along with resource mobilisation, there should also be  effective revenue collection. The government should think about suspending salary/pension revision for a stipulated time. Doing away with unnecessary establishments is another alternative before them,” said Prakash.

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