Tharoor Line | Kerala can't borrow its way out of debt

At a recent Manorama News discussion on the channel’s Newsmaker 2022 show, the CPM panellist, Anil Kumar, objected to my statement that Kerala was drowning in debt. The sad truth, nonetheless, is that it is.

Let’s look at the bare facts. At the macro-level, Kerala staggers under a debt ratio of 39.87 per cent (in 2020-21), one of the highest in the country and the highest in South India, which is obviously difficult to sustain in the long run. The state’s fiscal deficit (that is, excess of expenditure over revenue) has crept up alarmingly, multiplying six-fold in the last 15 years, and is ever increasing. Since 2016-17 (when the LDF government came to power), the state’s fiscal liabilities have risen by 62.51 per cent to a staggering Rs 3,32,291 crore five years later. These are large numbers which many of us may find difficult to absorb, but if you think for a minute and imagine what a situation of increasing debt such as this for a family would mean, it is seriously distressing.

The Reserve Bank of India (RBI) has described the situation as one requiring “significant corrective steps”. I really wonder if anyone in our state government is paying attention to this, because their response, instead of taking corrective steps, has been only to borrow more. Towards the end of October 2022, our state’s Finance Minister met the Union Finance Minister with a request to increase the state’s borrowing limits to incur even more debt so as to fund the state’s deficit and pay committed expenditures. These are salaries, pensions and interest payments, the expenditure on which constitute about 71 per cent of the state’s income.

Again, can you imagine the condition of a family that has to spend more than 70 per cent of its income on paying household salaries and servicing its debts?

What all this points to is that there is very little money in the exchequer to fund development. A truly disheartening manifestation of this situation is that the state government has had to borrow Rs 3,000 crore to pay the Onam bonus for the state’s employees last year. The festival of prosperity, ironically, serves to illustrate the pauperism of our state today. Unfortunately, the Malayalam proverb kaanam vittum Onam unnanam (one must have one’s Onam lunch even by selling one's property) is the future that our state seems to be headed to, if it continues along the present course.

The unbridled borrowing that the state government is engaged in has raised concerns from not just the Union Finance Ministry and the RBI, but also from the Comptroller and Auditor General, who has officially warned that it can plunge Kerala into a debt trap. This precarious financial situation is also being noticed internationally: Fitch, the global ratings agency, has downgraded its outlook on Kerala’s economy from Stable to Negative in October 2022.

Keralites rejoice when kits are distributed by the government (and express their gratitude at the ballot box), but fail to realise that our children and grandchildren will eventually be paying for the freebies that this government happily distributes. The government’s own Planning Board has observed that resource mobilisation is essential over the next five years to keep debt liabilities on a sustainable level. Where will these resources come from?

The stark reality is that 78 per cent of the state’s Net State Domestic Product in 2019-20 was contributed to by the service and construction sectors. This means that agriculture and industry, two of the most labour-absorbing sectors elsewhere, have a marginal role in our state. It is a shame that we have such a slim manufacturing and industrial base. Our domestic productivity is so precarious that it is impossible to talk about Kerala’s economy without relying on the remittances sent by hardworking Malayalis abroad. We have to export our unemployment to provide for our state’s wellbeing.

One fallout of the pandemic has been the return of our emigrant population in large numbers (over 10 lakh have come home in the last three years) which has led to a decline in remittances to the state. Yet, there is still an over-dependence on remittances, which amount to 13 per cent of Kerala’s GDP, having stood at almost 25 per cent at the beginning of the last decade. That’s bad news twice over: bad that remittances to Kerala are going down, but also bad that our dependence is still so high – 13 per cent is still a significant dependence, compared to the fact that India as a whole receives only 3 per cent of its GDP in remittances. One lakh crore rupees of our state’s GDP was contributed by foreign remittances, without which Kerala’s economy would crumble. The day the Gulf countries decide that they need to create jobs for their own nationals and can dispense with the services of most Keralites, we would be staring at a double disaster – a dramatic drop in cash flowing into our economy, as well as the return of millions of people to Kerala with no jobs to accommodate them within the state.

I mention these facts not just to spin a tale of woe but to highlight the urgency of finding solutions. It is imperative that our government come up with a serious plan to increase revenue generation within the state. There is an old piece of military wisdom that goes, when you find yourself in a hole, stop digging. We cannot hope to borrow our way out of debt: that way we are just digging ourselves into a bigger hole.

Rushdie & freedom of expression

A completely unrelated subject: it is now five months since Salman Rushdie was attacked and stabbed violently by a crazed Islamist in New York state, and the 75-year-old author is yet to recover from his wounds. It is sobering to realise how violently so many murderous fanatics have reacted to his novel, The Satanic Verses. The novel’s Japanese translator was murdered and its Italian translator attacked with knives. Its Norwegian publisher was shot but managed to survive. Sadly 37 people in Turkey were not so lucky. They perished in a fire that was lit to murder the novel’s Turkish translator. The fact that so many writers and publishers were sill willing to translate and print The Satanic Verses is testament to the enduring power and appeal of freedom of expression. Rushdie has paid a terrible price for his creative freedom: long years of isolation and hiding, intrusive security around him, and now, when he imagined he could live a normal life, a brutal attack that seems to have cost him an eye. No writer should have to invest in an armoured jacket every time he picks up his pen.