Analysis | Is Centre alone responsible for Kerala’s fiscal woes? Could Balagopal have done more?

The Kerala Cabinet, led by Chief Minister Pinarayi Vijayan, will assemble at Jantar Mantar in New Delhi on February 8 and shout slogans against the Centre's moves that the LDF believes is crippling both the state's finances and federalism.  

Even while conceding that the Centre is incrementally depriving Kerala of its entitlements, there is a question that begs to be answered. Is the Kerala government doing its part? 

The latest indicators put out by the Comptroller and Auditor General reveal two things about Kerala's fiscal management. One, resource mobilisation, a substantial chunk of which is in the hands of the Kerala government, is relatively poor. And two, Kerala is not behaving like it has been severely restricted by a lack of funds.

Sliding revenue
November 2023 is the month up to which the CAG has released provisional figures. It shows that after eight months of the 2023-24 fiscal, Kerala has mobilised 54.24% of its estimated revenue for the fiscal. Last November, Kerala had collected over 60% of its estimated revenue.  

Except for GST collections, which by the end of November at 56.30% of the estimate was better than 2022-23 November's 54.21%, mobilisation under all other revenue heads had dropped compared to the 2022-23 fiscal. There is fall in stamps and registration fees, land revenue and even the money from liquor.   

Last fiscal, revenue from land had crossed 100% of the budget estimate by November itself. This time, the collection by November has touched only 83.35%.  

Is GST growth good enough? 
Nonetheless, the growth in GST collection when compared to last fiscal is encouraging. Last time, finance minister K N Balagopal had hoped to collect Rs 42,636.83 crore from GST alone but ended up mobilising just 81% of his expectation, Rs 34,678.67 crore. This fiscal, the Finance Department hopes that it could achieve at least 95% of its target. 

This would still not be enough to shore up Kerala's deficit. Last fiscal,  if Balagopal was able to collect nearly 100% (98.95%) of his revenue estimate, a record, it was only because his other major sources of revenue like stamps and registration, land revenue and even non-tax revenue (lottery, forest, interest receipts and dividends) brought to the state's coffers considerably more than what was estimated --  collection under stamps and registration, land and non-tax revenues were 30% more than what was expected. 

Modi is no more generous
This fiscal, such a feat looks unlikely as collection under all these heads trail far behind last fiscal. More crucially, two other revenue heads -- Kerala's share of union taxes and grant-in-aid from Centre -- that did well last fiscal are set to throw up poor numbers this time.

Last fiscal, contrary to Balagopal's repeated cribs, the state's share of Union taxes was 10% more than what Balagopal expected; the finance minister estimated Rs 11,902 crore as Kerala's share of Union taxes but ended up pocketing Rs 13,065 crore. In fact, in the 2021-22 fiscal, Kerala got 50% more than what was expected from the Centre by way of its share from taxes. 

This fiscal, both tax share and grants-in-aid (grants for state and central schemes, Finance Commission grants and other transfers from Centre) is expected to fall precipitously.  

In short, on the one hand there is stagnancy, even a dip, in state revenues. And on the other hand, Kerala's expenditure continues its upswing. Together, these could have an adverse impact on Kerala's fiscal deficit.

Positive spending
Nonetheless, this expenditure growth has a positive bias. What is showing a marked growth is not the money spend on non-asset generating revenue expenditure like salaries, pensions and interest payments but on development, mostly infrastructure. Borrowings have also increased this fiscal. Since the revenue expenditure is kept at last fiscal’s level, it is evident that the borrowed money is being utilised to finance development.

What’s more, this increase in development expenditure does not include the Rs 15,000 crore-plus investments the KIIFB makes annually. Together, these spends could trigger huge multiplier effects in terms of growth and jobs.

Supplyco crisis
However, the CAG figures hide a worrying tendency. In its desperation to somehow keep the deficit low, Balagopal has found a martyr --  subsidies. It is the expenditure on subsidies that has shown a dramatic fall compared to last fiscal. If during November 2022-23, nearly 60% of the money allocated for subsidy had been spent, less than 45% had been spent by this November.  

The main items of subsidies include grant to Kerala State Civil Supplies Corporation Limited for market intervention operations, and paddy procurement through Kerala State Civil Supplies Corporation and other agencies.

No wonder, Supplyco racks are near empty and paddy farmers are a perennially worried lot.