The State must seek to reduce subsidies by effective targeting of genuinely needy groups and improve quality of public expenditure to bring about a semblance of balance at the macro-economy level.

Given the high disposable income levels, greater efforts must be made to raise revenue through both tax and non-tax revenue sources, according to the State Economic Review 2012.


This alone can reduce the State’s dependence on debt that needs to be paid out by future generations, the Review published on the eve of the State Budget for 2013-14.

The annual growth of debt was at a faster clip at 13.7 per cent in 2011-12 against 10.9 per cent in the previous year. Total debt reached Rs 89,418 crore at the end of 2011-12.

The repayment of past debt together with its interest charges always consumes a major portion of the debt receipts.

Out of the total debt Rs 32,781 crore availed of in 2011-12, Rs 22,036 crore was expended for repayment of debt while Rs 6,294 crore used for payment of interest and outstanding liabilities.


The repayment of past debt together with interest charges amounting to Rs 28,330 crore constituted 86.4 per cent of total debt receipts.

This means that only a small fraction of funds borrowed in 2011-12 was available after servicing past debt obligations.

The per capita debt has increased to Rs 24,600 from Rs 19,900 in 2009 and Rs 15,700 in 2007. Kerala has a much higher debt to gross state domestic product (GSDP) ratio than peers in South India.

The Reserve Bank has placed the State under ‘high-vulnerability’ category thanks to the high debt to GSDP ratio as well as its high ratio of interest payments to revenue receipts.

The ratio of revenue expenditure relative to GSDP declined persistently from 14.2 per cent in 2007 to 12.5 per cent in 2010-11.


But the trend reversed and it increased to14.1 per cent in 2011-12, mainly due to expenditure on salary and pension, which increased substantially that year due to revisions announced.

Similarly, arrear liability on pay and pension revisions for 2009-10 and 2010-11 were also absorbed in 2010-11.

As a result, the percentage increase in salary and pension expenditure in 2011-12 over the previous year was 45.3 per cent and 50.8 per cent respectively.

On the receipts side, the trend in growth of share of Central transfers to the State has not been favourable to it, the Review said.

The growth rate in these transfers was 17.4 per cent in 2007-08 and 11.8 per cent in 2008-09. But this was negative (-4.8 per cent) in 2009-10, though it reversed to 10.7 p er cent in 2010-11.


There is also reduction in the share of taxes awarded to the State by the 13{+t}{+h} Finance Commission, which fixed it as 2.3 per cent.

This was 2.7 per cent as fixed by the 12th Finance Commission and 3.1 per cent by the immediately preceding Finance Commission.

The trend in the growth rate of State’s own tax revenue has been fluctuating since 2006-07 (between 17 to 18 per cent).

But there has been commendable growth (34.3 per cent) in the State’s own non-tax revenue during 2011-12. This is attributed to reforms initiated in the administration of State lotteries.

(This article was published on March 14, 2013)
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