The Hindu Business Line : Kerala records 8% growth

Economic Review
The annual growth rate of interest payments has come down from 8.5 per cent in 2004-05 to 5.17 per cent in 2005-06.
The total debt of the State increased from Rs 10,113.54 crore in 1995-96 to Rs 55,320.49 crore as on December 31, 2006.

Thiruvananthapuram March 8 The Gross State Domestic Product (GSDP) of Kerala grew by 8 per cent at constant prices in 2005-06 compared with 8.2 per cent in 2004-05. However, at current prices, the growth in 2005-06 was to the tune of 11.7 per cent compared with 11.4 per cent in the previous year, according to the Economic Review 2006, tabled in the State Assembly on Thursday.

As per the quick estimates done by the Department of Economics and Statistics, the GSDP at constant prices (1999-2000) was Rs 1,00,434 crore during 2005-06 as against the provisional estimate of Rs 92,984 crore in the previous year.

Debt Position

At current prices, the GSDP was estimated at Rs 1,20,564 crore in 2005-06 compared with the provisional estimate of Rs 1,07,909 crore in 2004-05. This works out to a growth rate of 11.7 per cent compared with 11.4 per cent in 2004-05.

The relative shares of primary, secondary and tertiary sectors in the State are 15.7 per cent, 23.8 per cent and 60.5 per cent, respectively. This indicates that the primary sector, which employs the bulk of the workforce, is experiencing stagnation or even retrogression, the Review reveals.

The overall debt position of the State has shown an improvement during 2003-04 to 2005-06. But this was at the cost of lowering of expenditures and not by any substantial increase in revenue income, according to the Review.

Fiscal Deficit

The revenue deficit, which was at Rs 3,680.30 crore in 2003-04, came down to Rs 3,129 crore in 2005-06. Similarly, the fiscal deficit also decreased from Rs 5,539.05 crore in 2003-04 to Rs 4,181.72 crore in 2005-06.

The primary deficit declined sharply from Rs 2,210 crore in 2003-04 to Rs 382 crore in 2005-06, which was only 0.30 per cent of GSDP. As per the Budget estimates for 2006-07, the fiscal deficit is Rs 7,534.54 crore and primary deficit is Rs 3,106 crore, which are comparatively higher in recent years.

The total debt of the State increased from Rs 10,113.54 crore in 1995-96 to Rs 55,320.49 crore as on December 31, 2006. The ever-growing debt position is a matter serious concern, observes the Review.

The internal debt grew faster with an annual average growth of 26.2 per cent during the period.

The major portion of the debt liabilities was created by high-cost borrowings made for meeting recurring revenue expenditure. The debt-GSDP ratio as well as the per-capita liability of the State is much higher than that of the neighbouring States and all States' average.

The capital expenditure in the State, which was declining continuously year after year, has shown a slight revival in 2005-06.

The ratio of capital expenditure to total expenditure, which was 8.82 per cent in 1995-96, nose-dived to 3.82 per cent in 2004-05, but picked up to 4.25 per cent in 2005-06. In the Budget estimate for 2006-07, this ratio is calculated to be 8.27 per cent.

Total Revenue

The Review points out that the developmental needs of the State urgently require a shift in composition of total expenditure in favour of capital expenditure. The non-plan expenditure consisting of interest, pensions and salaries, during 2005-06 was 93 per cent of the total revenue receipts in 2005-06. Interest payments constituted 28.7 per cent, pensions 21.6 per cent and salaries 42.4 per cent.

The 12th Finance Commission had recommended that States should endeavour to keep interest payments as a ratio of revenue receipts to within 15 per cent by 2009-10. For Kerala, on the other hand, interest payments as a percentage of revenue receipts have ranged between 25 per cent and 28 per cent during the past five years.

The annual growth rate of interest payments has come down from 8.5 per cent in 2004-05 to 5.17 per cent in 2005-06 mainly due to swapping of high-cost loans for low-interest loans. However, interest payments and pensions constitute the largest share of non-development expenditure of the State.