Most of what he set out to achieve with his previous budget (2019-20), Finance Minister T M Thomas Isaac couldn't.
It looks like the finance minister is going to give his plans a second try with his new Budget on Feburary 7, except that his leg room for fiscal showmanship has narrowed even further.
The situation is the same as at the start of the 2019-20 fiscal, if not worse. Tax collections are as miserable, demand has not been able to sustain even a hen's flight, post-flood reconstruction efforts are yet to take off and Isaac still has to keep his deficit low if KIIFB projects are to seem attractive for investors.
It is as if the vehicle Isaac had attempted to start last fiscal had stuttered and died the moment he turned on the ignition. And now when he tries to bring it back to life a year later, he has found it dusty and dangerously rusted. Now that he has even less money, Isaac will have to try harder with weaker muscles.
Isaac gets a reality check
A 30 per cent growth in tax revenues was Isaac's biggest hope. Provisional figures put out by the Comptroller and Auditor General till December, 2019, show that the tax growth is not even 2 per cent, virtually stagnant.
Isaac's 30 per cent ambition was premised on the belief that the Centre would ask traders to file their tax returns early this fiscal. Isaac thought by scrutinising the returns he can nab those who had been evading tax since 2017 and make up the losses.
A top Finance Department source said Kerala was losing Rs 3000 crore annually by way of GST evasion. However, the Centre kept postponing the last date for filing returns until Isaac too lost interest.
Stab in the back
Right in the middle of this tax crisis came the betrayal. The Centre had cut, Isaac says “arbitrarily”, Kerala's borrowing limit this fiscal by over Rs 8000 crore and had withheld paying nearly Rs 1600 crore as Goods and Services Tax compensation.
The State's own revenue and transfers from the Centre fell so steeply that Isaac was forced to cut plan expenditure by over 30 per cent.
KIIFB illusion
Kerala Infrastructure Investment Fund Board (KIIFB) has been Isaac's showpiece, his piece de resistance; the finance minister's equivalent of a business tycoon's arm candy. He has never missed a chance to call KIIFB Kerala's “stimulus package”. What he meant was the big ticket KIIFB projects were putting money in the hands of people.
KIIFB has by now approved 679 infra works worth Rs 53,678 crore. More than half the projects, 346 of them, worth Rs 13,616 crore has been tendered, too. And nearly Rs 5000 crore has been infused into the economy.
Yet, there is no proof that Isaac's “stimulus package” has bolstered demand. The state's tax revenue from two items that are out of the GST net, petroleum products and liquor, has for the first time ever demonstrated a sharp decline.
The growth in non-GST revenue was till now perhaps the most predictable item in the State's budget. It had unfailingly grown at 15-16 per cent every year for decades. This fiscal, in what seems an ominous sign, it has dropped below 10 per cent.
Isaac in chains
On the face of it there is nothing much Isaac can do. He desperately needs money to fund his generous welfare measures but seems to have run out of revenue options. The GST era has virtually left state finance ministers powerless. They are no longer allowed to adjust commodity tax rates.
At the most the finance minister can threaten to strengthen tax administration. For instance, Isaac is sure to announce the installation of Automatic Number Plate Recognition (ANPR) System in all border posts to conduct automatic e-way bill verification of vehicles transporting goods from other states.
Liquor bonanza
The finance minister's options with excise and petroleum tax – the only taxes a state finance minister still has the power to fiddle with – are also limited. Fuel tax, Isaac will not dare touch. Excise duties are already high, with 212 per cent duty already slapped on Indian Manufactured Foreign Liquor.
Yet, it has to be stated that even at this exorbitant rate, liquor sales have not drooped. It keeps soaring. In a decade, the annual revenue from liquor has grown by nearly Rs 9000 crore. Sources say that given the indifference of consumers to liquor prices Isaac might slightly up the duty on beer, which now attracts 102 per cent, or foreign manufactured foreign liquor, which has a duty of 80 per cent.
Fear no additional cess
There is no need to worry about a new cess either as Isaac had already introduced one in his last budget and it would continue till the end of 2020-21. In his last Budget, Isaac had imposed a one percent 'calamity cess' on all items falling in the three higher GST slabs: 12, 18, and 28 percent. Gold and diamond, too, were subjected to a 0.25 per cent 'calamity cess'. Isaac would expect to mobilise another Rs 600 crore from the coming fiscal, too.
Luck runs out
There will be fall in lottery revenues for the first time in over a decade. The Centre has picked own lotteries run by state governments from the 12 per cent GST slab and thrown them in the 'luxury slab' of 28 per cent, blunting competitiveness.
Without considerably sacrificing government profits, Isaac cannot hope to sustain lottery sales from now on. During the 2018-19 fiscal, revenue from lottery was Rs 11,300 crore, a quantum leap from Rs 557 crore at the start of the decade.
Pay will be revised
Isaac had also ruled out any change in the pay revision pattern. Spreading pay revision over 10 years would have saved the government a lot of money. But the LDF manifesto had assured that pay revision would be done every five years. Isaac is also not expected to raise retirement age from 56 to 58, a measure that could have postponed settlement claims.
Isaac's new budget will, therefore, depend heavily on KIIFB, yet again, for both gloss and salvation. All the big projects – Transgrid 2.0, coastal and hill highways, Kerala Fibre Optic Network, Life Science Park, Petrochemical Park, Hi-Tech School programme – will be showcased. He would also claim that at least 25,000 crore of KIIFB funds will be spent during the last fiscal of the LDF tenure.
If demand and consumption have to pick up in Kerala, Isaac's KIIFB claims should come true. If this happens, there could be a magical turnaround.
Besides the KIIFB experiment, the only other way Isaac could compensate the losses is through non-conventional means, by introducing some new non-tax revenue streams.
Gold mine called land
Isaac will in all probability try and monetise land resources and other government properties. One, he may enhance the tax on reclaimed land. As it stands, wetlands or paddy fields reclaimed before 2008 and had been regularised are taxed at a small percentage of the fair value of land. Isaac could tax such lands at fair value rates, just the way dry lands are.
Two, he could push up the fair value of land, a set of values that had remained untouched for over a decade.
Three, Government land in prime locations can be given to private property developers on long term lease (50 to 75 years) for construction of commercial complexes where a specific portion will have to be set apart for government purposes free of rent.
Four, land leases, untouched for decades, can be increased. Undisputed tax arrears of Rs 2880 crore can be recouped urgently.
Four, Government quarters that are given out for less than 10 percent of its market value can be made dearer.
Freeze on postings
Unscientific postings in the education sector has badly bled the the state's resources. Nearly 30,000 new teaching posts is said to have been have been created during the LDF tenure alone. in the last four years. Isaac may revise the student teacher ratio of 30:1 to bring down postings.
Instead of new recruitments, he may also announce a redeployment plan.
