The provisional figures for the 2023-24 fiscal put out by the Comptroller and Auditor General seem to confirm the LDF goverment's lament. The Centre is fiscally choking Kerala.

The figures show that Kerala has done its part. It has managed to mobilise more than 90% of its estimated tax and non-tax revenues. In the case of tax revenue, including GST collections, the achievement is 92.36%; finance minister K N Balagopal hoped to mobilise Rs 1.02 lakh crore as tax revenue and ended up collecting Rs 94,633. Nonetheless, it has to be stated that Balagopal had done exceptionally well during the 2022-23 fiscal. Then, he had managed to pocket nearly 99% of the tax revenue he had estimated.

In the case of non-tax revenues, including lottery sales, Balagopal pulled in 95.50% (Rs 16,318.87 crore) of what he had estimated (Rs 17,088 crore) in 2023-24. But in the previous fiscal ( 2022-23), Balagopal had even sprung a surprise: he had pocketed nearly 30% more than he had estimated.

Even if the performance fell short of 2022-23, a more than 90% success in tax collection in 2023-24 certainly did not suggest a weak tax administration; during the first Pinarayi ministry and the last three fiscals of the Oommen Chandy dispensation, the success rate was below 75%.

Though tax revenues looked fairly good in 2023-24, Kerala's total revenue receipts fell nearly 20% of the Budget estimate. And this fall can be attributed to two heads: Grants-in-aid and borrowings. And both these revenue sources are controlled by the Centre.

Grants-in-aid fell by nearly 30% (Kerala expected Rs 15,866 crore but it received just Rs 11,441.15 crore, a shortfall of Rs 4425 crore) and borrowings by nearly 40% (Kerala wanted to borrow Rs Rs 51,856.38 crore but the Centre allowed just Rs 32,976.83 crore, Rs 18,879.55 crore less than Kerala sought.)

The Centre has virtually slashed Kerala's borrowing limit (3% of the GSDP) by including three additional components within its limit. One, the money borrowed for the special purpose vehicle, Kerala Infrastructure Investment Fund Board (KIIFB), that was formed to accelerate the state's infra growth. Two, the money borrowed by Kerala Social Security Pensions Limited (KSSPL), an SPV created to disburse social welfare pensions on time; KSSPL borrows the money to pay pensions on time and the state then pays back KSSPL with interest. Three, the money in Kerala's Public Account, in which small savings, provident funds, remittances and other deposits are collected. Since the Kerala government at times uses the funds in this account to finance its deficit, the Centre has deemed this as the state's debt.

Grants-in-aid refers to both plan grants and non-plan grants. Nearly half of the plan grants, especially for centrally sponsored schemes, have been cut on the grounds that Kerala has not submitted detailed accounts; Kerala had estimated Rs 8274.13 crore as plan grants during 2023-24 but had to satisfy with just Rs 4886.77 crore. The fall in non-plan grants was relatively minor; Rs 6773.43 crore from Rs 7591.90 crore. Non-plan grants cannot be withheld in a big way as they are mandated by the Finance Commission and are not conditional like plan grants.
Thanks to a steep fall in grants-in-aid and borrowings, Kerala's revenue receipts fell by Rs 32,146 crore (from the estimated Rs 1.88 lakh crore to Rs 1.56 lakh crore).

Curiously, this did not show in the revised revenue and fiscal deficits Balagopal presented in his latest Budget Speech. Here is why: To retain the deficits as he had promised in his 2023 speech, Balagopal chose the finance minister's easy expedient of drastically cutting down expenditure. And the biggest cuts fell on the social and economic sectors. This was like a manufacturer passing on an increase in tax to the customer.

Economic sectors like agriculture and rural development saw an expenditure squeeze of 30%; Balagopal wanted to spend Rs Rs 31,035.61 crore but he limited it to Rs 21,798 crore.

The social sector comprising education, health, sanitation, social welfare, nutrition and urban development witnessed a spending crunch of nearly 20%; Rs 57,291.97 crore was Balagopal's target but to make up for the revenue loss he pared it down to Rs 46,897.92 crore, a compression of Rs 10,394.05 crore. Mounting arrears of social welfare pensions was one of the many consequences.