The Hindu Business Line : Kerala's public debt doubled in four years, says analyst

THE `White Paper on State Finances' in 2001 and the passing of a Fiscal Responsibility Act and the Kerala Ceiling on Government Guarantees Act in 2003 have not been enough to prevent red ink from continuing to taint the State's books of accounts.

In his audit report for the year ending March 31, 2003, the Comptroller and Auditor General (CAG) expressed grave concern about the growing public debt of the State Government, which stood Rs 33,782 crore on date. The CAG remarked that the State was "gradually getting into a debt trap." The public debt had doubled during the last four years.

According to Mr K. P. Joseph, former Accountant-General, Budget 2004-05 clearly shows that the Government is unable to control the worsening financial situation. Kerala is one among the few States that have passed a Fiscal Responsibility Act and put a ceiling on the extent of guarantees for reducing the budget deficit.

But the passage of the Act as early as in 2003 has been of little effect so far. As per the provisions of the Act, the revenue deficit would have to be brought down to nil and the fiscal deficit to two per cent of the Gross Domestic Product by March 2007. But the extent of likely slippage will become clear if one takes a look at this year's budget deficit figures, which are the worst ever.

Revenue deficit is estimated to increase from Rs 2,600 crore in 2003-04 to Rs 4,700 crore this year and the fiscal deficit from Rs 3,270 core to Rs 5,340 crore. No less than Rs 5,900 crore will be spent this year to pay salaries, Rs 2,560 crore on pensions and Rs 3,712 crore as interest on public debt. Against these, estimated revenues of the Government are just Rs 14,260 crore.

White Paper: Earlier, the "White Paper on State Finances" prepared in June 2001 had received wide publicity and raised high hopes of follow-up action. The document opened with the observation that "The State is facing an acute financial crisis" and went on to say that "the Government is unable to pay cash or cheques issued or make payments on items already included in the budget".

But very little action seems to have been taken to implement the recommendations in the White Paper for cutting down expenditure, Mr Joseph said.

In recent years, successive Governments in the State have been busy availing substantial amounts of loan from the Asian Development Bank (ADB) as part of a Modernising Government Programme (MGP). A part of the loan was to be expended on ways to improve financial management. For this, the ADB engaged some Australian consultants.

The change in the budget timetable was intended to avoid hurried spending at the end of the financial year. This would help avoid lapse of funds, which was leading to enormous fraud and wastage.

But, according to Mr Joseph, this `piece of advice' did not have to be `extracted for a price' since it was a usual practice for Central and State Governments in the pre-Independence era to get the budget approved before the new financial year began.