No special package for debt-stressed States

Vinson Kurian Thiruvananthapuram | Updated on March 12, 2018 Published on March 25, 2013

Kerala will waver from path of fiscal consolidation at its own peril, says public finance expert

Long-pending special packages for debt-stressed KPW (Kerala, Punjab and West Bengal) States would now have to wait until the 14th Finance Commission takes a view on it.

This comes as a setback to Kerala, which has been arguing its case with Prime Minister Manmohan Singh and successive Finance Ministers Pranab Mukherjee and P. Chidambaram.


Chidambaram officially let it be known the other day that it is up to Y.V. Reddy, Chairman of the 14th Finance Commission, to look into the debt-stressed States’ issues and counsel the Centre on specifics.

This brings back Kerala back to square one, with its pleas for a suitable debt package hanging fire as early as from two years ago.

Jose Sebastian, faculty in public finance at the Gulati Institute for Finance and Taxation here, told Business Line that the State is already finding it difficult to raise borrowings.

“The emerging situation is hardly comforting,” he said. Deviating from the fiscal roadmap with respect to revenue and fiscal deficit targets would cut down allocations from the 13{+t}{+h} Finance Commission.


He conjectured that the 14{+t}{+h} Finance Commission might come out with debt swaps, retiring of high-cost debt in favour of low-cost debt and other forms of debt redemption schemes.

Fiscal performance during 2014-15 will be crucial from the State’s viewpoint in terms of implications for its sustenance as a responsible economy.

What the State can hope to do in the interregnum is to launch an intensive drive to expand its own resource base, Sebastian contended.

“And, there is enough and more scope for doing exactly this,” he said pointing to some areas which the State can work on with some ‘disruptive’ planning and imaginative execution.


The first option is to raise the non-tax component of the State’s own tax resources, which is lagging at an abysmally low nine per cent.

“We can do with tweaking of the user charges for services delivered in the health and education sectors, for instance. Outdated ideological preoccupation must not be allowed to come in its way.”

One other option is disinvestment/sell-off in some of the 115 public sector undertakings. “If the Centre can do it, why can’t States,” Sebastian wondered.

He also referred to the massive Rs 1.5 lakh-worth of deposits idling in the State’s banks. This could be put to better use if the State can leverage PPP and BOT models for building much-needed infrastructure.

Last but not least, Sebastian referred to Kerala’s status as among the largest ‘land lords’ among States, if one takes the extent of the holdings out of the total land area.


He cited huge tracts of prime land on which loss-making PSUs sat, massive estates owned by Plantation Corporation of Kerala and such real estate.

“It is time we unlocked the huge value of these holdings in a State known for astronomical prices for land parcels. Look for instance at the prime plots occupied by schools which have closed down,” he said.

What is needed is purposeful and meaningful policy-making aimed at expanding the resource base and putting the State on a path of revenue surpluses and fiscal consolidation.

Published on March 25, 2013

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