Column | Isaac’s balancing act gets all the more difficult this time

Union finance minister Nirmala Sitharaman refused to acknowledge a financial crisis when she was faced with a question in Parliament in November. She said that there may be a slowdown but not a recession.

Kerala finance minister T M Thomas Isaac, however, did not bat an eyelid while raising a flag. “The state is in a very serious financial crisis. Recession is evident,” he said at a press conference two weeks ago. He also said that the centre has held on to the GST share due to the state and even slashed the borrowing limit.

What prompted Isaac to speak out the truth that Sitharaman did not want to ack? A state minister has the Union minister to blame but the buck stops at Sitharaman. Since she did not want to shoulder the blame, she just tried to wish the recession away. 

It is a fact that the state is treated unfairly by the centre, sitting on the GST dues and lowering borrowing limits. Yet the state government fared poorly in ensuring an increase in revenue, official figures showed. Isaac is expected to increase revenue and put a lid on expenses in the budget he presents on Friday. 

The Left Democratic Front government, which brought out a white paper accusing the previous government of failing to raise revenues and cut costs does not seem to have gone for a course correction during its term.

Tall claims

Kerala expected a 25 per cent rise in tax revenue after the switch to the GST regime. That did not happen. The state government was still hopeful of a 30 per cent surge in tax revenue this year. Isaac said as much while replying to House debates after the budget last year. He also said that the increase would help him fund more projects than declared in the budget. 

However, the increase in income from the GST remained below 12 per cent even now. It is yet to be seen whether Isaac’s hopes of a 30 per cent rate growth would materialise. The government expects the revenue to increase considerably while the submission of annual returns after the implementation of the GST. 

Yet the people’s experience suggests to the contrary. All areas of activity are in a recession. Traders and businessmen are tightening their belts to brace for uncertain times. Even the rich are not confident of flaunting their money. 

Fuel tax revenue is sliding in the state, according to data compiled by the tax department. This is the portion of tax directly paid by the oil companies to do away with tax evasion. Kerala received Rs 1,668 crore as fuel tax in June, Rs 1,482 crore in July and Rs 798 crore in August. The government is afraid that the slide reflects the first port of call for a people driving to austerity. More and more people are relying on public transport these days.

More proof is available for the hit taken by the automobile sector. New vehicle registration fell 1.37 lakh last year. Vehicles’ one-time tax rate is usually increased by 10 per cent every year. The government had expected a 20 per cent increase in revenue from one-time road tax last year. Yet, the tax revenue has fallen by Rs 80 crore up to December. 

The Motor Vehicles Department has told the government that it could not meet its target to collect Rs 4,700 crore this year. 

Numbers go haywire

The current budget expects Rs 1.15 lakh crore in revenue and earmarks Rs 1.25 lakh crore in expenses. The government receives revenue from taxes, non-tax revenue, loans, central government allocations and lottery revenue. Expenses include salaries, pensions, interests on borrowings and plan implementation.

Let us examine the expenses. Kerala government spends Rs 23,000 crore as plan funds to build roads, bridges, schools and other infrastructure. The government is forced to slash it by half due to the financial crisis. That would leave only about Rs 10,000 for infrastructure development. 

What about the revenue? The state government can borrow up to Rs 25,000 crore. The government takes loans with an apparent objective of spearheading development projects in the state. Yet almost all of it goes towards repaying previous loans or to pay salaries and pensions. The government has been reduced to an entity that runs on the taxes and fees paid by the people.

The only game-changer is the Kerala Infrastructure Investment Fund Board (KIIFB).