The Hindu Business Line : Kerala's debt liability spirals to Rs 41,878 cr

DESPITE the higher economic growth rate of 9.2 per cent achieved by Kerala in 2004-05, the State's debt liability has been on a relentless rise and has reached three times of the revenue receipts.

The debt increased by more than four times over the last ten years, from Rs 10,113.54 crore in 1996-96 to Rs 41,877.88 crore in 2004-05.

According to the latest Economic Review brought out by the State Planning Board, the mounting public debt was reflected in the interest burden that had also gone up by about four times from Rs 924.20 crore in 1995-96 to Rs 3,612.5 crore in 2004-05.

More alarmingly, there had been substantial increase in internal debt over the years, mainly on account of mobilising more high-cost market loans. Out of the total debt, internal debt constituted about 52 per cent, while the Central loan was only 13 per cent in 2004-05.

The Review notes that in the past, a significant component of the debt burden went towards financing State plans. But in recent times, a significant portion was being used for bridging the gap in revenue receipts and non-plan revenue expenditure.

Debt to GSDP ratio grim: The deteriorating debt situation of the State is reflected both in terms of debt to gross state domestic product (GSDP) ratio and ratio of interest payments to revenue receipts. The position had become particularly grim from 2000-01 onwards with debt/GSDP ratio of over 30 per cent and interest payment/revenue receipt ratio of over 25 per cent.

The increasing public debt also underlines the long-term mismatch between the growth of revenue and expenditure of the State. On the one hand, there has been persistent increase in non-plan expenditure such as interest payments, salaries, pension and subsidies while, on the other, the growth has been sluggish in tax/GSDP ratio.

The other factors have been inadequate returns from public investments and insufficient growth in Central transfers. On the whole, large revenue deficit has led to large fiscal deficit and spiralling debt, resulting in the emergence of a vicious circle of deficit, debt and debt servicing.

The debt/GSDP ratio as also the per capita debt liability of Kerala are much higher than that of the neighbouring States and all-state averages. The per capita debt of Kerala, which was Rs 4,090 in 1998, increased to Rs 9,248 in 2003, as against the all-states average of Rs 6,531.

As for the neighbouring States, Andhra Pradesh had a per capita debt of Rs 6,490 in 2003, followed by Tamil Nadu with Rs 6,270 and Karnataka with Rs 5,888.

In the case of debt/GSDP ratio, Kerala's position was as high as 35 per cent in 2001-02, while that of the neighbouring States ranged between 22 per cent and 28 per cent.