The Hindu Business Line : CAG warns Kerala of getting into debt trap

THE prospects of the State's revenue deficit being brought down to `nil' and fiscal deficit to two per cent of the estimated Gross State Domestic Deposit (GSDP) by March 2007 as envisaged in the Kerala Fiscal Responsibility Act appears `bleak' at the going levels of revenue and the fiscal deficit.

This warning was contained in the report of the Comptroller and Auditor General (CAG) of India tabled in the State Assembly on Wednesday.

It is not uncommon for the State to borrow for raising its social and economic infrastructure base. But increasing ratios of fiscal liabilities to the GSDP and revenue receipts together with a large revenue deficit indicate that the State is gradually getting into a debt trap.

The State Government will need to take urgent steps to reduce revenue deficit/fiscal deficit by compressing non-developmental revenue expenditure and enhancing additional resource mobilisation through tax reforms and prudent debt management, the CAG report said.

Revenue expenditure that constituted 89 per cent of the State's total expenditure during the year ending March 31, 2004, and amounting to Rs 15,495 crore, grew at a much lesser clip of five per cent compared to 26.5 per cent only the previous year. Committed expenditure such as salaries, interest payments and pensions consumed as much as 91 per cent of the revenue receipts during the year crowding out the socio-economic development expenditure.

Simultaneously, growth of revenue receipts also showed a marked slowdown from 17.4 per cent to 11.1 per cent year-on-year. Revenue receipts during the year ending March 31, 2004, had registered a growth to Rs 11,815 crore from Rs 10,634 crore the previous year.

Sales tax was the major source of State's own tax receipts, having contributed 74 per cent, followed by State Excise (8 per cent). On an average, 74 per cent of the revenue came from the State's own resources.

There was a phenomenal increase in internal debt during the year mainly on account of raising more market loans, which the CAG report attributed to two main factors. These are securitisation of the existing house loan portfolio of the Government with State Bank of India and Canara Bank and issue of power bonds in favour of the Central Public Sector Undertakings towards power purchase dues of the State Electricity Board.

The fiscal liabilities at the end of March 2004 stood at Rs 39,231 crore, which was 3.3 times the revenue receipts. The fiscal liabilities, inclusive of unreckoned liabilities such as arrears in contractors' bills and power subsidy payable to the State Electricity Board along with contingent liabilities in the form of guarantees stood at an unsustainable 64 per cent of GSDP.

Though the revenue deficit during 2003-04 had come down to Rs 3,680 crore from Rs 4,122 crore in the previous year, the fiscal deficit increased to Rs 5,539 crore from Rs 4,990 crore the previous year.

The revenue deficit had come down consequent on adjustment of Rs 581.20 crore that remained unspent in the personal deposit accounts of the local self government institutions out of Plan funds released during 1997-98 to 2002-03.

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