Fears of recession surface as govt declares unprecedented cut in plan funds

Thiruvananthapuram: In what can be read as a colossal cut down of development expenditures, the Kerala government on Thursday decided to either drop plan schemes altogether or trim their allocation by 50% during this 2024-25 fiscal. Such a drastic mid-fiscal expenditure compression is a clear indication of the serious fiscal crisis faced by Kerala.

The Finance Department had already issued the guidelines on restructuring plan funds for 2024-25, and this was approved by the Kerala Cabinet on Thursday. The expenditure squeeze will be faced by all recurring projects and those that have been given administrative sanction this fiscal.

A high-level team led by the Chief Secretary and made up of Finance and Planning secretaries and also the secretary of the concerned department has been empowered to examine the inevitability of each of the plan projects and then to either set aside the project for later or slash its budget allocation by 50%. For projects with less than Rs 10 crore outlay, the decision to curtail or do away with a project or scheme for at least this fiscal would be taken at the department level.

The secretaries of each department have been asked to send their recommendations to the Chief Secretary. Along with the CS, their recommendations should also be sent to the members of the Planning Board. The Board members will send their opinions to the Cabinet sub-committee on expenditure through the Planning Board vice chairman or even directly.

Kerala's total plan outlay for this fiscal is Rs 21,838 crore. On date, during the second quarter of the fiscal, the utilisation is just 15.87%. Inclusive of the allocation to local self-governing institutions (LSGIs), the plan outlay will be Rs 30,370 crore. And when the central share of Centrally sponsored schemes is also added, the aggregate plan outlay for this fiscal will work out to Rs 38,886.91 crore. And the aggregate financial progress at this stage is 19.13%.

There are 52 administrative departments and 2006 schemes and projects that are either recurring or have been accorded administrative sanction this fiscal. Sector-wise, the highest allocation is for 'social and community services'; with 966 schemes, the sector has been allocated Rs 12,921 crore. On date, the utilisation is 21.25%, the best after 'irrigation and flood control' where the utilisation is 22.7%.

Top sources in the Finance Department said that the curbs would be limited to the state plan outlay. Meaning, LSGIs will be spared. Already, the fund utilisation for LSGIs have crossed 30%.

During the lst five fiscals, the Plan fund utilisation had taken what in finance circles is called the 'mountain graph', a rise, a peak and then a fall. In 2019-20, it was 74,52%. In 2020-21, it was 97.97%. 2021-22, it was 93.48%. 2022-23, it was 85.67%. 2023-24, it was 75.2%. This fiscal, the government wants utilisation to be around 50-60% of the original plan outlay.

The expenditure squeeze can rein in deficits but there is a danger. A fall in development expenditure would mean less money in the hands of the people, which in turn would lead to a slump in consumption and ultimately to recession.