‘Budget could turn surplus with GST, devolutions'

Thiruvananthapuram | Updated on February 15, 2011 Published on February 15, 2011

The deficit Kerala Budget could would have turned surplus if only had two significant public finance variables intervened favourably and in time.

The State can hope to have a revenue-surplus Budget if it can assure itself of the Rs 1,500 crore from a prospective implementation of the Goods and Services Tax (GST), as also the Central devolution of taxes and grants at 4 per cent of Gross State Domestic Product (GSDP), instead of the 3.42 per cent as is at present.

Sustainability factor

This was stated here by Mr R. Mohan, an officer in the Indian Revenue Service and a researcher in public finance, during a presentation at the public debate on State Budget organised here by the Gulati Institute for Finance and Taxation (GIFT).

According to Mr Mohan, a large share of revenue receipts and expenditure would go towards salaries and pension due to the nature of the subjects in the States' list.

The sustainability of the State's economy factor can be measured by considering the following yard sticks: tax base of the economy; revenue deficit as a proportion of GSDP; revenue deficit as a proportion of fiscal deficit; capital outlay; persistent liquidity constraints.

Since all these confine themselves within positive territory in the case of Kerala, one can say that there is fiscal sustainability, Mr Mohan said. But there is no room for complacence.

Tax Buoyancy

This is because own tax buoyancy at 1.30 during 1960-1990 fell below 1 during the 1990s and has just recovered to be above 1. This has happened when there is fast growth in GSDP.

The twin reasons are (i) substantial part of growing GSDP is outside the State's tax net and (II) evasion.

While introduction of GST will take care of the first point, the second one will be partly taken care of by technological improvements in tax administration and greater co-ordination between Central and State tax departments. The tax GSDP ratio which was no. 1 in the country during the 1980s has fallen to fifth position though it is higher than all-India average.


A major challenge will be how to achieve elimination of revenue deficit by 2014-15 as the inter-se share of the State in Central tax devolution is falling from 3.05 in Eleventh to 2.66 in the Twelfth to 2.34 in the Thirteenth Finance Commission (TFC).

The actual devolution is still less than the recommended as stated in the TFC, Mr Mohan said.

If this is not achieved, the State will lose share of State specific grants and debt relief facility recommended therein. Another challenge will be how to mobilise opinion of other States for a composite implementation of the TFC report for sharing non-tax revenue receipts of the Centre and the Punchi Committee recommendations for State-specific fiscal deficit targets, instead of three per cent for all States recommended by the TFC.

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Published on February 15, 2011
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