Vinson Kurian

Thiruvananthapuram, April 5

KERALA will continue to have blind faith in the Fiscal Responsibility Act and give up control over its purse strings at its own peril, according to a leading public finance expert.

The act by itself will be of no use in solving the Government's grave financial difficulties, unless it is backed up by specific measures to contain wayward spending, said Mr K. P. Joseph, former accountant-general.

The Act was passed in 2003 but no effective follow-up action has been initiated , Mr Joseph said. This is hardly surprising, given that it took well over a year for the Government even to frame the rules under the act. And worse, the rules have not been publicised till date.

During the last 10 years, successive governments formed by the two rival political formations in the State have been busy blaming each other for precipitating the financial crisis, even as people continue to pay one of the highest rates of tax in the country. This leaves the State Government with hardly any option for reducing the deficit other than by cutting expenditure.

However, Mr Joseph said the Government has not given any impression of being bothered by the denouement. The least it could have done was to track down the major sources of fraud, waste and corruption and try plugging the same. The fiscal deficit of the State Government for 2005-06 has been estimated at Rs 5,171 crore and the revenue deficit at Rs 4,072 crore.

No other State Government in the South is as much in the red as Kerala is. For instance, Karnataka has been able to show a revenue surplus in 2005-06 as it did in the previous year.

Expenditure control must start right from the higher echelons of the Government. This can easily be achieved with some bold and imaginative pruning and right-sizing.

For instance, the Kerala Public Service Commission (PSC), with 18 members, has more members than any other State PSC. Even the Union Public Service Commission has only half the strength of the Kerala PSC, whose budget for this year is Rs 28 crore. This is more than double that of most other State PSCs.

The State also has over 100 public sector companies and corporations, double the number of PSUs that even much larger States own, and most of them are running at a loss. The Finance Department itself has more Additional and Joint Secretaries than the entire Karnataka Secretariat put together.

The move to rush ahead with the Asian Development Bank-aided Modernising Government Programme (MGP) without trying to find quick solutions to these problems hardly makes sense, Mr Joseph said.

(This article was published in the Business Line print edition dated April 6, 2005)
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