Balagopal's 'victory speech'. Has fiscal crisis blown over or was the FM deluding Kerala?
Balagopal sounded triumphant when he began his address to the Kerala Assembly on Budget Day..
Balagopal sounded triumphant when he began his address to the Kerala Assembly on Budget Day..
Balagopal sounded triumphant when he began his address to the Kerala Assembly on Budget Day..
On February 7, Friday, when Finance Minister K N Balagopal stood up in the Assembly and began his budget speech, he sounded almost as dramatic as Winston Churchill on Victory Day when Germany surrendered.
Standing on the balcony of the Ministry of Health in Whitehall in his workman's boiler suit and flashing a victory sign, Churchill told the millions gathered below: "In all our long history, we have not seen a bigger day than this."
Balagopal sounded as triumphant when he began his address to the Kerala Assembly on Budget Day. "I happily announce that we have definitely overcome the trying times of severe fiscal constraints that have affected the State in recent years. I am hereby declaring that our fiscal position has improved now," he said.
Miracle #1: Revenue growth
How this was achieved Balagopal detailed some 10 minutes later. The 'miracle' was partially in the "70% increase" in the Kerala's own tax revenue in four years. "We will be able to augment the State’s own tax revenue, which was Rs 47,660 crore in 2020-21, to Rs 81,000 crore by the end of the financial year (FY) 2024-25 (ongoing fiscal). This is an increase of 70% in four years," Balagopal said.
He was generous in giving credit. "In this context, I sincerely appreciate the taxpayers and the officials," he said. Again, except for the reference to God and the rhetorical flourish, Balagopal sounded uncannily close to Churchill on Victory Day. "Everyone, man or woman, has done their best. Everyone has tried. God bless you all," Churchill had said on May 9, 1945.
Miracle #1 debunked
Now, the hard truths. FY 2020-21 was a convenient year to pick as the base year. It was the time when the pandemic had decimated the economy. Kerala's tax collection had plummeted, gone underground. From Rs 50,323.14 cr in 2019-20, it slipped to Rs 47,660.84 cr in 2020-21; a minus 5.3% fall.
Then came the post-COVID surge, the automatic bounce-back after the shutdown. Between the fiscals 2021-22 and 2021-22, Kerala’s tax collection soared: what was Rs 47,660.84 cr swelled to Rs 58,340.52 cr, a tremendous 23.35% growth. This was Balagopal's first year as finance minister. At the national level, for the same period, the growth in tax collection was 34%.
The effect of the post-COVID opening up on global consumption and the resultant upsurge in tax collections was likened by economists to the "jailbreak of the hungry". But soon after, once the hunger was satiated, growth more than moderated in Kerala, it nearly stagnated. The growth was just 3.28%; from Rs 71,968.16 cr in 2022-23 it became Rs 74,329.01 cr in 2023-24.
In the ongoing fiscal, 2024-25, the growth is pegged at 9.8%. But this is not the final figure. The latest authentic figures available (the CAG's) are up to December 31, 2024. This reveals that less than 65% of the target collection has been achieved. Invariably, final accounted figures drop below-budgeted figures.
For the next 2025-26 fiscal, Balagopal has speculated a 12% growth in tax revenue. Even assuming this is achieved, it is still below the 13% growth levels experienced during the last three fiscals of the Oommen Chandy tenure that the CPM had termed "disastrous".
Even including the stupendous post-Covid growth rate, the average tax collection growth during Balagopal's tenure (from 2021-22 to 2024-25) is 12.2%. But this has not prevented the finance minister from claiming that "the growth in SOTR (state's own tax revenue) has increased to 15.8% during the tenure of this Government (from 2021-22 to 2024-25)".
Miracle #2
The second factor that produced Balagopal's 'miracle' was the "increase" in capital expenditure, the money spent on creating assets, or better still, the future. "We can proudly say that the increase in our expenditure was due to the augmentation of own revenue despite the drastic cut of more than Rs. 50,000 crore in the Central transfers to the State," he said.
During the last three years, he said the capital expenditure from the budget was Rs. 41,772 crore. To make it seem colossal, Balagopal offered a contrast. "The same during 2011-16 (Oommen Chandy's term) was a mere Rs. 24,505 crore," he said.
Miracle #2 debunked
But was the growth in capital expenditure during Balagopal's period as enormous as he projects? Forget growth, there was a decline. From Rs 17046.02 cr in 2021-22 it fell to Rs 16787.49 cr in 2022-23, a degrowth of 1.52%. Next fiscal there was a negligible increase; it writhed up to Rs 16880.17 cr in 2023-24 from Rs 16787.49 cr in 2022-23, an insignificant bump of 0.55%.
Capex spending crashed again. Rs 16880.17 cr fell to Rs 16646.16 cr this ongoing fiscal, a plunge of minus 1.32%. For proof, have a look at Kerala's plan progress. On February 7, when Balagopal said Kerala was out of the red, plan utilisation was an abysmal 44.46%, the worst in years.
(All figures are taken from the budget documents tabled by the finance minister in the Assembly on February 7.)