Kerala’s rising public debt a big concern, warns Gulati Institute

Thiruvananthapuram: Kerala has failed to manage its mounting public debts over the years, and the dire financial situation could trigger serious economic repercussions, the Gulati Institute of Finance and Taxation (GIFT), an academic establishment run by the state government, has warned.

A study published by the institute cautioned that if the situation continues, then the state will be forced to borrow more and more just to meet the current liability alone and called for measures on a war footing to manage the widening debt gap.

As per estimates, the state’s public debt, which stood at Rs 25,721 crores in 2000–01, has now risen to a whopping Rs 3.57 lakh crores. The threshold of public debt that each state can afford is determined by calculating its ratio to the Gross State Domestic Productivity (GSDP). The GSDP-debt ratio in Kerala rose to an alarming 39 percent last year. The state government has failed to keep the public debt under check except during the period between 2004-05 to 20012-13.

The study, led by Assistant Professor Dr P S Renjith, also gives out a few recommendations to overcome the debt trap.
1) The state government should bring down the ratio of public debt to less than 27.8 percent of the GSDP.
2) Implementing austerity measures by cutting down on social welfare programmes is not ideal.
3) To overcome the present situation, the state should borrow more at lower interest rates and also seek further assistance from the Centre.
4) Although Kerala competes with the Scandinavian countries in terms of its social welfare programmes, the State finds itself along with the African countries in fixing the tax rates.

Austerity measures are not the solution

The GIFT report refutes the Reserve Bank of India’s (RBI) assessment that the debt situation in Kerala is by far the most perilous in the country. It also disapproves of the suggestion by the government to regulate its expenditure component to bring down the debt burden.

Kerala has recorded an impressive growth of 18.5% in tax revenue collections. The ratio of its own tax revenue to the total tax revenue has now grown to 85.5%, taking the state to third position in this category. But at the same time, the ratio of financial assistance from the Centre has now come down to 20.6% from the previous proportion of 25.8%.