Kerala’s debt burden as a proportion of gross state home product (GSDP) has remained above a worrisome 37 p.c since 2020.
“Our neighbouring international locations like Sri Lanka and Pakistan have fallen into extreme financial crises. Pakistan is going through such a disaster that they’re even unable to purchase diesel gasoline for energy era. This peculiar state of affairs might be survived solely by taking each single step ahead fastidiously”.
That is how Finance Minister of Kerala KN Balagopal, in his Funds speech (2023-24) on February 3, 2023, underlined the necessity for fiscal righteousness in macro-economic coverage making amid a shaky world financial atmosphere.
The ruling Communist Get together of India (Marxist) in Kerala has alleged that the Union Authorities fiscal insurance policies have put the state “underneath an financial siege”.
Kerala’s latest report, nonetheless, demonstrates that the state’s personal macroeconomic managers have not likely walked the discuss on fiscal self-discipline.
Poor Fiscal Self-discipline
Pattern this: In 2023-24, the state has projected income receipts of Rs 1,35,418.67 crore. Of this, Rs 94,649 crore or about 70 p.c of income receipts, can be spent on dedicated expenditure. This contains spending on salaries (30 p.c of income receipts), pension (21 p.c), and curiosity funds (19 p.c).
Dedicated expenditure of a state sometimes contains expenditure on fee of salaries, pensions, and curiosity. A bigger proportion of price range allotted for dedicated expenditure gadgets limits the state’s flexibility to resolve on different expenditure priorities akin to capital outlay. Dedicated expenditure is predicted to extend by 5 p.c over the revised estimate of 2022-23.
In public finance, as it’s for households, borrowing in itself isn’t a foul concept, if the majority of the loans are spent on asset creation. The expenditure sample of Kerala, nonetheless, reveals some pink flags.
Kerala’s debt burden as a proportion of gross state home product (GSDP) has remained above a worrisome 37 p.c since 2020.
For 2023-24, income expenditure within the state constitutes greater than 70 p.c of whole expenditure. The share of capital outlay, which may help in enhancing progress prospects by way of constructing requisite infrastructure by the state, is projected to be lower than 7 p.c of the entire expenditure.
There are different indicators of fiscal stress too. The Reserve Financial institution of India (RBI) has recognized Kerala among the many “extremely confused states” together with Bihar, Punjab, Rajasthan and West Bengal.
Within the case of Kerala, the 5 yr common of the share of income expenditure in whole expenditure accounted throughout 2017-18 to 2021-22 was greater than 90 p.c.
Misplaced Spending Priorities
By all accounts, this doesn’t make for a wholesome public finance administration glide path. “Though welfare-enhancing, the impression of income spending on financial exercise lasts for nearly a yr. In distinction, the impression of capital outlay is stronger and lasts longer, with the height impact materialising after two-three years. Within the medium to long run, states with excessive income spending and low capital funding could expertise slower income progress and better curiosity outgo,” the RBI mentioned in a paper State Funds: A Threat Evaluation.
New sources of dangers have emerged – rising expenditure on non-merit freebies; increasing contingent liabilities; warranting strategic corrective measures. Kerala, together with Odisha, Telangana and Uttar Pradesh are the highest 5 states with the biggest rise in subsidies over the previous three years.
Kerala, together with Rajasthan and West Bengal are projected to exceed the debt-GSDP ratio of 35 per cent by 2026-27. These states might want to undertake vital corrective steps to stabilise their debt ranges.
Amid all of those, state finance minister KN Balagopal, in final yr’s price range 2022-23 introduced to have “international peace convention’ on nuclear disarmament and world peace, and an quantity of Rs 2 crore was earmarked for this. Whereas the quantity could also be insignificant in a greater than Rs 2 lakh crore budgeted whole expenditure, the announcement has raised eyebrows concerning the state authorities’s fiscal priorities in an unsure financial atmosphere.
Chief Minister Pinarayi Vijayan and staff’s tour to America and Cuba earlier this yr, which reportedly price Rs 2.5 crore, have additionally drawn flak, given the monetary crunch that the state finds itself in.
A latest e-book, Kerala’s Financial Improvement: COVID-19 Pandemic, Financial Disaster and Public Coverage, a group of essays edited by B. A. Prakash, former chairman of the Kerala Public Expenditure Assessment Committee and the State Finance Fee, and Jerry Alwin, Affiliate Professor of Economics, SN Faculty, Varkala, has emphasised that regaining ‘‘misplaced fiscal capability’‘ is maybe crucial problem that Kerala faces right this moment.
Kerala’s funds require an extended exhausting look. Blaming the Centre for the state’s fiscal stress could not yield a lot amid the tantalising prospect of dangerously hurtling down a debt gap.
Gaurav Choudhury is consulting editor, Community 18. Views are private, and don’t signify the stand of this publication.
